The main legal point established in the judgment is that disputes arising from a distributorship agreement with an arbitration clause should be referred to arbitration, and premature claims for restoration of distributorship cannot be entertained.

N.K. Sud, J. - The petitioner in the present writ petition is aggrieved by the order dated 2.8.2000 passed by the Indian Oil Corporation (for short the Corporation), the respondent No. 2, terminating the LPG distributorship held by him in the name of Ambala Gas Service under the terms of an agreement dated 1.4.76 with immediate effect. Before adverting to the various objections raised by the petitioner, it is necessary to notice the relevant facts.

2. Ambala Gas Service was originally a partnership firm consisting of two partners namely petitioner and one K.K. Mehra. It had entered into an agreement with the Corporation on 1.4.1976 for the LPG distributorship in its favour on the terms and conditions contained therein. The said K.K. Mehra is stated to have retired from the partnership vide an oral dissolution in the year 1986-87 and since then the LPG distributorship was being run by the petitioner as the sole proprietor of Ambala Gas Service.

3. A notice dated 21.3.2000 was issued to the petitioner requiring him to show cause as to why the distributorship be not terminated as clauses 23(b) and 23(c) of the agreement dated 1.4.1976 had been violated by him. Clause 23(b) required the petitioner to take active part in the management and running of the distributorship and to personally supervise the same. He could, under no circumstances, do so through any other person, firm or body. Further as per clause 23(c), the petitioner could not enter into any arrangement, contract or understanding, whereby the operations of the distributorship may be controlled, carried out or financed by any other person, firm or company, whether directly or indirectly and whether in whole or part without previous written consent of the Corporation. According to the Corporation both these clauses stood violated as the petitioner had executed two partnership deeds dated 6.5.1988 and 6.1.1995 whereby one S.R. Wadhawan had been inducted as a partner for running Indane distributorship without the prior written consent of the Corporation. It was alleged that S.R. Wadhawan had been made a partner for a consideration of Rs. 2,50,000/- for which a separate agreement dated 18.1.1996 had been executed. It was further alleged that in a civil suit filed in the Court of Civil Judge (SD), Ambala, the said S.R. Wadhawan had raised the following contentions :-

"(a) That he had been running the distributorship independently till December, 1996 and the entire investment, including the cost towards functioning of the office as well as for godown was borne by him.

(b) That he has mortgaged his house No. 134-R, Model - Town City as a Security to Union Bank of India in order to facilitate the financial functioning of the distributorship.

(c) That directions to be issued for true & correct accounts from you till December 1996 and restraining you from running the office of the distributorship firm. Moreover, relief has also been sought for appointment of Court Receiver to take charge and control of the affairs of the firm during the pendency of the litigation."

On the basis of this material, it was alleged that the petitioner had allowed an outsider to run the business and also to have financial control over the distributorships. This arrangement being allegedly contrary to clauses 23(b) and 23(c) of the agreement, the distributorship was sought to be terminated.

4. The petitioner furnished a reply to the aforesaid notice on 10.4.2000 in which the allegation were denied. The petitioner denied having entered into any partnership with S.R. Wadhwan and took the stand that the documents referred to in the civil suit and the contentions raised thereon were false, vexatious and baseless. It was explained that S.R. Wadhawan was only a Manager in his office and this fact was within the knowledge of the Corporation right from the year 1973. It was further contended that the services of S.R. Wadhawan were dispensed with in 1998 due to his ill health and this had provoked him to fil