PSU Cannot Deny Partnership Recognition Over Non-Participation Of All Heirs | Supreme Court Raps IOCL For Misreading Policy And Acting Arbitrarily After Partner’s Death
Kiran Raj
The Supreme Court of India Division Bench of Justice Pankaj Mithal and Justice Ahsanuddin Amanullah has dismissed a Special Leave Petition filed by a statutory corporation challenging the High Court's directive to continue kerosene supply to a firm pending reconstitution. The Court held that the statutory authority acted arbitrarily and adopted a hyper-technical approach contrary to its own policy guidelines and partnership agreement. The Bench noted that the supply of kerosene, which had been ongoing for years, ought not to have been disrupted on narrow technical grounds. The Court upheld the High Court's mandamus directing continuation of kerosene supply to the partnership firm comprising surviving partners and one legal heir of the deceased partner until the firm is reconstituted or its dealership agreement is terminated.
The Supreme Court stated that "the IOCL ought to avoid such litigations by interfering with the continuance of any running business by taking a narrow approach." Concluding that there was no merit in the petition, the Court refused to interfere with the impugned order(s) of the High Court. The Special Leave Petition was thus dismissed.
The dispute pertains to a kerosene dealership operated under a partnership agreement between Indian Oil Corporation Limited (IOCL) and a firm originally constituted as a proprietorship of Kanhaiyalal Sonthalia. The firm was reconstituted into a partnership on 24.11.1989 with Kanhaiyalal Sonthalia holding 55% share, and his sons, Ramesh Sonthalia and Gobinda Sonthalia, holding 35% and 10% respectively. The dealership agreement with IOCL was executed on 11.05.1990.
Clause 30 of the dealership agreement provided that, upon the death of any partner, IOCL may either continue the dealership with the existing firm, execute a fresh agreement with a reconstituted firm, or terminate the dealership. Kanhaiyalal Sonthalia passed away on 29.11.2009, leaving behind his wife, seven sons, and four daughters. Among the legal heirs were the two surviving partners in the firm.
Post his death, disputes arose among the heirs regarding the 55% shareholding of the deceased. Letters were exchanged among the heirs, with some staking claim to partnership inclusion and others requesting information on assets and liabilities. Notably, one heir, Rakesh Sonthalia, claimed the deceased had executed a will bequeathing his share to him and filed for probate in the Civil Court.
Pending the resolution of these issues, IOCL allowed the firm to continue operations until 14.06.2010 and requested documentation for reconstitution. On 13.04.2010, the existing partners submitted a reconstitution proposal that included the surviving partners and Bijoy Sonthalia, another legal heir. The firm also submitted a reconstitution fee of Rs. 25,000.
Despite these steps, IOCL informed the firm that the supply token would not be extended beyond 14.06.2010 unless a new dealership agreement was signed. Multiple representations were made to IOCL, but the supply was not resumed. The firm and its partners filed Writ Petition No. 758 of 2010 before the High Court under Article 226 of the Constitution.
The petition challenged Clause 1.5 of IOCL’s policy guidelines dated 01.12.2008 and sought a mandamus to extend the kerosene supply token and permit firm reconstitution under the existing partnership deed dated 24.11.1989. The High Court, on 03.07.2012, allowed the writ petition and directed IOCL to permit the firm’s reconstitution, subject to civil court orders in the probate case, and to continue kerosene supply until then.
IOCL alone challenged this judgment in appeal before the Division Bench. None of the deceased partner’s legal heirs filed objections or appeals, indicating their acceptance of the Single Judge’s decision.
The Division Bench, in its judgment dated 04.07.2018, upheld the Single Judge’s directions. It referred to a prior judgement in Indian Oil Corporation vs. Roy and Company (2018 (1) CHN (Cal) 199), holding that IOCL must continue the kerosene supply to the firm for a year and then conduct a yearly review until the partnership was fully reconstituted.
IOCL challenged this decision before the Supreme Court by way of a Special Leave Petition. It relied heavily on Clause 1.5 of its policy guidelines dated 01.12.2008, which provided that after the death of a partner, the firm must be reconstituted with the legal heirs and surviving partners.
