Unauthorized induction of a partner breaches the distributorship LOI; later dissolution does not cure it.

Hindustan Petroleum Corporation Ltd. issued an advertisement inviting applications for LPG distributorship under the Scheduled Caste/Scheduled Tribe category. The petitioner applied, was selected through the prescribed process, and was issued a Letter of Intent (LOI) for the distributorship.

Relying on the allotment, he allegedly invested more than ₹30 lakhs in constructing the godown and other infrastructure.

A complaint was subsequently made alleging that the petitioner had executed a registered partnership deed with a third party in relation to the proposed distributorship without obtaining the Corporation’s prior approval.

The Corporation issued a show-cause notice alleging violation of Clause 5.3 of the LOI.

The petitioner admitted execution of the partnership deed but stated that it had subsequently been cancelled and that the alleged defect was neither intentional nor incapable of rectification.

He challenged the proposed cancellation/action under Article 226 of the Constitution, asserting arbitrariness, breach of natural justice, legitimate expectation, and infringement of his right to livelihood under Article 21.

Whether the petitioner’s execution of a partnership deed with a third party, without prior approval of the Corporation, violated Clause 5.3 of the LOI and justified cancellation of the LPG distributorship.

Whether the subsequent cancellation of the partnership deed cured the admitted breach of the LOI.

Whether the Corporation’s action was arbitrary, disproportionate, or contrary to the principles of natural justice so as to warrant interference under Article 226 of the Constitution.

The Court applied Clause 5.3 of the Letter of Intent and the applicable Unified Guidelines for Selection of LPG Distributors, which prohibit the selected candidate from inducting a partner or altering the constitution of the distributorship without the Corporation’s prior approval.

The Court held that compliance with this condition was mandatory and that a breach occurred upon execution of the unauthorised partnership deed; its subsequent cancellation did not retrospectively extinguish the breach.

The Court also applied the principles of natural justice, particularly the requirement of notice and opportunity to explain, and found them satisfied because a show-cause notice had been issued and the petitioner’s response considered.

Exercise of writ jurisdiction under Article 226 was held unwarranted in the absence of arbitrariness, procedural illegality, or violation of law.

The decision relied upon by the petitioner in M/s Hindustan Petroleum Corporation Ltd. v. M/s Super Highway Services & Anr., SLP (Civil) No. 104 of 2009, concerning termination without adequate notice and resulting prejudice, was held distinguishable on facts.

The petitioner admitted that he had executed a registered partnership deed concerning the proposed distributorship without obtaining the Corporation’s prior permission.

Since Clause 5.3 expressly prohibited such induction of a partner or change in the constitution of the distributorship, the Court treated the unauthorised execution of the deed as a completed breach of a mandatory LOI condition.

The later cancellation of the deed could not cure the violation because the prohibited act had already occurred.

The Court further found that the Corporation had followed the prescribed process by issuing a show-cause notice and considering the petitioner’s explanation; therefore, there was no denial of natural justice.

The petitioner’s investment, legitimate expectation, and livelihood concerns could not confer a right to continue the distributorship in breach of its governing conditions.

The precedent relied upon by him was inapplicable because it involved inadequate notice and procedural prejudice, which were absent in the present case.

The Corporation’s action was neither arbitrary nor procedurally illegal, and the requirements of natural justice had been met.

The writ petition was accordingly dismissed for lack of merit, and any pending interlocutory applications were disposed of.