M/S Hindustan Petroleum ... vs Smt. Reeta Anand
2015 Latest Caselaw 5403 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR
 

 
''Reserved'
 
 Case :- FIRST APPEAL FROM ORDER No. - 2925 of 2015
 

 
Appellant :- M/S Hindustan Petroleum Corporation Ltd.
 
Respondent :- Smt. Reeta Anand
 
Counsel for Appellant :- Vikas Budhwar
 
Counsel for Respondent :- Kartikeya Saran,Shagun K. Saran
 

 

 
Hon'ble Krishna Murari, J.

Hon'ble Arvind Kumar Mishra-I, J.

This first appeal from order under Section 37 of the Arbitration and Conciliation Act, 1996 (herein after referred to as the Act 1996) has been filed by M/s Hindustan Petroleum Corporation Limited challenging the judgment and order dated 09.10.2015 passed by the District Judge, Agra allowing objection under Section 34 of the Act, 1996 filed by the respondent and setting aside the arbitral award.

We have heard Sri Vikas Budhwar, learned counsel for the appellant and Sri Kartikey Saran appearing for the respondent.

With the consent of learned counsel for the parties, this appeal is being finally heard and decided at this stage.

Facts, giving rise to the dispute, are as under.

M/S Hindustan Petroleum Corporation Ltd.-appellant is Government of India Enterprises and is engaged in refining, marketing and selling of petroleum products. Respondent was duly appointed as retail outlet dealer and dealership agreement was executed on 28.06.2002. An inspection of the retail outlet of respondent was conducted on 27.10.2006 wherein certain irregularities were detected. A notice dated 12.10.2007 was issued to the respondent referring to breach of clause 4 (a), 6(f), (h), (i), 3 (a), 3(i) and 31 (b) of the dealership agreement and clauses 6.1.3 (b) and 6.1.4 of the Marketing Guidelines, 2005. While the said proceedings were underway, another inspection of the retail outlet of the respondent was carried out on 08.10.2007. During the said inspection, sample of Motor Spirit and High Speed Diesel were drawn from the dispensing unit nozzles of retail outlet and marker test was undertaken. The sample of High Speed Diesel passed the marker test but sample of Motor spirit failed as pink colour did not appear in the same corroborating adulteration. Another sample of nozzle from the dispensing pump was taken. The samples collected were sent to Mathura installation for repeat marker test. A letter dated 11.10.2007 was written by the Chief Regional Manager, Mathura RO to the respondent requiring him to come to M/S Hindustan Petroleum Corporation Ltd. Mathura retail R. O. on 18.10.2007 at 10:30 AM to witness repeat marker test. On 18.10.2007 respondent came to Mathura Retail RO but marker test could not be conducted as she insisted that test be carried out only in the presence of the Chief Regional Manager. In accordance with her request, next date for marker test was fixed for 31.10.2007. On the said date, marker test was conducted in the presence of officials of the appellant corporation and the respondent. The sample failed the test indicating adulteration.

A notice dated 06.11.2007 was issued to the respondent to show cause within seven days as to why necessary action be not taken as per relevant clauses of the dealership agreement. The sales and supplies of respondent were suspended with effect from 08.10.2007. However, since she continued to operate the retail outlet and sold petroleum product, another show cause notice dated 20.04.2008 was issued. After considering the reply submitted by the respondent to show cause notice, appellant vide order dated 24.09.2008 terminated the dealership agreement. Respondent filed Civil Misc. Writ Petition no. 63144 of 2008 challenging the order dated 24.09.2008. During the course of hearing of the writ petition, it transpired that on the request made by dealer for appointment of an Arbitrator Sri N.K. Tankiwala was appointed as Arbitrator. The writ petition was dismissed leaving it open to the dealer to pursue the remedy before the Arbitrator. The sole arbitrator entered into reference and respondent submitted her claim. The appellant-corporation submitted reply to the statement of claim and also submitted their counter claim. Since Sri N. K. Tankiwala was superannuated on 31.01.2009 an order was passed by the Chairman & Managing Director of the appellant-corporation appointing Sri K. Murli, Director Refineries as the sole arbitrator. The sole arbitrator passed an award dated 25.11.2009 holding termination of the dealership agreement to be proper and valid and rejected the claim of respondent-dealer to set aside the order of termination dated 24.09.2008. The claim of the respondent-dealer for resumption of sales and supplies and damages were also rejected. In respect of counter claim of the appellant for a sum of Rs.5,56,680/- towards outstanding corpus fund, a sum of Rs.3,08,549/78 was found payable by respondent-dealer to the appellant-corporation within one month from the date of receipt of copy of the award. Similarly claim of the appellant-corporation for a sum of Rs.90,558/- on account of electricity was also allowed and respondent-dealer was directed to make payment of the said amount to the Corporation within one month from the date of receipt of award. Interest at the rate of 6% per annum was also allowed on the outstanding counter claim on delayed payment.

