Ashish Gupta vs Ibp Co. Ltd. And Anr.

on 21 November, 2005

Delhi High Court

Ashish Gupta vs Ibp Co. Ltd. And Anr. on 21 November, 2005
Equivalent citations: AIR 2006 Delhi 57, 2005 (3) ARBLR 533 Delhi, 125 (2005) DLT 298, 2005
(85) DRJ 395
Author: V Sen
Bench: V Sen
JUDGMENT Vikramajit Sen, J.
Page 2231
1. The challenge in this Petition is to the termination of the Dealership, of the Petitioner without
affording him an opportunity of showing cause against the intended decision and/or an opportunity
of being heard. The Respondents have asserted that since the dispute falls within the realm of
private contract the Petition ought not to be maintainable; and further that the existence of an
Arbitration Clause leaves no option to the Writ Court but to point to the parties in the direction of
arbitration.
2. Dr. Singhvi, learned Senior Counsel appearing on behalf of Respondent No. 1, has relied on the
decision of the Hon'ble Supreme Court in Indian Oil Corporation Ltd. v. Amritsar Gas Service and
Ors., (1991) 1 SCC 533. He has laid store on the arguments put forward in that case to the effect that
the validity of an Award ought to be decided on the principles of private law and the law of contracts
and not on the touchstone of constitutional limitations to which IOCL, as an instrumentality of the
State, may be subject since the suit was based on breach of contract alone and the arbitrator also
proceeded only on that basis to grant relief. After noting these observations the Bench declined to go
into the Constitutional constraints of Article 14, particularly in view of the contemporaneous
decisions in Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay, (1989) 3 SCC
293 and Mahabir Auto Stores v. Indian Oil Corporation, (1990) 3 SCC 752. The Apex Court observed
that they were dealing with a suit (in contradistinction to a writ) based on a breach of contract and
remedies flowing there from in the context of which the Arbitrator had given his Award. In my view
this decision does not proscribe the exercise of extraordinary writ jurisdiction of the High Courts.
The existence of an Arbitration Clause in that precedent does not render it relevant to the questions
which have been raised in these proceedings. The Court was principally concerned with the
existence or otherwise of an error of fact or law apparent on the face of the Award which situation
has not been reached as yet. Reliance is also placed on State of Bihar v. Jain Plastics and Chemicals
Ltd., AIR 2002 SC 206 in which the Court had opined that a writ petition is not the proper
proceedings for enforcing contractual obligations; and that if Page 2232 an alternative and equally
efficacious remedy is available to a litigant he should be required to pursue that remedy and not
invoke the jurisdiction of the High Court. Dr. Singhvi has also referred to Banchhanidhi Rath v. The
State of Orissa, AIR 1972 SC 843 and a decision of even earlier vintage, namely, Union Construction
Co. (Private Ltd.) v. Chief Engineer, Eastern Command, AIR 1980 Allahabad 72.
3. Another decision of the same era is Bareilly Development Authority v. Ajai Pal Singh, (1989) 2
SCC 116: AIR 1989 SC 1076 which pronounced that where the State entered into a non-statutory
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Ashish Gupta vs Ibp Co. Ltd. And Anr. on 21 November, 2005

contract, a dispute pertaining to the cost of houses would not be amenable to writ jurisdiction. The
court noted that such question could not be labelled as arbitrary and discriminatory, meaning
thereby, that if either of these elements were perceived, writ jurisdiction would be available. A larger
Bench in Marfatia had opined that a public body even in respect of its dealing with its tenant must
act in public interest and an infraction of that duty would be amenable to examination either in a
civil suit or in writ jurisdiction. The ratio of Mahabir Auto is that the State or its instrumentality
when engaged in commercial transactions must act reasonably, and should inform and take into
confidence the adverse party against whom adverse action is contemplated. In Kerala State
Electricity Board v. Kurien E. Kalathil, 2000 (6) SCC 293 the Court repelled an effort to invoke writ
powers where the dispute concern the interpretation and implementation of a Clause in a Contract.
