Financial Daily from THE HINDU group of publications
Wednesday, Aug 07, 2002
Industry & Economy
Oil dealership issue may end up in court `Arbitrary cancellation not possible'
CHENNAI, Aug. 6
THE Government's decision to cancel all allotments of oil dealerships since January 2000 is expected to land up in the courts.
According to oil company officials, the dealership agreement that they entered into with the allottees does not provide for arbitrary cancellation of dealerships.
They say that dealerships can be cancelled only on grounds of genuine misconduct of dealers such as adulteration and that termination notices should clearly specify the grounds for cancellation.
Any termination of dealerships consequent to the Government's announcement can now be justified only on grounds of mala fide in original allotment, which can be contested in Court by the allottees. A merit-based allottee whose dealership is now cancelled would be genuinely grieved by the decision and could well go to court against the Government.
Meanwhile, though the announcement was made on Monday, till late this evening the Government had not sent any formal directive to the three oil companies Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum on the issue. One of them had received a request from the Oil Ministry for information on dealerships allotted since "a particular date" but nothing more.
Till such time that the directive comes from the Government, the oil companies cannot initiate any action on their own. Retail outlets controlled by these allottees would continue to function normally and supplies to them will be kept up, say officials in the oil companies. So there is unlikely to be any disruption in the market.
Even after termination notices are issued to dealers, the outlets would continue to function as oil companies' plan to run them with contractors. Fortunately for the oil companies, almost all the retail petrol pump outlets allotted in the last couple of years are owned by the companies themselves. "We own the land and the equipment in these outlets and the dealers are only operators", says an official in one of the oil companies. This may help in continuing the business in these outlets with minimal disruption.
Of the 3,128 dealerships now proposed to be cancelled, 1,134 are petrol pumps. Retail outlets are allotted on the basis of market share, which means that Indian Oil will take the biggest cut as about 55 per cent of the cancelled outlets would belong to it while Hindustan Petroleum and Bharat Petroleum would share the remainder almost equally.
According to observers, if the issue does land up in court, it could lead to a win-win situation for the Government. "If the court does find the allotments mala fide, the Government can claim credit for the cancellations. Alternatively, if it does not find any ground for cancellation, then the Government can pat its back and say that the Opposition had got it all wrong", says an observer.
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