1. Factual Background and Procedural History
The dispute originated from a kerosene dealership granted by Indian Oil Corporation Limited (IOCL) to M/s Shree Niwas Ramgopal. Initially a proprietorship, the entity was reconstituted as a partnership firm on 24.11.1989 by its original proprietor, Kanhaiyalal Sonthalia, who inducted his two sons, Ramesh and Gobinda, as partners with shareholdings of 55%, 35%, and 10% respectively. The dealership agreement was executed with IOCL on 11.05.1990.
Kanhaiyalal Sonthalia died on 29.11.2009, leaving behind multiple legal heirs. Internal disputes arose among the heirs regarding who would succeed to the 55% partnership interest. The surviving partners proposed reconstitution and submitted necessary documents along with fees to IOCL on 13.04.2010. However, IOCL refused to recognise the reconstituted firm, citing Clause 1.5 of its 2008 policy guidelines and insisting upon the joinder or written refusal of all legal heirs.
As the refusal jeopardised continuation of supply of kerosene, the surviving partners approached the Calcutta High Court by way of a writ petition (W.P. No.758 of 2010). On 03.07.2012, the Single Judge directed IOCL to maintain supplies and permit reconstitution in accordance with the partnership deed. IOCL’s intra-court appeal was dismissed by the Division Bench on 04.07.2018.
Aggrieved, IOCL preferred a Special Leave Petition before the Supreme Court, leading to the present judgment titled Indian Oil Corporation Ltd. & Ors. v. M/s Shree Niwas Ramgopal & Ors., delivered on 14 July 2025, wherein the Court refused to interfere with the orders of the High Court.
2. Identification of Legal Issues
The Supreme Court considered the following legal questions:
- Whether the partnership stood dissolved upon the death of one of the partners under Section 42 of the Indian Partnership Act, 1932?
- Whether IOCL could insist that all legal heirs of the deceased partner must be inducted or expressly refuse induction before reconstitution could be recognised?
- Whether IOCL acted arbitrarily in declining continuation of supplies when the dealership agreement itself contemplated business continuity pending reconstitution?
3. Arguments of the Parties
(A) IOCL’s Submissions
- Reliance was placed on Clause 1.5 of IOCL’s 2008 policy guidelines, interpreted to mean that reconstitution must include all legal heirs of the deceased.
- It was argued that without full consensus from all heirs, IOCL was not bound to continue supplies or acknowledge reconstitution.
- IOCL contended uniform national application of the said guidelines.
(B) Respondents’ Submissions
- The responding firm and its surviving partners relied on Clause 18 of the Partnership Deed, which expressly permitted continuity of the partnership business upon death of a partner and authorised surviving partners to induct any one competent heir, not all heirs.
- The dealership agreement itself did not provide automatic dissolution, but conferred IOCL three options: (i) continue existing dealership, (ii) execute fresh agreement post-reconstitution, or (iii) terminate the dealership—none of which were exercised to lawfully end the relationship.
- It was argued that IOCL, a State-instrumentality, must act fairly, reasonably and not adopt an obstructive approach.
4. Court’s Analysis and Reasoning
The Supreme Court reaffirmed the settled legal position under Section 42 of the Indian Partnership Act, holding that dissolution on death applies only where:
- the firm consists of two partners, or
- the partnership deed does not contain a clause providing continuity.
The Court emphasised that this firm had three partners, and Clause 18 of the deed expressly provided for continuity, enabling surviving partners to induct any competent heir. Therefore, the partnership did not dissolve upon Kanhaiyalal Sonthalia’s death.
The Court drew support from:
- M/s Wazid Ali Abid Ali v. CIT, Lucknow (1988 Supp SCC 193)
- Sandersons & Morgans v. ITO (1973) 87 ITR 270 (Calcutta)
- Noor Mohammad & Co. v. CIT (1991) 191 ITR 550 (Allahabad)
It held that IOCL misconstrued its own guidelines, which nowhere mandated joining of all legal heirs nor insisted on No Objection Certificates.
Further, as IOCL had not exercised its termination option, it could not unilaterally halt kerosene supplies, an action found arbitrary and antithetical to commercial fairness expected of a State entity.
The Court also observed that no legal heir had challenged the High Court’s directions, and hence IOCL’s litigation was essentially hyper-technical and unjustified.
5. Final Conclusion and Holding
The Supreme Court dismissed the Special Leave Petition, upholding the High Court’s decision allowing continuation of the dealership with the surviving partners and permitting inclusion of any one competent heir, without insisting on the consent of all heirs. IOCL was held bound to act in a beneficial, non-arbitrary manner, and not to hinder ongoing commercial operations.
The judgment affirms the principle that a partnership with more than two partners does not stand dissolved on the death of one partner when the deed provides continuity, and a State-instrumentality cannot impose conditions inconsistent with the Partnership Act or the contract.
FAQs:
1. Does a partnership automatically dissolve on the death of a partner?
No. Dissolution occurs only if there are two partners or if the partnership deed does not contain a clause permitting continuity upon death.
2. Can surviving partners choose which legal heir to induct after a partner’s death?
Yes. If the partnership deed authorises admission of any competent heir, the surviving partners are not compelled to induct all legal heirs.
3. Can a corporation supplying goods or dealership licences insist on all heirs joining the firm?
No. A supplier or licensor cannot rewrite the partnership terms or override the deed where the law permits business continuity with selected heirs.
4. What happens if the dealership agreement is not terminated but reconstitution is pending?
The dealership continues, and supplies cannot be arbitrarily stopped unless lawful termination has taken place.
5. Is a State-owned corporation required to act fairly in commercial dealings?
Yes. Being a State instrumentality, it must act in a manner consistent with constitutional values of fairness, reasonableness and non-arbitrariness.
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