In order to enjoy comprehensive understanding of this legal conundrum one should not confuse the
decision in Radhakrishna Agarwal v. State of Bihar, (1977) 3 SCC 457 to lay down that contractual
dealings between the State and a citizen can never attract jural investigation under Article 226 of the
Constitution. The gravamen of the decision is that the dispute whether there is or there is no a
breach of contract should be determined by an ordinary civil Court as in every case between the
ordinary litigant. The observations in Divisional Forest Officer v. Bishwanath Tea Co. Ltd., (1981) 3
SCC 238 speak in the same tongue, namely that "where a breach of contract is complained of, a
party complaining of such breach may sue for specific performance of the contract, if the contract is
capable of being specifically performed, or may sue for damages". In allowing the present writ
petition I am mindful of these constraints. In holding that the Respondents are fully bound to
observe principles of natural justice I am neither directing specific performance of the contract nor
adjudicating on damages. It would be useful to recall repeated decisions of the Apex Court to the
effect that where statutory provisions have not been complied with, writ proceedings would be
maintainable even though the remedy of an Appeal is Page 2233 available. For example, where a
rateable value has been determined without notice to the assessed it could successfully be assailed
through writ proceedings. However, if the quantum of rateable value is assailed, it would perforce
have to be attacked in an Appeal. To hold any other opinion would set at naught path-breaking
decision in Ramana Dayaram Shetty v. International Airport Authority of India, (1979) 3 SCC 489:
AIR 1979 SC 1678.
4. Over thirty years ago the Hon'ble Supreme Court had clarified in The Gujarat State Financial
Corporation v. Lotus Hotels Pvt. Ltd., AIR 1983 SC 848 that it was too late in the day to contend that
the "State can commit breach of a solemn undertaking on which other side has acted and then
contend that the party suffering by the breach of contract may sue for damages but cannot compel
specific performance of the contract". The Apex Court applied the principle of promissory estoppel
for enforcement of such contractual undertakings. Thereafter, similar views have been expressed in
Kumari Shrilekha Vidyarthi v. State of U.P., JT 1990 (4) SC 211 by a Bench comprising J.S. Verma,
J. (as the learned Chief Justice then was) and R.M. Sahai, J. Contemporaneously, the Bench
presided by Sabyasachi Mukharji (as the learned Chief Justice then was) and S. Ranganathan, J.
held in Salonah Tea Company Ltd. v. The Superintendent of Taxes, Nowgong, AIR 1990 SC 772 that
a Writ Court was competent to order a refund of tax deposited under a mistaken understanding of
the law. In Smt. Nilabati Behera v. The State of Orissa, JT 1993 (2) SC 503 the Apex Court did not
find any fetters in granting relief to heirs of a victim of custodial death on the foundation of an
infraction of fundamental rights guaranteed under Article 21 of the Constitution of India and
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observed as follows:
"Adverting to the grant of relief to the heirs of a victim of custodial death for the infraction or
invasion of his rights guaranteed under Article 21 of the Constitution of India, it is not always
enough to relegate him to the ordinary remedy of a civil suit to claim damages for the tortuous act of
the State as that remedy in private law indeed is available to the aggrieved party. The citizen
complaining of the infringement of the indefeasible right under Article 21 of the Constitution cannot
be told that for the established violation of the fundamental right of life, he cannot get any relief
under the public law by the Courts exercising writ jurisdiction. The primary source of the public law
proceedings stems from the prerogative writs and the Courts have, therefore, to evolve 'new tools' to
give relief in public law by moulding it according to the situation with a view to preserve and protect
Page 2234 the Rule of Law. While concluding his first Hamlyn Lecture in 1949 under the tile
'Freedom under the law' Lord Denning in his own style warned:
"No one can suppose that the executive will never be guilty of the sins that are common to all of us.
You may be sure that they will sometimes do things which they ought not to do: and will not do
things that they ought to do. But if and when wrongs are thereby suffered by any of us what is the
remedy? Our procedure for securing our personal freedom is efficient, our procedure for preventing
the abuse of power if not. Just as the pick and shovel is no longer suitable for the winning of coal, so
also the procedure of mandamus, certiorari, and actions on the case are not suitable for the winning
of freedom in the new age. They must be replaced by new and up-do-date machinery, by
declarations, injunctions and actions for negligence. This is not the task of Parliament, the Court
must do this. Of all the great tasks that lie ahead this is the greatest. Properly exercised the new
powers of the executive lead to the welfares state; but abused they lead to a totalitarian state. None
such must ever be allowed in this country".
It was opined that "the primary source of the public law proceedings stems from the prerogative
writs and the courts have, therefore, to evolve 'new tools' to give relief in public law by moulding it
according to the situation with a view to preserve and protect the Rule of Law".
