State Can Impose Reasonable Restrictions In Freedom Of Contract & Trade: Delhi High Court

The Delhi High Court has recently upheld the amendments to the 'Marketing Discipline Guidelines 2012' (MDG) issued by the Oil Marketing Companies (OMCs) to the Petrol and Diesel Retail Outlets (ROs), in order to protect the rights of ROs' employees.The relationship between the OMCs and their respective Dealers is purely contractual in nature and governed by the terms of Dealership/License Agreements, executed between the parties.The Division Bench of Chief Justice DN Patel and Justice Jyoti Singh held that State can impose reasonable conditions/restrictions in freedom of contract and trade. In this case, the OMCs had introduced certain amendments to the MDGs, including mandating the ROs to make payments of wages to the manpower, employed in the ROs, at rates higher than the minimum wages.Other conditions imposed were providing benefits to employees such as PF, Bonus, Gratuity etc. Further, it was directed that payment of salary be made through e-payment mode; maintain the wage register and e-payment details and employees of ROs be covered under Pradhan Mantri Suraksha Bima Yojana (PMSBY) or Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).Upholding the said amendments, the Bench observed,"State can impose reasonable conditions/restrictions in freedom of contract and trade...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. 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."It further clarified that the ROs can raise no objection since the Appellants (OMCs) while issuing the directions to revise the minimum wages, have factored the increase in the wages, into the 'Dealers margins', thereby ensuring that the employees benefit without any pressure on the Dealers.The Bench thus set aside the single judge order striking down certain clauses and upheld the power, jurisdiction and authority of OMCs to issue MDGs and to amend the same to maintain discipline and uniformity in action of the ROs. In this regard, the order stated,"The objective and intent of the Appellants, in issuing such directions, is to benefit the workers at the grass-root level and Clause 43 obliges the RO Dealers, to comply with the directions issued by the OMCs...Dealers are bound by the obligations under the Dealership Agreement."Reliance was placed on Delhi Petrol Dealer Association and Anr. v. Union of India & Ors reported in (1999) 81 DLT 400, where the High Court held that Clause 43 of the agreement clearly spells out that the dealer shall observe and perform all directions or rules given or made from time-to-time by the Corporation for the proper carrying on of the dealership of the Corporation. A similar finding was also rendered by the Karnataka High Court in M/S IBP Company Ltd. and Anr. v. Sri T.A. Jayaprabhu and Ors. Other FindingsThe Bench upheld the mandate to cover RO employees under PMSBY or PMJJBY scheme, stating:"the premiums payable under the Schemes have already been factored in the Dealers' margin and the benefits of the revision have been reaped by the Dealers and non-disbursement of the amounts would be unjust enrichment. Secondly, being in the nature of insurance Schemes, with premiums in the affordable range, they would go a long way towards the welfare of the employees of the ROs and secure their tenure and future."On the issue of OMCs levying monetary penalties for violation of the directions issued under various Clauses of the MDGs and/or committing major irregularities thereunder, the Bench observed,""Termination of a Dealership Agreement" is a major and extreme penalty and could be disproportionate in a given case for a given irregularity/breach. It is for this reason that Clause 8.3 not only classifies the major irregularities but also enumerates the monetary penalties. Perusal of the said Clause, clearly reveals that with due deliberation, the penalties have been provided for and termination of the Dealership is only at the stage when the irregularities reach the third stage after first and second stage of monetary penalties including suspension of sales."On the clause pertaining to toilet facilities at ROs, it was contended that OMCs cannot compel the former to extend toilet facilities to persons other than employees/staff or the customers.Agreeing with this submission as also the stand taken by the single Judge, the Division Bench observed,"The RO Dealer/Manager will employ his/her discretion, keeping in mind the security and safety of the RO. The RO Dealer/Manager will have the right to deny access if he/she finds that the person is a dodgy character or is carrying...

State Can Impose Reasonable Restrictions In Freedom Of Contract & Trade: Delhi High Court

Suhavi Arya

It thus upheld the guidelines issued by Oil Companies, instrumentalities of State, for benefit of fuel pump employees.

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