An Agreement is Not Voidable if the Party Could Discover the Truth with Ordinary Diligence: Calcutta High Court Quashes Termination of LPG Distributorship License

Calcutta High Court in the case of Sri Sajal Mandal vs. The Indian Oil Corporation Ltd. & Ors. quashed the termination of the petitioner's LPG distributorship license. The court held that the termination by Indian Oil Corporation Ltd. (IOCL) was arbitrary and unsustainable, emphasizing that an agreement cannot be voided if the truth could have been discovered with ordinary diligence.

The Indian Oil Corporation Ltd. (IOCL) issued a public notice for the selection of an LPG distributor under the Rajiv Gandhi Gramin Liquid Petroleum Gas Vitark (RGGLV) scheme. Sajal Mandal, the petitioner, was selected through a lottery and offered a plot of land measuring 14 decimals for the construction of a godown and showroom. The land was purchased through a registered deed from Bimal Chandra Nandi, who was believed to be the sole owner. Later, it was revealed that Bimal Chandra Nandi had a sister who had a 50% share in the land, raising questions about the petitioner's title to the entire plot. The petitioner subsequently acquired an additional 7 decimals from the sister, Taralika Shit, to rectify the issue.

IOCL initially granted a license to the petitioner but later issued show-cause notices alleging that he provided false information about land ownership at the time of the application. Despite the petitioner's explanations and further compliance, IOCL terminated the license on November 14, 2018. The petitioner filed a writ petition challenging this termination.

The primary legal issues were whether the writ petition was maintainable despite the arbitration clause in the agreement and whether the termination of the distributorship license by IOCL was arbitrary and illegal.

Maintainability of Writ Petition: IOCL argued that the petitioner should have sought arbitration as per the agreement clause. The petitioner contended that the termination violated his fundamental rights and was arbitrary, thus justifying the invocation of Article 226 of the Constitution. The court cited precedents, including Prabir Kumar Baidy vs. Union of India and Godrej Sara Lee Ltd. vs. Excise and Taxation Officer, establishing that the presence of an arbitration clause does not bar the High Court’s jurisdiction under Article 226 when fundamental rights are violated or when the action is arbitrary.

Alleged Misrepresentation: The court examined whether the alleged misrepresentation by the petitioner constituted a breach under Section 18 of the Indian Contract Act, 1872. It was found that the petitioner had acted in good faith based on the vendor's declarations and that IOCL had conducted its own field verification before entering into the agreement. The court noted that both parties were mistaken about the land's title at the time of the contract. It referenced Section 19 of the Indian Contract Act, which states that an agreement is not voidable if the party had the means to discover the truth with ordinary diligence.

The court held that IOCL had failed to exercise due diligence in verifying the land title during its field verification process. It observed:

"The misrepresentation must be made with the intention that it shall be acted by the other party. It has not been proved that the petitioner ever tried to induce the IOCL to enter into the contract."

The court noted that the petitioner had cured the defect by purchasing the remaining share of the land from Taralika Shit and had been allowed to continue his distributorship even after the issue came to light. The court concluded that the termination of the distributorship license was not justified, as the petitioner was not solely at fault and had rectified the mistake. It further stated:

"The conduct of the respondent [IOCL] itself proves that they are not in a position to repudiate the agreement but they actually allowed the petitioner to carry the business."

The Calcutta High Court quashed the termination order, directing IOCL to allow the petitioner to continue with the LPG distributorship license. The decision underscores the importance of reasonable diligence and fairness in contractual matters, especially when the alleged misrepresentation was not intended to deceive.

Date of Decision: September 17, 2024

Sri Sajal Mandal vs. The Indian Oil Corporation Ltd. & Ors.