5. More recently, in ABL International Ltd. v. Export Credit Guarantee Corporation of India
Limited, JT 2003 (10) SC 300 the following principles have been culled out and explained:
27. From the above discussion of ours, following legal principles emerge as to the maintainability of
a writ petition:(a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising
out of a contractual obligation is maintainable.
(b) Merely because some disputed questions of facts arise for consideration, same cannot be a
ground to refuse to entertain a writ petition in all cases as a matter of rule.
(c) A writ petition involving a consequential relief of monetary claim is also maintainable.

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28. However, while entertaining an objection as to the maintainability of a writ petition under
Article 226 of the Constitution of India, the Court should bear in mind the fact that the power to
issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited
by any other provisions of the Constitution. The High Court having regard to the facts of the case,
has a discretion to entertain or not to entertain a writ petition. The court has imposed upon itself
certain restrictions in the exercise of this power [See: Whirlpool Corporation v. Registrar of Trade
Marks, Mumbai and Ors. JT 1998 (7) SC 243: 1998 (8) SCC 1]. And this plenary right of the High
Court to Page 2235 issue a prerogative writ will not normally be exercised by the court to the
exclusion of other available remedies unless such action of the State or its instrumentality is
arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid
and legitimate reasons, for which the court thinks it necessary to exercise the said jurisdiction.
In State of Jammu & Kashmir v. Ghulam Mohd. Dar, (2004) 12 SCC 327, after noting that writs in
the nature of mandamus would not ordinarily issue for enforcement of a contract, it has been
observed that a writ can issue when questions of public law character arise for consideration.
6. Circumstances almost identical to the case in hand existed in Harbans Lal Sahni v. Indian Oil
Corporation Ltd., (2003) 2 SCC 107. A sample of SKO was drawn by the Sub-Divisional Magistrate
and officials of the Oil Company in which a deficiency in viscosity was detected. After giving an
opportunity to the Dealer to show-cause the Dealership was terminated. Its challenge was rejected
by the High Court on the ground that the relationship between the parties was contractual and the
Dealership agreement contained an arbitration clause. Nevertheless the appeals were allowed by the
Supreme Court, which opined thus: 7. So far as the view taken by the High Court that the remedy by way of recourse to arbitration
clause was available to the appellants and therefore the writ petition filed by the appellants was
liable to be dismissed is concerned, suffice it to observe that the rule of exclusion of writ jurisdiction
by availability of an alternative remedy is a rule of discretion and not one of compulsion. In an
appropriate case, in spite of availability of the alternative remedy, the High Court may still exercise
its writ jurisdiction in at least three contingencies: (i) where the writ petition seeks enforcement of
any of the fundamental rights; (ii) where there is failure of principles of natural justice; or (iii) where
the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged. (See
Whirlpool Corporation v. Registrar of Trade Marks). The present case attracts applicability of the
first two contingencies. Moreover, as noted, the petitioners' dealership, which is their bread and
butter, came to be terminated for an irrelevant and non-existent cause. In such circumstances, we
feel that the appellants should have been allowed relief by the High Court itself instead of driving
them to the need of initiating arbitration proceedings.
