No Automatic Dissolution on Partner’s Death: SC Condemns Indian Oil Corporation Limited for Arbitrary Denial of Kerosene Supply to Firm [Read Order]

The case involved M/s Shree Niwas Ramgopal, a firm originally constituted proprietorship under Kanhaiyalal Sonthalia and later reconstituted as a partnership with his two sons. The firm had a kerosene dealership agreement with IOCL dated 11 May 1990, which allowed for continuation, reconstitution, or termination upon the death of a partner.

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Following Kanhaiyalal's death in 2009, disputes arose among his legal heirs regarding succession and inclusion in the firm. While three partners, including one heir (Vijay Sonthalia), proposed reconstitution, IOCL insisted on the consent or inclusion of all legal heirs before renewing the dealership.

Despite attempts by the remaining partners to comply and reconstitute the firm, IOCL refused to extend the supply token beyond June 2010. This forced the firm to approach the Calcutta High Court seeking a writ of mandamus to ensure continuation of supply and recognition of the reconstituted firm.

The High Court allowed the writ petition in 2012, directing IOCL to continue supply and recognise the reconstituted firm, subject to any civil court decision or probate proceedings. No legal heir challenged this order, implying consensus among them.

IOCL alone appealed, but a Division Bench upheld the earlier Single Judge’s ruling in 2018. Citing IOCL's public interest role and relying on precedent, the Court held that the corporation must continue supplies annually until the reconstitution is resolved.

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Delivering the judgment, a Bench comprising Justice Pankaj Mithal and Justice Ahsanuddin Amanullah observed that IOCL had not terminated the dealership and misread its guidelines by refusing to recognise the reconstituted firm.

The Court clarified that Clause 1.5 of IOCL’s 2008 policy guidelines only requires willing heirs and surviving partners to constitute the new firm. There is no mandate for all legal heirs to join or furnish no-objection certificates. It also noted that Clause 18 of the partnership deed allowed business to continue after the death of a partner, with discretion to include any competent heir. Accordingly, the firm’s business continuity was contractually and legally valid.

Citing precedents including Wazid Ali Abid Ali v. CIT and Sandersons & Morgans v. ITO, the Court reiterated that partnerships with more than two partners and express continuance clauses do not dissolve on death. The court, however, said IOCL’s narrow and rigid interpretation of guidelines effectively stalled a running business without lawful termination. The court noted that IOCL should avoid such litigations with a narrow approach. As a result, the Supreme Court dismissed IOCL’s Special Leave Petition and held that IOCL must review its internal procedures to ensure alignment with both legal precedent and the public trust reposed in it.

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