International Oil Co., By Its ... vs Indian Oil Co. Ltd. Now Known As ...

on 22 November, 1968 Equivalent citations: AIR 1969 Mad 423, (1969) 1 MLJ 605 Author: Venkatadri Bench: Venkatadri JUDGMENT Venkatadri, J. 1. This second appeal arises out of a suit instituted by the plaintiff, the proprietor of International Oil Co. against the Indian Oil Corporation, for an injunction restraining the defendant from withholding the supply of kerosene to the plaintiff. The supply of kerosene was on the basis of a contract entered into between the parties on 6-2-1964 (Ex. A-1). The defence to the suit is that since the plaintiff had not complied with the terms of the agreement embodied in Ex. A-1, he is not entitled for any continuous supply of kerosene and in any event, the suit itself is not maintainable. The plaintiff after some correspondence with the defendant had to file a suit for an injunction restraining the defendant, Indian Oil Corporation, from continuing the breach of contract, namely, withholding supply of kerosene and for damages for non-supply of kerosene. After the suit was filed, the Indian Oil Corporation by its letter dated 19-12-1964, terminated the contract itself. The questions that were considered by the Courts below were whether the suit for injunction is maintainable, whether the defendant committed a breach of the contract and whether the plaintiff is entitled to damages. The Courts below gave a concurrent finding that the plaintiff is not entitled to any injunction against the Indian Oil Corporation as there was a valid termination of the agency, that the Corporation did not commit any breach of contract when it did not supply any kerosene to the plaintiff and that the plaintiff is not entitled to claim any damages. The suit was dismissed. Now it is against the dismissal of the suit, the second appeal is preferred. 2. The only question that arises for my consideration is whether the Indian Oil Corporation can terminate the agency with the plaintiff without any notice. It is conceded by the learned counsel for the Corporation that Ex. A-1 was entered into between the parties on the basis of an agency agreement. It will be convenient to extract the relevant portion of Ex. A-1 as hereunder: "We have the pleasure in appointing you as our dealer for the distribution of kerosene in Madras. The appointment is made on the understanding that you will distribute at least 150 kilolitres per month to start with and increase our offtake in the subsequent months. You are advised that this appointment does not preclude us from appointing more agents for the same area. We also reserve the right to terminate your dealership without assigning reasons. Your actual area of operation will be intimated to you by our sales officer". It is on the basis of this agreement that this Court has to interpret whether the suit is maintainable for an injunction and whether the Corporation can terminate the agency without any notice. The learned Appellate Judge is of the opinion that the Corporation is not bound to sup ply kerosene to the appellant on the basis of the agreement. I am unable to agree with the said observation made by the learned appellate Judge.