7. Learned counsel for the Petitioner draws support from the observations of my learned Brother,
A.K. Sikri, J. in Bharat Filling Station and Anr. v. Indian Oil Corporation Ltd., 104 (2003) DTL 601,
which reads as follows:"18. Thus the Supreme Court held in the aforesaid cases that there may be circumstances where
immediate action is required and in such cases pre-decisional Page 2236 natural justice may not be
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Ashish Gupta vs Ibp Co. Ltd. And Anr. on 21 November, 2005

contemplated and purpose can be served by giving post-decisional hearing. However going by the
facts and circumstances it cannot be said that the alleged offence was so grave that it was necessary
for the respondent No. 2 to dispense with the provisions of requirement of observance of
show-cause notice before taking drastic action of terminating the dealership agency. Even if the
respondent No. 2, in such circumstances, it was of the opinion that the kind of irregularity
committed by the petitioner is serious, was not remediless and could have resorted to suspension of
the dealership pending inquiry by serving show-cause notice. However, the respondent No. 2, going
by the allegations contained in First Information Report, took the impugned action thereby
presuming that whatever is stated in the First Information Report or whatever is the report of
inspection is gospel truth and has to be believed without giving any chance to the petitioner to rebut
the same. It cannot be treated as fair play or in consonance with the sense of justice. After all, even
as per the procedure prescribed by the respondent No. 2 show-cause notice only of seven days was
required to be given. Thus even if the respondent No. 2 had followed the procedure prescribed it
would not have taken much time before concluding the hearing and taking action. I may point out at
this stage that I am not going into the issue as to whether allegations, contained in the inspection
Report and First Information Report are correct inasmuch as learned Counsel for the petitioner has
also tried to argue that the allegations made against the petitioner are not correct. It would be a
matter for the respondent No. 2 to decide after giving proper opportunity to the petitioner. Any
observation made by this Court at this stage may have an adverse effect on the petitioner and/or the
respondent and that is why, I am refraining from making any such observations. I am only
concerned with the manner in which action is taken by the respondent No. 2. Once it is found that
principles of natural justice were required to be complied with for taking such action and admittedly
that is not done the impugned notice/decision dated 13th June, 2001 terminating the dealership of
the petitioner cannot be sustained and is hereby set aside.
...
20. The result of the aforesaid discussion is that this writ petition is allowed. Rule is made absolute.
Termination order dated 13th June, 2001 is hereby quashed."
A similar approach has been adopted by my learned Brother, Sanjay Kishan Kaul, J. in Allied Motors
Ltd. v. Bharat Petroleum Corporation Ltd., 113 (2004) DTL 599, which has been articulated as
follows:"34. In my considered view, there is no manner of doubt that the principles of law as applied to the
given facts of the present case are squarely covered by judgment of the Supreme Court in Harbanslal
Sahnia's case (supra) and judgment of learned Single Judge of this Court in Bharat Filling Station's
case (supra). In Bharat Filling Station's case (supra), learned Single Judge very succinctly set out
that once the respondents' Page 2237 own Guidelines prescribed the procedure and civil
consequences are likely to flow to the petitioner as a consequence of the action of the respondent,
before taking such action, principles of natural justice are to be followed. There can be no exclusion
in such a case since in its own wisdom, the Government of India and the oil companies have agreed
to follow the said Guidelines. Even otherwise, there is no justification placed on record whether
there were any peculiar facts of the case as a consequence of which such principles of natural justice
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Ashish Gupta vs Ibp Co. Ltd. And Anr. on 21 November, 2005

were liable to be dispensed with when the said Guidelines itself provided for the same. There was no
such urgency which could require the dispensation with the principles."
8. Fairplay and natural justice has been insisted upon by this Court in other aspects of contractual
dealings by the State/Authority in Vinay Construction Co. v. Municipal Corporation of Delhi, 116
(2005) Delhi Law Times 14. Sanjay Kishan Kaul, J. had observed that blacklisting without granting a
proper hearing amounted to severe punishment resulting in civil consequences. A similar approach
had also been preferred by Badar Durrez Ahmad, J. in SPS Engineering Ltd. v. Indian Oil
Corporation Ltd., 2004 (76) DRJ 259. In that case the Writ Petitioner had been debarred from
entering into any contract with the Respondent thereby blacklisting it for a period of three years.
Disputed questions were found to be pending before the Arbitrator. The Petitioner had not been
afforded an opportunity of hearing prior to the passing of the impugned Order, which was set aside
with liberty granted to pass further Orders after granting an opportunity of hearing to the affected
party.
9. In my view it would not be proper to lose sight of the main grievance in the Petition. It is that the
principles of natural justice have deliberately been ignored; that no Show Cause notice was issued to
the Petitioner and he was not granted an opportunity of remonstrating against the intended decision
of terminating his Dealership. The Petitioner does not claim damages or an adjudication of the
contractual disputes between the parties. In my view that is the distinguishing feature between the
facts of the present case and the observations of the Supreme Court in Amritsar Gas Service where
the Court had before it proceedings initiated through a suit and an Award passed thereafter. Writ
law has progressed to the extent of bringing even ordinary citizens within its sweep. An erudite
discussion on this significant aspect of law can be found in Ajay Jadeja v. Union of India, 2001 VII
AD (Delhi) 869. My learned Brother, Mukul Mudgal, J. had extracted the following paragraph from
UP State Co-op. Land Development Bank v. Chandra Bhan Dubey, 1999(1) SCC 741:
It does appear to us that Article 226 while empowering the High Court for issue of orders or
directions to any authority or person, does not make any such difference between public functions
and private functions. It is not necessary for us in this case to go into this question as to what is the
nature, scope and amplitude of the writs of habeas corpus, mandamus, prohibition, quo warranto
and certiorari. They are certainly founded on Page 2238 the English system of jurisprudence. Article
226 of the Constitution also speaks of directions and orders which can be issued to any person or
authority including, in appropriate cases, any Government. Under clause (1) of Article 367, unless
the context otherwise requires, the General Clauses Act 1897, shall, subject to any adaptations and
modifications that may be made therein under Article 372, apply for the interpretation of the
Constitution as applies for the interpretation of an Act of the legislature of the Domain of India.
