Death Of Partner Doesn’t Automatically End Dealership, Surviving Partners Can Continue Business: Supreme Court Dismisses IOCL Plea Against Calcutta High Court Order

“Corporation Must Act Justly, Not Adopt Hyper-Technical Approach To Derail A Running Business”— Supreme Court in a significant judgment reaffirmed the rights of surviving partners to continue a business after the death of a partner, dismissing the Special Leave Petition filed by Indian Oil Corporation Limited (IOCL). The Court upheld the Calcutta High Court’s directions allowing continued kerosene supply to M/s Shree Niwas Ramgopal, stating that IOCL had acted arbitrarily by halting supplies without formally terminating the dealership agreement.

The case, Indian Oil Corporation Limited & Ors v. M/s Shree Niwas Ramgopal & Ors (SLP (Civil) No. 1381/2025), dealt with the complex intersection of partnership rights, dealership agreement terms, and corporate policies post the death of a key partner.

The Bench comprising Justice Pankaj Mithal and Justice Ahsanuddin Amanullah made scathing observations against IOCL’s conduct:

“It is a classic case where instead of acting in a just, fair and equitable manner, the statutory corporation, a state instrumentality, has acted in a high-handed manner while exercising arbitrary powers with no sense of fairness in a matter of commercial interest.” [Para 2]

On 14th July 2025, the Supreme Court of India delivered a notable ruling in Indian Oil Corporation Limited & Others v. M/s Shree Niwas Ramgopal & Others, where it upheld the Calcutta High Court’s decision granting continued kerosene supplies to a partnership firm post the death of a major partner.

The dispute revolved around whether IOCL was justified in halting supplies under its dealership arrangement when one of the partners died, particularly when the partnership deed allowed continuity with surviving partners. The Court ruled against IOCL, reinforcing the contractual rights under partnership and dealership agreements.

The case arose after Kanhaiyalal Sonthalia, a 55% partner in M/s Shree Niwas Ramgopal—a kerosene dealership—passed away on 29.11.2009. His death resulted in familial disputes over his stake, with some heirs seeking inclusion in the partnership and others expressing uncertainty.

Despite a proposal submitted by the surviving partners to reconstitute the firm with one additional legal heir, IOCL refused to extend kerosene supply beyond 14.06.2010, citing Clause 1.5 of its 2008 guidelines which required inclusion of legal heirs.

This led to Writ Petition No. 758/2010 before the Calcutta High Court, where a Single Judge directed IOCL to continue supplies. IOCL’s appeal was rejected by the Division Bench on 04.07.2018. IOCL then approached the Supreme Court through the present SLP.

Partnership Continuation After Death of Partner

The key question was whether the partnership automatically dissolved upon the death of a partner under Section 42 of the Indian Partnership Act, 1932.

The Supreme Court categorically held:

“In the case at hand, the partnership consisted of three partners and the deed of partnership, in unequivocal terms, provided that the death of a partner shall not cause discontinuance of partnership and the surviving partners may continue with the business. Therefore, the principle laid down under Section 42 of the Partnership Act would not be applicable.” [Para 22]

The Court relied on precedents such as M/s Wazid Ali Abid Ali v. CIT, (1988 Supp SCC 193), and Noor Mohammad & Co. v. CIT, (1991) 191 ITR 550, to affirm that partnerships can legally continue post the death of a partner if the deed allows so.

Interpretation of Clause 1.5 of IOCL Guidelines

IOCL argued its guidelines mandated reconstitution with all legal heirs. The Court disagreed:

“The guidelines nowhere stipulate that it is mandatory for all legal heirs to join or express unwillingness… IOCL’s insistence is contrary to the spirit of the original deed of partnership.” [Para 25]

The Court clarified that surviving partners could induct any competent heir without IOCL’s interference.

IOCL’s Arbitrary Conduct

Noting IOCL’s refusal to extend supplies despite not terminating the dealership agreement, the Court stated:

“The IOCL is supposed to act in a manner beneficial for continuance of business and not adopt an arbitrary approach creating hindrance in a running business.” [Para 27]

It criticized IOCL for pursuing litigation despite no grievance from other legal heirs.

The Supreme Court concluded: “In view of the aforesaid facts and circumstances, we do not propose to entertain the Special Leave Petition and to interfere with the impugned order(s) of the High Court.” [Para 30]

Dismissing the SLP, the Court observed: “The IOCL ought to avoid such litigations by interfering with the continuance of any running business by taking a narrow approach.” [Para 31]

Summarizing its decision, the Supreme Court reinforced the legal position that partnership businesses, especially those governed by specific partnership deeds and dealership agreements, cannot be arbitrarily disrupted by corporations. IOCL was directed to comply with the High Court’s order and continue kerosene supplies without unjustified insistence on including all legal heirs.

The judgment sends a clear message to public corporations to adhere to fair practices and respect partnership rights.

Date of Decision: 14 July 2025