Simplified Explanation of the Judgment

This case arose from the termination of an LPG distributorship in Gopalganj district, Bihar. The petitioner, proprietor of a firm that had been granted Indane distributorship, challenged the rejection of his representation by the Indian Oil Corporation Limited (IOCL).

The petitioner’s father had originally applied for distributorship under the “freedom fighter category.” After his father’s death in 2008, the petitioner applied for transfer of the distributorship. IOCL conducted verification and found him eligible, issuing a Letter of Intent in April 2009. He subsequently invested in infrastructure, built a godown, and an agreement was executed in September 2009.

The distributorship was renewed in 2016 after satisfactory performance. However, in 2019, IOCL issued a show-cause notice alleging that the petitioner had submitted a fabricated bank statement and false educational certificates at the time of application. The allegation was that while the petitioner claimed to have over ₹20 lakhs in his bank account in 2009, the bank confirmed that the actual balance was only ₹2.4 lakhs. The bank also denied issuing the certificates the petitioner had produced.

After considering his reply, IOCL terminated the distributorship in December 2019 for misrepresentation and violation of guidelines. The petitioner challenged the order in CWJC No. 559 of 2020, but a coordinate bench dismissed the writ in May 2020. The Court held that the distributorship had been obtained by misrepresentation, which amounted to fraud, and therefore termination was valid. However, the Court gave him liberty to approach IOCL again for renewal on sympathetic grounds, noting that he had run the dealership for about a decade.

Pursuant to this, the petitioner filed a representation, but IOCL rejected it on June 3, 2020. The present writ petition (CWJC No. 7295 of 2020) challenged this rejection.

The petitioner argued that:

• He had run the dealership successfully for more than 10 years.
• The complaint of fabricated documents had been closed earlier.
• IOCL had wrongly claimed there were no rules permitting renewal of a terminated distributorship. He referred to Policy Circular SL/1601/2007, which allowed revival in certain cases.
• The principle of justice and equity required that he be allowed to continue, since he had invested heavily and provided service without major issues.

IOCL opposed, arguing that:

• His distributorship was terminated due to misrepresentation at the very inception.
• Fraud vitiates all contracts; once misrepresentation is established, no sympathetic grounds can revive a dealership.
• Policy guidelines did not permit revival of distributorships terminated for violation of agreement terms.

The High Court noted that the earlier writ had already upheld the termination. The liberty given was limited and conditional – IOCL was only required to consider his representation if permissible under rules. IOCL, in its order, had found that renewal was not possible as per guidelines.

The Court emphasized that fraudulent misrepresentation at the time of obtaining distributorship goes to the root of the contract. Even long years of satisfactory performance could not cure the initial defect. Courts cannot compel renewal of a contract obtained through falsehoods.

Accordingly, the High Court dismissed the writ, upholding IOCL’s rejection of his representation.

Significance or Implication of the Judgment

• For LPG distributors and applicants: Any misrepresentation or falsification of documents during application can permanently disqualify candidates, regardless of later performance.
• For oil companies: The decision reaffirms their right to cancel distributorships obtained through fraud, protecting the integrity of the selection process.
• For public interest: Ensures that public resources like LPG distributorships go to genuine, deserving applicants and not to those who misrepresent eligibility.

Legal Issues and Court’s Reasoning

• Whether IOCL was justified in terminating distributorship for fabricated documents?
  • Yes. Fraudulent misrepresentation of financial strength invalidated the distributorship.
• Whether the petitioner was entitled to renewal on sympathetic grounds?
  • No. Guidelines did not allow revival where termination was for breach of agreement.
• Can long satisfactory service cure initial fraud?
  • No. Fraud vitiates everything; later performance does not undo initial misrepresentation.

Judgments Referred by Parties

• Commr., Karnataka Housing Board v. C. Muddaiah, (2007) 7 SCC 689
• Atma Linga Reddy v. Union of India, (2008) 7 SCC 788
• Alka Gupta v. Narender Kumar Gupta, (2010) 10 SCC 141
• B. Prabhakar Rao v. State of A.P., 1985 Supp SCC 432
• Punjab SEB Ltd. v. Zora Singh, (2005) 6 SCC 776
• Ashwani Kumar Singh v. U.P. Public Service Commission, (2003) 11 SCC 584
• Rattan Lal Sharma v. Managing Committee, Dr Hari Ram Higher Secondary School, (1993) 4 SCC 10
• Dhananjay Sharma v. State of Haryana, (1995) 3 SCC 757

Judgments Relied Upon by Court

• Sajeesh Babu K. v. N.K. Santhosh, (2012) 12 SCC 106
• Chandra Shashi v. Anil Kumar Verma, (1995) 1 SCC 421

Case Title

M/s Gauri Shankar Indane Service v. Indian Oil Corporation Ltd. & Ors.

Case Number

Civil Writ Jurisdiction Case No. 7295 of 2020

Citation(s)

2021(1)PLJR 502

Coram and Names of Judges

Hon’ble Mr. Justice Mohit Kumar Shah (Oral Judgment dated 15.01.2021)

Names of Advocates and who they appeared for

• For the Petitioner: Mr. Y.S. Lohit, Advocate; Mr. Vivek Prasad, Advocate; Mr. Ranjan Kumar Srivastava
• For IOCL (Respondents): Mr. Anil Kumar Jha, Sr. Advocate; Mr. Sanat Kumar Mishra, Advocate

Link to Judgment

https://patnahighcourt.gov.in/viewjudgment/MTUjNzI5NSMyMDIwIzEjTg==-tEmRmcgy1fg=

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