3. It is necessary for me now to state the circumstances under which the agency agreement was terminated. The parties entered into the agreement on 6-2-1964. It states that the plaintiff must sell at least 150 kilolitres of kerosene per month. Actually there was a sale of 120 kilolitres in April, 200 kilolitres in May, 160 kilolitres in June, 170 kilolitres in July and 37 kilolitres by the end of August 1964. On 24-8-1964, the Indian Oil Corporation sent a notice to the appellant stating that they were very much depressed to note that the offtake during the month till date (248-1964) was only 37 kilolitres. They further stated that since the plaintiff was having access at the same time to Western India Oil Distributing Co, as well as the Indian Oil Corporation, the sales were not pushed through as per the agency agreement. The corporation also advised the plaintiff "to make arrangements for complete switch over to us before the 10th September 1964." This letter of warning is given by the Corporation to the appellant in order to make him concentrate on the sale of kerosene belonging to the Indian Oil Corporation. The Appellant immediately replied to that letter stating that despite the comparatively higher prices of the Corporation's kerosene, the plaintiff had been faithfully pushing up the sale with all the sincerity and that the charge that the sales were on the slide scale because the plaintiff had access to the Western India Oil Co. is unwarranted and unfoundable. In that letter, the plaintiff had also written that the corporation has stopped away the supply of kerosene without any notice and assigning any reasonable cause. From the two letters I find that the corporation supplied 37 kilolitres of kerosene to the plaintiff-appellant till the end of August 1964. But equally the learned counsel for the Corporation represents to me that it is for the appellant to place an order for the required quantity of kerosene for the purpose of sales in his locality. But whatever may be the quantity that was indented and sold by the appellant in the month of August. It is common case that in the month of September 1964, supply of kerosene was stopped, and on 26-9-1964, the appellant issued a notice calling upon the corporation to resume the supply of kerosene, as otherwise, they would be forced to take legal remedies for the loss and damage the plaintiff had sustained by the Corporation's withholding the supplies unilaterally. 4. It is common case that even at the time of appointing the appellant as the agent for the supply of kerosene of the Indian Oil Corporation, the corporation was aware that the appellant's father was engaged in the distribution of kerosene belonging to the Western India Oil Distributing Co. Therefore, the question that now arises for my consideration is whether the Corporation can terminate the agency without giving any notice. That will depend upon the construction of a, particular agreement and upon its nature, and where it involves mutual trust and. confidence and personal relationship between the parties, it is determinable unilaterally. An agreement is no doubt a bare permission or licence. It imposes no obligation on the Indian Oil Corporation to supply kerosene continuously. But in the-present case, it is not the case of the Corporation that on account of want of kerosene, that they have stopped supplying kerosene. They allege that since the appellant was not diligent in effecting sales of kerosene in North Madras even to the minimum extent of 150 kilolitres and since his father was engaged in the distribution of kerosene of the Western India Oil Distribution Co. his agency agreement was terminated. Here again on a perusal of records it is seen that the appellant had sold 120 kilolitres of kerosene in April, 200 kilolitres in May and 160 kilolitres in June. During the controversial period, the plaintiff alleges that Corporation stopped supplying kerosene on account of bitterness that existed between the parties. In Rhodes v. Forwood, 1876-1 App Cas 256 an owner of a colliery

employed an agent to sell coal for seven years or as long as, the agent should continue to carry on business at the town. The agreement was made in consideration of the services and payments to be mutually rendered. The agreement contained provision for putting an end to the agreement by notice if the owner of the colliery could not supply or if the agent could not sell a certain amount of coal per year. At the end of four years, the owner sold the colliery itself and in an action by the agent for damages for breach of the agreement the House of Lords held that the action was not maintainable, for that the agreement did not bind the colliery owner to keep his colliery. In Turner v. Goldsmith, 1891-1 QB 544, P, a shirt manufacturer, engaged A as his agent to be paid by commission. The agency was to be determinable by either party at the end of five years by notice. A was to do his utmost to obtain orders for and sell such goods of P as should from time to time be forwarded or submitted by sample or pattern to A. During the five years, P's factory was burnt down, and P did not resume business. It was held that A could recover damages because there was an express agreement to employ him for five years, and that agreement was not performed unless he was supplied with a reasonable amount of samples to enable him to earn commission, and the fact that the factory was burnt down did not excuse P from liability. From the above decisions, the conclusion is that as long as there is enough stock of kerosene, the defendant corporation cannot withhold supply of kerosene to the appellant. The question whether the appellant asked the Corporation to supply kerosene for the months of August and September does not arise because, there is no material before the Corporation to show that the appellant himself did not place an order with the Corporation for the supply of kerosene. It is on account of this fact that the offtake for the month of August was only 37 kilolitres and since the Corporation felt that the appellant was having access to the Western India Oil Distributing Co. the Corporation was dissatisfied and stopped supply of kerosene to the Appellant without due notice and without assigning any reasonable cause. The agency itself was actually terminated in December, that is, after the institution of the suit. Once again I am saying that this is not a case where on account of non-availability of kerosene that the Corporation withheld supply of kerosene to the appellant during the month of September 1964. In Lianelly Railway and Dock Co v. London and North Western Railway Co., 1873-8 Ch A 942, 949 James, L. J. has observed thus-"I start with the proposition, that prima facie every contract is permanent and irrevocable, and that it lies upon a person who says that it is revocable or determinable to show either some expression in the contract itself, or something in the nature of the contract, from which it is reasonably to be implied that it was not intended to be permanent and perpetual, but was to be in some way or other subject to determination." In all indefinite mercantile or commercial contracts, the question whether the relationship of principal and agent can be terminated by a reasonable notice or only by mutual consent is one of construction, subject to the rules of law. There is no general rule of permanence. An agency may be terminated in various ways. If the termination of the agency by the principal is inequitable or works an unjust hardship on the agent, the law requires a reasonable notice to be taken. The Indian Oil Corporation cannot arbitrarily terminate the contract of employment nor they can break the contract prematurely or without the 'specific notice. It is a case of a wrongful dismissal and the plaintiff can sue for damages. It is a case of an exchange of mutual promises and the effect of it is a contractual nexus exhibited between the parties where the agent has promised to