"Person" under Section 2(42) of the General Clauses Act shall include any company or association or
body of individuals, whether incorporated or not. The Constitution is not a statute. It is
fountainhead of all the statutes. When the language of Article 226 is clear, we cannot put shackles
on the High Courts to limit their jurisdiction by putting an interpretation on the words which would
limit their jurisdiction. When any citizen or person is wronged, the High Court will step in to protect
him, be that wrong be done by the State, an instrumentality of the State, a company or a
co-operative society or association or body of individuals, whether incorporated or not, or even an
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individual. Right that is infringed may be under Part III of the Constitution or any other right which
the law validly made might confer upon him....
10. The Supreme Court has developed the law in leaps and bounds so far as contractual dealings of
the State or any other 'Authority' is concerned, even in the realm of contract. The origins of writs are
several centuries in antiquity when the State seldom ventured into contractual dealings with its
subjects. This position has drastically changed. A citizen would be expected to guard against illegal
or unethical conduct from another citizen, but when he deals with the State or an 'Authority' he
should be able to rely upon and rest assured of fair and ethical dealings, with full compliance with
the mandates of Article 14 and the principles of natural justice, whenever he enters into even
contractual relations with the State and an 'Authority'. I do not find any incongruity with such an
expectation viz-a-viz the State or any other Authority akin to it. In Amritsar Gas Service this
question was decidedly left open. With the advancement of the law, especially in view of the
exposition of law found in ABL International, it is no longer possible for the State to contend that it
can act in an arbitrary or partisan or illegal manner merely because its activities fall within the realm
of contract. It would indeed be a retrograde step if it were to be taken. In these circumstances the
objection that this Writ is not maintainable because it deals fundamentally with contractual
relations between an Authority and a private citizen is without merit and is rejected.
11. The next question pertains to the existence of an Arbitration Clause and the sweep of Section 8 of
the Arbitration and Conciliation Act, 1996. I must straightway refer to the decision of the
Constitutional Bench comprising seven learned Judges of the Supreme Court in landmark precedent
entitled L. Chandra Kumar v. Union of India, (1997) 3 SCC 261. One of the question that had arisen
in that batch of Appeals/Petitions inter alia was whether the Page 2239 powers of the High Court
under Article 226 of the Constitution could be curtailed by statutes such as the Administrative
Tribunals Act, 1985. The Court pronounced that the powers of judicial review over legislative action
vested, inalienably, in the High Courts under Article 226 and in the Supreme Court under Article 32
of the Constitution, and were integral and essential features of the Constitution constituting part of
its basic structure. Ordinarily, therefore, the power of these Courts to test the constitutional validity
of legislations could not be ousted or excluded. It was further held that the power vested in the High
Courts to exercise judicial superintendence over the decisions of all Courts and Tribunals within
their respective jurisdictions was also a concomitant of the basic structure of the Constitution.