Aggrieved by the award, respondent-dealer made an application under section 34 of the Act, 1996 which was registered as Misc. Arbitration Case no. 97 of 2010. District Judge vide impugned judgment and order dated 09.10.2015 allowed the application and set aside the award dated 25.11.2009 passed by sole arbitrator.

A perusal of the impugned judgment goes to show that District Judge has set aside award on the sole ground that by virtue of notification issued by the Government of India, Ministry of Petroleum and Natural Gas dated 31.12.2008 under Section 3 of the Essential Commodities, 1995, the Central Government has made amendment in the Motor Spirit & High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Order 2005 amending the provisions of marker test as authenticity was found to be doubtful hence termination order dated 24.09.2008 was rendered illegal. District Judge while passing the impugned judgment has relied upon a judgment of learned single Judge in the case of M/s Anil Service Station, Azamgarh and another Vs. Union of India and others {(2009) (7) ADJ 347}.

Learned single Judge held that since marker test itself has been withdrawn by the Government of India, authenticity of such marker test was doubtful and it was not conclusive for coming to the conclusion that there has been adulteration in the petroleum product.

Marker test was introduced by way of amendment in Control Order 2005 by adding definition of marker and amending definition of alteration. It may be relevant to quote paragraphs 2 (a), (f), (fi) and (t).

"2(a) "adulteration" means presence of marker in motor spirit and high speed diesel and/or the introduction of any foreign substance into motor spirit or high speed diesel illegally or unauthorisedly with the result that the product does not conform to the requirements of the Bureau of Indian Standards Specification Numbers IS 2796 and IS 1460 for motor spirit and high speed diesel respectively or any other requirement notified by the Central Government from time to time;"

"(f) "malpractices" shall include the following acts or omission and commission in respect of motor spirit and high speed diesel-

(i) adulteration;

(ii) pilferage;

(iii) stock variation;

(iv) unauthorised exchange;

(v) unauthorised purchase;

(vi) unauthorised sale;

(vii) unauthorised possession

(viii) overcharging;

(ix) sale of oil-specification product;

(x) short delivery;

"(fi) "marker" means a chemical substance approved by the Central Government from time to time for blending in kerosene and other petroleum products with the objective of preventing their diversion or adulteration of motor spirit or high speed diesel".

"(t) "sale of off-specification product" means sale of motor spirit or high speed diesel by dealer of "having traces of marker and/or" quality not conforming to Bureau of Indian Standards Specification Numbers IS 2796 and IS 1460 for motor spirit or high speed diesel respectively."

The marker test for judging alteration in petroleum product was discontinued by amendment in Motor Spirit and High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Order 2005 vide Government Order dated 31.12.2008 with effect from 12.01.2009.

