2010 (2) TMI 1133 - SC - Indian Laws

Whether the dealership of the Respondent No.1 had been validly terminated in accordance with Clause 58 of the Dealership Agreement executed between the parties on 30th August, 2003? Whether the termination of the Agreement was in keeping with the procedure/ guidelines in conducting Marker Test in retail outlets?

Summary

Issues Involved:
1. Validity of dealership termination under Clause 58 of the Dealership Agreement.
2. Compliance with procedure/guidelines for conducting Marker Test.
3. Adequacy of notice for the Nozzle Test.
4. Jurisdiction of the High Court in light of the arbitration clause.

Detailed Analysis:

1. Validity of dealership termination under Clause 58 of the Dealership Agreement:
The primary issue was whether the termination of the Respondent No.1's dealership was valid under Clause 58 of the Dealership Agreement. The clause allowed for immediate termination if the dealer breached any covenants or contaminated the product. The petitioner corporation argued that the Respondent No.1 failed the Marker Test, indicating contamination, justifying termination. However, the court found that the termination process was flawed due to procedural lapses, particularly in serving notice for the retesting.

2. Compliance with procedure/guidelines for conducting Marker Test:
The court examined whether the termination adhered to the Marketing Disciplinary Guidelines. The petitioner corporation suspended sales and supplies immediately after the sample failed the Marker Test. The Respondent No.1 was notified about a subsequent Nozzle Test, but the court found that the notice was not properly served, and the test proceeded without the respondent's presence, violating the guidelines. The court emphasized the need for fairness and adherence to procedural norms, which were not followed, thus invalidating the termination.

3. Adequacy of notice for the Nozzle Test:
The court scrutinized the notice provided for the Nozzle Test. The petitioner corporation claimed that notice was given, but the Respondent No.1 allegedly refused to acknowledge it. The court found the notice process inadequate, as it was handwritten, lacked a reference number, and was served on the same day as the test, giving insufficient time for the respondent to arrange representation. The court concluded that the notice was not served in a manner that ensured fairness, causing severe prejudice to the Respondent No.1.

4. Jurisdiction of the High Court in light of the arbitration clause:
The petitioner corporation argued that the High Court should not have entertained the writ petition due to the arbitration clause in the Dealership Agreement. The court noted that this issue was not raised before the High Court and that the petitioner itself submitted to the jurisdiction by appealing the Single Judge's decision. The court referenced previous decisions, indicating that the existence of an arbitration clause does not preclude the High Court from exercising its jurisdiction, especially when procedural fairness and natural justice are in question.

Conclusion:
The court upheld the High Court's decision, finding that the termination of the Respondent No.1's dealership was arbitrary, illegal, and violated principles of natural justice due to improper notice and procedural lapses. The Special Leave Petition was dismissed, affirming the need for strict adherence to procedural guidelines and fairness in terminating dealership agreements.