Read Judgment: INDIAN OIL CORPORATION LIMITED & OTHERS vs. ALL INDIA PETROLEUM DEALERS ASSOCIATION REGISTERED & OTHERS

Pankaj Bajpai

New Delhi,  January 14, 2022: The Delhi High Court has held that Oil Marketing Companies (OMCs) have the power, jurisdiction and authority to issue Marketing Discipline Guidelines (MDGs) 2012, which would include making amendments thereto and are binding upon the Diesel Retail Outlets Dealers (Respondent – ROs), who have consciously and out of free will, entered into the Dealership Agreements. 

A Division Bench of Chief Justice Dhirubhai Naranbhai Patel and Justice Jyoti Singh observed that under the Minimum Wages Act, 1948, there is no bar against the employer being directed to pay wages higher than the prescribed minimum wages, and the said field is therefore open to a contracting party to direct the other party to the contract to pay higher wages.

In the light of the Directive under Article 43 of the Constitution and the aforementioned judgment, there is no merit in the contention of the ROs that OMCs, not being privy to the contracts between RO Dealers and their employees, cannot dictate the terms of their service conditions, and therefore, in the light of the Directive Principles, reasonable conditions/ Regulations/Guidelines can certainly be issued by the OMCs – Appellants to ensure that the employees do not suffer and larger public good is sub-served, added the Bench.  

Going by the background of the case, the OMCs issued amendment to MDGs observing irregularities in the dealings of the Diesel Retail Outlets (ROs) which had impacting the image of the OMCs by the customers. Accordingly, the OMCs directing its RO dealers to pay wages to its workers, in addition to the minimum wages as prescribed by the relevant government, as notified by the OMCs from time to time, as well as pay salary to their workers via e-payment. The OMCs also directed the ROs to cover employees under Pradhan Mantri Suraksha Bima Yojana and Pradhan Mantri Jeevan Jyoti Bima Yojana. 

Additionally, the OMCs asked the ROs to ensure re-calibration of petroleum in case of suspension of sales on account of errors found due to short/excess delivery before re-commencement of sales without prescription of timelines. At the same time, the ROs were also warned to be subjected to graded penalties, apart from termination of agreement, in case of irregularities in their functioning. 

Aggrieved by the said directions, the RO Dealers challenged the subject clauses of the amended MDGs before the High Court, whereby the Single Judge struck down those clauses. Hence, present Letters Patent Appeal by the Appellant Corporations. 

After considering the submissions and arguments, the Delhi High Court found that right from the year 1981-82, to maintain discipline in the operation of retail network of thousands of Petrol (MS) and Diesel (HSD) Retail Outlets of OMCs/Oil Companies, throughout the country, the Marketing Discipline Guidelines (MDGs) were formulated and issued, which are reviewed from time to time. 

Clause 42 of the model agreement, which has already been upheld by various High Courts, replicates the contents of Clause 43 of the Dealership Agreement, in question, and by virtue of powers conferred by Clause 43, the MDGs have been issued. Thus, this provision is the source of power of the OMCs to formulate the MDGs, added the Court. 

The Division Bench noted that the power of the OMCs, under the earlier MDGs, was subject matter of challenge in several writ petitions in various High Courts, including this Court and was upheld, holding that OMCs have the power and jurisdiction to issue MDGs, to regulate the ROs and that the RO Dealers are bound by these Guidelines. 

By providing for higher wages, on one hand, it was ensured that the employees are motivated to work and consequently quality service shall be provided to the customers and on the other hand due care was taken that the Dealers do not feel the pressure or burden of the rise in wages, added the Bench. 

The High Court found that merit in the stand of the Appellants that the Dealers are adequately compensated by raise in their margins, which includes element of salaries and wages, payable to the employees, which element was calculated on the basis of weighted average of Minimum Wages notified by the States/UTs, based on latest available State Government Notifications. 

The Dealers accepted the revision in the Dealers’ margin without any demur and as rightly contended by the Appellants, cannot now object to the enhanced wages, which have been duly factored in the margins, added the Court.  

The High Court therefore, drew conclusions as mentioned below: 

1. State can impose reasonable conditions/restrictions in freedom of contract and trade and Courts are duty bound to affirm and adopt principles of interpretation which will further and not hinder the goals set out in the Directive Principles of State Policy.

2. Article 43 of the Constitution mandates that the State should endeavour to secure by a suitable Legislations or economic organization or in any other way, to all workers, a living wage and fixing of the minimum wage is the first step in that direction. 

3. MDG is a Guideline issued by the OMCs, Instrumentalities of the State to regulate the R.O. Dealers and the direction to pay higher wages is thus a step in the right direction of taking forward the mandate of Article 43 of the Constitution of India.

4. OMC’s, being the Instrumentalities of State and having control over monopolistic goods such as oil, which they sell to general public, through R.O. Dealers, are under a Constitutional obligation to ensure a “living wage” for the workers employed by the R.O Dealers. 

5. The nature of the amendment directing payment of higher wages is for the welfare of the employees of the ROs. It would not be wrong to hold that if the Dealers do not disburse the higher wages after having received higher margins, it would amount to “Unjust Enrichment” on the part of the Dealers.

However, the High Court added a caveat, that while there are no timelines stipulated in the MDGs, yet the OMCs should not delay the process of recalibration and re-stamping and steps must be taken to ensure that as soon as the sale is suspended in a given RO, the next process must start as one cannot overlook the fact that prolonged suspension of sales would not only affect the business of the RO Dealers but would also have a deleterious effect on the consumers.

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