Supreme Court Dismisses Appeal and Directs Continued Kerosene Supply to Dealer Pending Reconstitution

A Bench of Justices Pankaj Mithal and Ahsanuddin Amanullah heard a Special Leave Petition by a state-owned refinery corporation challenging a Calcutta High Court order that directed continuation of kerosene supplies to a partnership dealer pending reconstitution of the firm after the death of a partner. The appeal assailed a Division Bench judgment dated 4 July 2018 which had upheld a Single Judge’s writ directing the corporation to continue supplies until the partnership was reconstituted or its dealership was terminated.

The Court held that the corporation acted arbitrarily and could not adopt a hyper‑technical approach to interrupt a running business. It observed that the dealership agreement allowed the corporation three options on a partner’s death—continue with the existing firm, accept a reconstituted firm, or terminate the dealership—but that the corporation had not chosen to terminate the dealership. The Court noted the statutory and contractual position that a partnership need not stand dissolved simply because one partner died where the deed provided otherwise and where there were more than two partners. The Court, in its reasoning, observed: “The aforesaid guidelines nowhere stipulates that it is mandatory for all the legal heirs to join or reconstitute the partnership firm or otherwise to express their unwillingness to participate... The insistence of the IOCL that all the legal heirs of the deceased partner should join the reconstituted firm or give ‘No Objection Certificate’ to the reconstituted firm would be contrary to the spirit of the original deed of partnership. The IOCL has no role to play in determining as to who is the competent heir of the deceased partner. It should be left on the wisdom of the existing partners.” The Special Leave Petition was dismissed and the High Court orders were left undisturbed.

Background

The dispute arose after Kanhaiyalal Sonthalia, a majority partner holding 55% in a kerosene dealership partnership, died on 29 November 2009. The partnership deed (24.11.1989) expressly provided that the death of a partner would not necessarily dissolve the firm and that surviving partners could admit competent heirs. The dealership agreement (11.05.1990) required notification to the corporation on a partner’s death and permitted the corporation to either continue with the existing firm, accept a reconstituted firm, or terminate the dealership.

Following competing claims among heirs and pending probate proceedings, the surviving partners submitted a reconstitution proposal on 13 April 2010 and paid the reconstitution fee. The corporation refused to recognise the reconstituted firm on the ground that not all legal heirs had joined or expressed willingness to join, and it refused to extend the token for kerosene supply beyond 14 June 2010. The firm filed Writ Petition No. 758 of 2010 in the Calcutta High Court seeking a declaration that a policy clause was illegal, a mandamus to renew licence and to maintain supplies until reconstitution.

The Single Judge allowed the writ on 3 July 2012 and directed continuation of supplies to the subsisting partners until rights of heirs were adjudicated or the firm was properly reconstituted. The Division Bench, on appeal by the corporation, affirmed on 4 July 2018, relying on earlier High Court authority and holding that a state instrumentality like the corporation must act in the interest of consumers and not interrupt supplies arbitrarily; it directed continuation of supplies for one year with yearly review until reconstitution.

On Special Leave, the Supreme Court found no error in the High Court’s approach. The Court relied on Section 42 of the Partnership Act and precedent holding that a firm need not automatically dissolve on a partner’s death where the partnership deed provided otherwise and there were more than two partners (citing decisions such as M/s Wazid Ali Abid Ali). The Court recorded that none of the heirs had challenged the High Court order and that the corporation had “acted in a high‑handed manner while exercising arbitrary powers with no sense of fairness.” The Court dismissed the petition with an observation that the corporation should avoid litigations that interfere with the continuance of running businesses.

Case No.: 2025 INSC 832; Special Leave Petition (Civil) No. 1381 of 2025 Case Title: Indian Oil Corporation Limited & Ors. v. M/s Shree Niwas Ramgopal & Ors. Appearances: For the Petitioner(s): Smt. Madhavi Goradia Divan, learned senior counsel For the Respondent(s): Shri Yashraj Singh Deora, learned senior counsel; Smt. Pallavi Pratap, learned counsel