Divesting the High Courts of these powers had therefore to be abjured. It was further held that the
provisions of the statute which excluded the jurisdiction of the High Courts and the Supreme Court,
such as Section 28 of the Administrative Tribunals Act, 1985 were unconstitutional. In these
circumstances, whether the Arbitration and Conciliation Act, 1996 is a specialised or a subsequent
statute would not, in any way, circumscribe the amplitude of that decision, namely, that the sweep of
Article 226 cannot be curtailed by legislative action and ought to remain untrammeled. An
interpretation of any of the provisions of the said Arbitration and Conciliation Act which tends to
have this effect would become impermissible. If the Legislature is not competent to curtail the
extraordinary jurisdiction of High Courts, a fortiori the contents of a private contract, such as an
Arbitration Clause, can certainly not do so. Having expressed this opinion, I would immediately
caution against arriving at the conclusion that the writ Court can run a chariot over an agreement to
refer disputes to arbitration. In Bharti Televentures Ltd. v. DSS Enterprises, 123 (2005) DLT 532, I
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had the occasion to consider the correctness of the contention that Civil Court does not possess
power to consider whether to refuse to refer parties to a foreign arbitration in the context of Section
45 of the Arbitration & Conciliation Act, 1996. In my Judgment dated August 17, 2005 I had favored
the view that if even on a cursory consideration of the factual matrix it would appear that the parties
had waived their rights to arbitration, the Court should desist from subjecting them to the expense
of the same determination from a foreign forum. This conundrum is no longer res integra in view of
the Majority opinion of the Supreme Court in Shin-Etsu Chemical Co. Ltd. v. Akash Optifibre Ltd.,
2005 AIR SCW 4384. Traversing that path a writ Court would exercise its extraordinary jurisdiction
only when illegality is writ large on the face of the record.
12. Reference is made under Section 8 of the Arbitration and Conciliation Act to a 'judicial authority'
and not to a 'Court'. I see no reason why the writ court should not fall within the ambit of the term
judicial authority. This is evident also from the use of the word 'matter' in place of 'suit'.
Accordingly, while exercising its writ jurisdiction, the Court would have to be continuously mindful
of the existence of an Arbitration Agreement. In Harbans Lal the Supreme Court spoke of an
alternative remedy in the context of the existence of the Arbitration Clause. If this factor was seen as
an ouster of jurisdiction Page 2240 the question of alternative remedy would not have arisen. If the
attempt of the Petitioner is to substitute the Arbitrator by the Writ Court the attempt should be
roundly rejected. In other words, if the claim in the writ is for pecuniary compensation, there would
be no justification for the Writ Court to assume jurisdiction which rightly vests with the Arbitrator.
What has to be seen in the present case is whether a decision by an Authority, flying in the face of
the principles of natural justice must remain impervious to judicial authority. I would place
constitutional law and natural justice as fellow travelers since the former would always possess
every facet of law. The Full Bench has opined in J.T. (India) Exports v. Union of India, 1994(2001)
DLT 301 that "the expression 'natural justice and legal justice' do not present a water-tight
classification. It is the substance of justice which is to be secured by both and whenever legal justice
fails to achieve this solemn purpose, natural justice is called in aid of legal justice. Natural justice
relied is legal justice from unnecessary technicality, grammatical pedantry or logical prevarication.
It supplies the omissions of a formulated law". The Supreme Court has so often read natural justice
into a statute and has thereby saved it from being struck down. No sooner the writ court is faced
with a situation where natural justice has been thrown to the winds, it must exercise jurisdiction
with alacrity and tensile tenacity.
13. The decisions of the State, as also an Authority under Article 12 of the Constitution, must
conform to the tests laid down in Tata Cellular v. Union of India, AIR 1996 SC 11 where the Supreme
Court has recorded its opinion in these words:
The duty of the court is to confine itself to the question of legality. Its concern should be:
1. Whether a decision/making authority exceeded its powers?
2. Committed an error of law.
3. committed a breach of the rules of natural justice,
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4. reached a decision which no reasonable tribunal would have reached or,

5. abused its powers.
Therefore, it is not for the court to determine whether a particular policy or particular decision taken
in the fulfilllment of that policy is fair. It is only concerned with the manner in which those decisions
have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the
grounds upon which an administrative action is subject to control by judicial review can be classified
as under:
(i) Illegality: This means the decision-maker must understand correctly the law that regulates his
decision-making power and must given effect to it.
(ii) Irrationality, namely, Wednesbury unreasonableness.
(iii) Procedural impropriety.
The above are only the broad grounds but it does not rule out addition of Page 2241 further grounds
in course of time. As a matter of fact, in R. v. Secretary of State for the Home Department, ex Brind,
Lord Diplock refers specifically to one development, namely, the possible recognition of the
principle of proportionality. In all these cases the test to be adopted is that the court should,
"consider whether something has gone wrong of a nature and degree which requires its
intervention".
Wednesbury reasonableness derives its origin in Associated Provincial Picture Homes Limited v.