The issue whether marker test was doubtful and not conclusive to establish adulteration in the petroleum product hence was withdrawn by the Central Government came for consideration before a Division Bench of this Court in the case of M/s Kishore Auto Sales Vs. Bharat Petroleum Corporation Limited and others (2010 {6} ADJ 711 ({DB}). The Division Bench in the said report observed as under :

"21. The third submission of the learned counsel for the petitioners that marker test is not foolproof test and the said marker system has been reviewed by the Government of India. Copy of the letter dated 22.12.2008 has been brought on record as Annexure-18 which is a report submitted by the Director Marketing and Oil Companies. It is relevant to extract some part of the report which is quoted as below:

"The Marker System was introduced by the PSU oil companies w.e.f. 1.10.2006 in the country. The Kerosene released from the supply locations is being doped with the Authentix Marker system since the introduction of the Marker programme.

The industry has been closely monitoring the effectiveness of the Marker programme and it has been our experience that the Marker system is found to be more effective than the traditional methods of inspections, BIS tests etc. to detect adulteration. The Marker legislation was enforced from 16.2.07 and during the period from 16.2.07 to 30.11.08 there was 558 cases of adulteration detected through the Marker system involving Ros and Tank-trucks.

In order to identify more suppliers for Marker system, a Global Expression of Interest (GEOI) was floated. The details of the Mandatory Characteristics/Requirements of the Marker System included in GEOI are given as under:

After inducing into the potential adulterants, the Marker should not be removable/tampered with by physical or chemical means.

The marker should be compatible with potential adulterants.

The Marker should be stable with potential adulterants.

The Marker should be detectable in Ethanol Gasoline blends.

The Marker System should provide simple field level testing to determine adulteration (i.e. test positive or test negative).

The Marker should be cost effective.

The Marker System should enable exact quantitative estimation of adulteration.

Marker as well as the test reagents should have adequate shelf life, should be storable under ambient conditions & be portable to facilitate the field force in implementation of the Marker system.

The conclusions drawn by the technical Committee based on Laboratory evaluation of the 3 Marker systems is as under:

1. 1% marked Kerosene can be detected in MS & HSD except in Interim order already granted shall continue. branded HSD and BPC Branded MS.

2. Testing time required for one sample will be approximately 75 to 90 minutes as per recommended procedure i.e. 1&2 as most of the samples will have to be tested for both procedures. This also requires substantial number of IAS columns for procedure 2 which cannot be reused.

3. Marked Kerosene can be laundered by Conc. Nitric acid and Charcoal.

4. Marker could not be detected when marked kerosene was exposed to sunlight.

5. Un-dyed Kerosene when marked does not meet saybolt colour specification as per IS: 1459.

B) M/s Chematek:

1. 1% marked kerosene can be detected in MS & HSD including Branded fuels.

2. Testing time required for one sample will be approximately 20 to 25 Minutes as per recommended procedure which is simple and requires common glassware.

3. Marked Kerosene cannot be laundered by 1% clay. However, marked kerosene can be laundered by 5% clay. Conc. Sulphuric acid, Conc. Nitric acid and Charcoal.

4. Marker can be detected when marked Kerosene was exposed to sunlight.

5. Undyed Kerosene when marked does not meet saybolt colour specification as per IS: 1459.

C) M/s GFI, Israel Marker System offered by M/s Nandan Petrochemicals, Mumbai

1. 1% marked kerosene can be detected in MS & HSD including Branded fuels.

2. Testing time required for one sample will be approximately 5 minutes as per recommended procedure.

3. This testing involves use of XRF analyser which has to be mounted on a vehicle and will require stabilized power supply or invertor. This analyser was brought pre calibrated by the party. The frequency of calibration and matrix effect of different fuels may have to be ascertained.

4. This Marker System in the Lab test was not found to be launderable with clay, acids, alkali. While 1% charcoal could not remove the Marker however about 20% lower concentration of Marker was observed with 5% charcoal treatment. The machine, however, was able to detect 1% adulteration of 5% charcoal treated marked kerosene in fuel.

5. The addition of this Marker to Kerosene does not affect the Physico-chemical properties of Kerosene including saybolt colour.

