MAHABIR AUTO STORES & ORS. versus INDIAN OIL CORPORATION & ORS.

Citation: [1990] 1 S.C.R. 818 · Decided: 06-03-1990 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
MAHABIR AUTO STORES & ORS. 
v. 
INDIAN OIL CORPORATION & ORS. 
MARCH 6, 1990 
B 
[SABYASACHI MUKHARJI CJ. AND B.C. RAY, J.] 
c 
D 
E 
Constitution of India 1950-Artic/e 14, 32, 226 and 298 -State 
organ-Action of entering or not entering into contracts with individual 
parties-Whether can be questioned in writ jurisdiction. 
The appellant-firm had been carrying on the business of distribu-
tion and sale of all kinds of lubricants received from the respondent, a 
statutory corporation, since 1965. It is the case of the appellant that it 
acted as Lube distributor of the respondent corporation and that it had 
been given the Customer No. during the course of business. The appel-
lant claimed that from Feb. 1965 to 27th May, 1983, it had received and 
uplifted the supply of lubricants/goods each year and the total quantitY, 
of lubricantst11oods thus lifted had gone upto the extent of 1,11,34854 
litres or kgs. The respondent suddenly stopped the supply of lubricants 
to the appellant-firm on 27 .5.1983. The appellant-firm made several 
representations to the respondent against the aforesaid action of the 
respondent but to no use. The appellant thereupon filed a writ petition 
in the High Court praying for a writ of mandamus directing the respon-
dent to desist from denying or discontinuing the supply of lubricants 
and thereby save the appellant from being ousted from the business; 
claim for damages from the date the supply was discontinued was also 
made. 
F 
Before the High Court, it was inter alia contended by the appel-
lant that the correspondent that passed between the appellant and 
respondent and the invoices issued during the long years of business 
would show that the respondent always treated the appellant as its 
agent and distributor; sudden stoppage of supply violated the principles 
of natural justice. It therefore sought the specific performance of the 
G 
alleged contract. The respondent on the other hand questioned the 
maintainability of the petition as according to it the respondent was not 
a 'State' within t!Je meaning of Art. 12 of the Constitution. It further 
averred that there was no concluded contract by the respondent with 
the appellant and that the work continued under an adhoc arrange-
ment; that the policies of the respondent were governed by the 
H 
guidelines/directions issued to it from time to time by the Ministry of 
818 
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,., 
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l 
MAHABIR AUTO STORES v. OIL CORPN. 
819 
Petroleum whereunder it was no longer possible to give further supplies 
A 
to the appellant firm. 
Aller considering the rival contentions advanced by the parties 
the High Court, dismissed the writ petition. The appellant has filed this 
appeal with special leave. 
B 
Allowing and disposing of the appeal with directions, th.is Court, 
HELD: Every action of the State or of an instrumentality of the 
State in exercise of its executive power, must be informed by reason. In 
appropriate cases, actions uninformed by reason may be questioned as 
arbitrary in proceedings under Article 226 or Article 32 of the c 
Constitution. [826D l 
The respondent-company Indian Oil Corporation is an organ of 
the 'State' or an 'instrumentality of the State' as contemplated under 
Article 12 of the Constitution. [826F] 
D 
The State acts in its executive power·under Article 298 of the 
Constitution in entering or not entering in contracts with individual 
parties. Article 14 of the Constitution would be applicable to those 
exercises of power. Therefore, the action of the State organ under Arti-
cle 14 can be checked. [826F) 
E 
Rule of reason and role against arbitrariness and discrimination, 
rules of fair play and natural justice are part of the rule of law applic-
able in situation or action by State instrumentality in dealing with citi-
zens in a situation like as in the instant case. Even though the rights of 
the citizens are in the nature of contractual rights, the manner, the 
method and motive of a decision of entering or not entering into a 
F 
contract, are subject to judicial review on the touchstone of relevance, 
and reasonableness, fair play natural justice, equality and non-dis-
crimination in the type of the transactions and nature of the dealing as 
in the instant case. [827E-F) 
The dichotomy between rights and remedies cannot be obliterated 
G 
by any straight jacket formule. It has to be examined in each particular 
case. [829D) 
Decision of the State/Public authority under Article 298 of the 
Co

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