Wednesbury Corporation, (1947) 2 All E.R. 680 and has been explained to require that the "person
entrusted with discretion must, so to speak, direct himself properly in law. He must call his
attention to matters which he is bound to consider. He must exclude from his consideration matters
which are irrelevant to what he has to consider. If he does not obey those rules he may truly be said
to be acting unreasonably. Similarly, there may be something so absurd that no sensible person
could ever dream that it lay within the powers of the authority".
14. I shall briefly discuss the facts of the present case not with a view of influencing the decision of
the Arbitrator, if the parties resort to arbitration, but to prima facie consider the existence of mala
fides or bona fides of the parties hereto. The bona fides of the Petitioner appear to be evident from
the fact that it is not controverter by the Respondents that a Family Tree had been filed clearly
showing that the petitioner's father and mother had separate Dealerships; that the Petitioner as well
as the brother had been granted Dealership on the very same day. The argument that the
Respondents were eager to expeditiously appoint dealers because of liberalisation in the industry
therefore assumes attractiveness. The Petitioner already had land as well as an Explosives license in
hand. On the other hand the mala fides of the Respondents, prima facie, are evident from the fact
that it chose to take a decision to avoid the issuance of even a Show Cause Notice. Neither the State
nor any Authority can be permitted to act in this manner regardless of whether it is at the
pre-contract stage or during the currency of an Agreement or upon its cancellation. The question of
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whether the contract can be specifically enforced or not must be left to the Arbitrator to adjudicate
upon and decide. The Respondents were well-aware of the existence of an Arbitration Clause. As
soon as it became aware of the existence of a dispute, it ought to have resorted to that avenue of
redressal of disputes. It cannot bye-pass that remedy and thereafter be heard to rely upon the
Arbitration Clause to shut the doors of the Court. I have already held in Bharti Televentures that,
though on much stronger ground, that a party who fails to take recourse to an Arbitration Clause
can be seen to have waived it. If natural justice is applied, the writ court may well point the
Petitioner towards the remedy conceived of in Section 9 of the Arbitration and Conciliation Act. The
ratio of Hindustan Petroleum Corporation Limited v. Pink City Midway, AIR 2003 SC 2881: (2003)
4 Comp LJ 311 would then also kick into operation.
Page 2242
15. In these circumstances the Writ Petition is allowed. I am mindful of the fact that only a Section 8
application has been filed in the present case. However, the Respondent was allowed an opportunity
of filing a Counter Affidavit which it had failed to avail of. It could have done along with the
application under Section 8. Wherever the Court comes across a situation where the principles of
natural justice have been ignored, it must immediately remedy the position. In the present case this
will be achieved by directing the Respondents to issue a Show Cause Notice to the Petitioner, afford
an opportunity of being heard and thereafter take a decision on the matter. It appears to me to be
just and proper that if a dispute still subsists in the view of the Respondents, it should invoke the
Arbitration Clause. This is a fair and proper method of dealing with the situation. Dr. Singhvi, in his
usual fairness, has submitted that the Petitioner is entitled to ventilate his grievance; that the
Respondent would appoint an Arbitrator within thirty days and endeavor to have the dispute
decided within three weeks. What is sauce for the goose is also sauce for the gander. This very
expectation could easily be employed by referring the dispute to Arbitration without taking the
extreme recourse of terminating the Dealership. If the Respondent nevertheless chooses to
terminate the contract after meticulously meeting the mandates of natural justice interim measures
can be prayed for under Section 9 of the Arbitration and Conciliation Act.
16. The impugned Order dated 2.11.2005 is accordingly quashed. In doing so this Court is neither
ignoring the Arbitration Clause nor is adorning the mantle of the Arbitrator. In Dwarkadas Marfatia
it has been opined in paragraph 27 that - "If a governmental policy or action even in contractual
matters fails to satisfy the test of reasonableness, it would be unconstitutional. See the observations
of this court in Kasturi Lal Lakshmi Reddy and R.D. Shetty v. International Airport Authority of
India (SCC pp. 505-06: SCR p. 1034)". It is merely insisting that the principle of audi alteram
partem made venerable by centuries acceptance is adhered to by an Authority such as the
Respondent. All consequential relief will flow in favor of the Petitioner. Parties shall bear their
respective costs.

Indian Kanoon - http://indiankanoon.org/doc/1710436/

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