devote time and energy on behalf of the principal in return for reward. Their relationship bears a close analogy to that between employer and employee. The agent has agreed to serve the principal. The principal has agreed to accept and to pay for that service. It is clear therefore, that any unilateral termination of the relationship by either party will be wrongful unless it is in accordance with the contract. Having regard to its nature, terms and the surrounding circumstances, it must be decided that it is not reasonable that revocation should be available to one party alone. 5. Learned counsel for the appellant brought to my notice the case in Martin Baker Aircraft Co. Ltd. v. Canadian Flight Equipment Ltd. and Martin Baker Aircraft Co. v. Murison, 1955-2 QB 556, where the plaintiffs appointed M, as their sole selling agent for all their products on the North American continent and agreed to use his best endeavours to promote and extend the sale of the products on the maximum possible scale throughout the territory, and inter alia, not to sell or be interested in any way in the territory in products which might be competitive with the plaintiffs' and to act as general consultant to the plaintiffs concerning the marketing of the products in the territory, while the plaintiffs agreed not to appoint any other person as their agents or distributors in the territory. The agent's remuneration was to be a commission at the rate of 17 1/2 per cent on orders obtained by him. The plaintiffs desired to determine the relationship, but the agent contended that it was terminable only by mutual consent. It is in that connection, that McNair, J. observed at page 582-"If it were a pure agency agreement and nothing more, there is much to be said for the view that it would be terminable summarily at any moment. But if an agreement of this nature has to be looked at as a whole, and the whole of its contents considered, and if one finds (as one finds here) that the person who is described as sole selling agent has to expend a great deal of time and money and is subject to restriction as to the sale of other persons' products which may be competitive, it seems to me that it is a form of agreement which falls much more closely within the analogy of the strict master and servant cases where admittedly the agreement is terminable not summarily except in the event of misconduct but by reasonable notice". Following the above observation, I am of the view that this is a case where the appellant can validly contend before this Court that the agency cannot be terminated without any notice. In M. Thathiah v. M. and S.M. Railway, a bench of this Court has observed that an absolute power of cancellation of contract cannot be validly reserved in favour of one of the parties. In the instant case, the Indian Oil Corporation has reserved an absolute power of cancellation of the contract and has actually cancelled the agency without assigning any valid reasons. I am of the view that such a clause in the contract is absolutely illegal, irregular and void. It is true that the plaintiffappellant had knowledge of the existence in the agreement of the sort of 'Sword of Damocles' termination clause. Even then, it is unfair on the part of the Corporation to terminate the agency without due regard to the equities of an agent and without just provocation to cancel. Therefore, I am not able to agree with the findings of the Courts below that the suit is not maintainable and that the Corporation is not bound to supply kerosene to the appellant. On the other hand, it is a clear case of breach of a contract and also termination of the agency without assigning any cause to such termination.

6. The Indian Oil Corporation belongs to the public sector. The Corporation is enlarging the economic potentialities of our nation in exploiting the oil resources from our fields. The success of this public enterprise would entirely depend upon the efficient distribution of oil through proper agents to the public. Either in selecting the agents or in cancelling their agency, extraneous consideration should not prevail. There should not be an element of uncertainty in entering into an agreement with the commission agents. 7. In the instant case, the plaintiff was appointed in the month of February 1964 and while he was attempting to push the sales in his area, even in the month of August, the Corporation disheartened him. In the month of September the Corporation stopped the supply. In the month of October, the plaintiff rushed to the Court with a prayer to direct the Corporation not to withhold the supply and also obtained an injunction restraining the Oil Corporation from appointing any other agent in that area. In the month of December the Corporation terminated the agency. On a review of the events that took place rapidly between the parties, there appears to be something wrong which I am not able to understand. All that I can say is that the agency cannot be terminated without proper notice, and it is quite contrary to the principles established by law. The second appeal is allowed with costs, and the plaintiff's claim will stand decreed as prayed for. Leave granted.