6. The Marker can be detected when marked kerosene was exposed to sunlight.

a) The basic requirement of the Marker as stated in the GEOI was that "it should not be removable/tampered with, by physical or chemical means" This condition is not met by M/s Authentix and M/s Chematek S.P.A. Italy in addition, the Authentix Marker could not be detected when exposed to sunlight and also in branded HSD of Interim order already granted shall continue. & branded MS of BPC. The Marker system of GFI offered by M/s Nandan Petro chemicals is found to be least launderable.

b) One of the mandatory requirements is also that the Marker System should provide simple field level testing to determine adulteration (i.e. test positive of test negative). The equipment of M/s GFI Marker system for detection of adulteration is bulky & heavy also requiring stabilised electrical power. The equipment is required to be calibrated at the frequency to be decided by the user and fitted in mobile vehicle for field testing of samples.

Review of Marker System by MOP & NG:

Secretary (P&NG) had taken a review meeting on Marker system on 10th December, 2008. In this meeting Interim order already granted shall continue. (R&D), on behalf of the Technical Committee had made a presentation on evaluation of the Global Expression of Interest (GEO). During the meeting the Industry advised MOP&NG that all the 3 evaluated Markers are not meeting 100% mandatory requirements of the GEOI.

In this regard a letter has already been addressed by the industry to MOP&NG vide RSHQ: Policy dated 28th November, 2008 intimating that re-tendering. In respect of Marker system will be required. Further, in the intervening period MOP&NG was requested to make suitable amendments to the Control Orders as the contract with the current suppliers expires on 31.12.2008.

However, Secretary P&NG advised that the Committee of Directors (Marketing) of the oil companies should examine all the aspects of the issue and submit their recommendations latest by 20th December, 2008.

The Committee of Directors (Marketing) after examining all the aspects of the issue recommends as follows:-

1. To re-tender for procurement of Marker system as none of the parties have fulfilled 100% of the mandatory requirements of the GEOI. A minimum time period of 6 months will be required to complete the process.

2. To amend the existing Kerosene Control Order which makes it mandatory to dope all Kerosene released from supply locations with Marker. The existing contract for procurement of Marker system expires on 31.12.08 and effective 1.1.2009 Kerosene will have to be sold without doping of marker.

3. To amend MS-HSD control order as Marker tests will not be carried out at retail outlets effective 1.1.2009."

A perusal of the aforesaid extract from the report goes to show that marker system was not withdrawn because of the issue of its authenticity, but because of procedural issues of fulfilling mandatory requirements of GEOI and time required for completing tender process.

Considering the aforesaid facts and circumstances, the Division Bench held as under :

"22. The above report clearly supports the submission of the learned Counsel for the respondents that nothing wrong was found in the marker test which was effective till 31.12.2008. Marker test was statutorily introduced and was available on the date when the inspection was made. The submission of learned counsel for the petitioner that marker test is not foolproof test and cannot be relied, cannot be accepted."

We are also informed that a special leave to appeal against the Division Bench judgment of this Court in the case of M/s Kishore Auto Sales (supra) was dismissed by the Hon'ble Supreme Court.

Thus, it stands settled that subsequent withdrawal of marker test by the Government by making amendment in Motor Spirit & High Speed Diesel (Regulation of Supply, Distribution and Prevention of Malpractices) Order 2005 does not mean that it was not effective and failure of said test does not conclusively establishes adulteration.

Learned District Judge while considering the application under Section 34 of the Arbitration and Conciliation Act, 1996 placing reliance solely upon the judgment of learned single Judge in the case of M/s Anil Service Station (supra) allowed the same and set aside the award without considering the law laid down by the Division Bench in the case of M/s Kishore Auto Sales (supra). The impugned judgment passed by the District Judge is directly in the teeth of the law laid down by the Division Bench judgment and based upon a judgment which impliedly stood over-ruled. hence is not liable to be sustained and is hereby set aside.

As a result, First Appeal From Order stands allowed and the matter is remanded back to the District Judge to consider the application under Section 34 of the Arbitration and Conciliation Act, 1996 afresh in accordance with law expeditiously, preferably, within a period of two months from the date of production of a certified copy of this order before him.

Date : December 14, 2015                         (Krishna Murari, J.)
 
Dcs. 
 

 
                                                         (Arvind Kumar Misra-I, J)