The Supreme Court noted at the outset that "instead of acting in a just, fair and equitable manner, the statutory corporation, a state instrumentality, has acted in a high-handed manner while exercising arbitrary powers with no sense of fairness in a matter of commercial interest."
The Court analysed Clause 30 of the dealership agreement, which states that in the event of a partner's death, IOCL may: (i) continue with the existing firm; (ii) enter a fresh agreement with a reconstituted firm; or (iii) terminate the dealership. It observed that "the IOCL till date has not exercised the option of terminating the dealership of the firm, rather has provided opportunity to the firm to reconstitute itself."
Discussing Clause 18 of the partnership deed, the Court recorded that "the death of any partner shall not cause discontinuance of the partnership business and that the surviving partners may continue the business and the interest of the deceased partner shall vest in the legal heirs of the deceased."
The Bench held that "it is not necessary for the surviving partners to include all the heirs of the deceased partners in the partnership or to wait for their consent to be included or not to be included in the partnership."
Regarding IOCL's interpretation of its own guidelines, the Court stated that "Clause 1.5 of the guidelines dated 01.12.2008 simply provides that in the case of death of one of the partners, the partnership shall be reconstituted with the legal heirs of the deceased partner and the surviving partners. It further provides that if there are no legal heirs or any of them have expressed unwillingness to join the firm, the dealership shall be reconstituted with the surviving partners or with the willing heirs of the deceased partner."
The Court concluded that "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."
It further stated that "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 Court also relied on precedent, stating that "this Court in M/s Wazid Ali Abid Ali vs. Commissioner of Income Tax, Lucknow observed that under the Partnership Act, on death or demise of a partner, the firm shall not be dissolved but shall be carried on with the remaining partners or by including the heirs and representatives of the deceased partner on such terms and conditions mutually agreed upon."
Summarising the position, the Court observed: "on the death of one of the partners of the firm, the business of the firm would not come to an end in view of Clause 18 of the deed of partnership read with Clause 13 of the dealership agreement. In such a situation, the IOCL could not have discontinued the supply of kerosene to the existing firm without terminating its dealership."
The Supreme Court held that "there is no error or illegality on the part of the High Court in issuing the above directions." It noted that "none of the heirs and legal representatives were dissatisfied by the directions issued by the High Court as they have not assailed the same in any forum."
The Court recorded: "when the heirs and legal representatives of the deceased partner were not aggrieved, it was not appropriate for the IOCL to have taken a hyper-technical approach on the interpretation of the guidelines."
The Court concluded: "the IOCL appeared to have misconstrued its own guidelines in not recognising the reconstitution of the partnership firm with the surviving partners and one new partner being one of the competent heir and legal representative of the deceased partner."
In dismissing the Special Leave Petition, the Court stated: "we do not propose to entertain the Special Leave Petition and to interfere with the impugned order(s) of the High Court."
The concluding directive of the Court read: "The Special Leave Petition is devoid of merit and is dismissed with the observation that the IOCL ought to avoid such litigations by interfering with the continuance of any running business by taking a narrow approach."
Advocates Representing the Parties
For the Petitioner(s): Ms. Madhavi Goradia Divan, Sr. Adv., Ms. Mala Narayan, Adv., Mr. Shashwat Goel, AOR, Ms. Isha Ray, Adv.
For the Respondent(s): Mr. Ramanand Agarwal, Adv., Mr. Anindo Mukherjee, Adv., Mr. Rameshwar Prasad Goyal, AOR, Ms. Pallavi Pratap, AOR, Ms. Asha Gutgutia, Adv., Mr. Amjid Maqbool, Adv., Ms. Yashvi Aswani, Adv., Ms. Anupriya Dixit, Adv.
Case Title: Indian Oil Corporation Limited & Ors. vs. M/s Shree Niwas Ramgopal & Ors.
Neutral Citation: 2025 INSC 832
Case Number: Special Leave Petition (Civil) No. 1381 of 2025
Bench: Justice Pankaj Mithal and Justice Ahsanuddin Amanullah
