The Allahabad High Court has dismissed a set of writ petitions challenging the policies of Oil Marketing Companies (OMCs) on customer transfer and market restructuring, holding that distributors cannot oppose unilateral reduction of their customer base without challenging the underlying terms of their agreements and guidelines.

The Court held that the distributor can succeed in challenging the reduction in the customer base only if he challenges the aforesaid clauses which authorise the OMCs to reduce, restrict, modify or alter the area of distributorship territory or direct the surrender of some customers to another distributor.

Differentiating its view from a prior Bombay High Court ruling on similar grounds, the Bench emphasized that public interest supersedes claims of legitimate expectation and that the new policy adequately safeguards existing distributors by maintaining their refill limits up to the prescribed ceiling norms.

The Division Bench of Justice Saral Shrivastava and Justice Sudhanshu Chauhan held, "The petitioner cannot succeed in assailing the New Policy on the ground that New Policy unilaterally permits the OMCs to reduce the customer base of the distributor without challenging the aforesaid clauses...We are of the view that the said Policy providing reduction of customers of the distributor is in line with the Guidelines and various clauses of the LOI, LPG Manual and Distributorship Agreement which permits the OMCs to withdraw the customers of distributor in line with the existing policy. Therefore, such unilateral exercise of power by the OMCs in reducing the customers of a distributor cannot be termed to be an arbitrary exercise of power."

Senior Advocate Tarun Agrawal appeared for the Petitioners, while Senior Advocate Anil Kumar Sharma appeared for the Respondents.

Brief Facts of the Case

A bunch of writ petitions were filed assailing the Policy on Customer Transfer-Market Restructuring and the Policy on Customer Transfer-Based on Area of Operation notified by the Oil Marketing Companies. The Petitioner was a distributor of LPG Cylinders by the Indian Oil Corporation Limited.  

According to the main petitioner’s case, the OMC used to prescribe refill ceiling limits due to limited availability of LPG cylinders, which were enhanced from time to time with the increase in the availability of cylinders. Although ceiling limits remained on paper, the OMC continued to actively push its distributors to expand its customer base, including refilling LPG cylinders. It was stated that it catered to approximately 36000 customers and an average refill quantum of approximately 24500 cylinders per month.

The Union Government subsequently introduced guidelines for the selection of LPG distributors, prescribing ceiling limits on monthly refill sales based on market population and feasibility norms. Pursuant to these guidelines, the OMCs issued an earlier policy empowering them to unilaterally transfer customers from existing distributors to new ones to ensure the commercial viability of the latter.

This earlier policy was challenged before the Bombay High Court, which stayed and ultimately struck it down. Although an appeal against the Bombay High Court's judgment remained pending before the Supreme Court without any stay, the OMCs issued a new policy on customer transfer and market restructuring, retaining provisions for the unilateral transfer of customers. Aggrieved by the notification of the new policy, the petitioners approached the High Court.

Contentions of the Parties

It was contended by the Petitioner that since the New Policy does not define new (recipient) distributor, therefore, the date of commissioning of new (recipient) distributor cannot be ascertained and thus, previous twelve months from the date of commissioning of new (recipient) distributor which is the starting point to determine twelve months for the purpose of calculating average refill sales of the donor distributor cannot be ascertained, thus, period of twelve months is not calculable. 

It was also submitted that the Petitioner, being one of the oldest distributors, made huge investment and efforts to increase the number of customers; therefore, action of the respondent in unilaterally withdrawing customers of the petitioner which has been earned alone by its efforts is nothing but an arbitrary exercise of powers by the respondent, and thus, such unilateral withdrawal of customers cannot be permitted.

It was also argued that the Policy should apply prospectively and not retrospectively. It was argued that the Bombay High Court, while striking down the Policy, 2018, had repelled the argument of OMCs asserting their rights under distributorship agreement permitting them to curtail the area of operation by observing that power to curtail or/reduce the area of operation could not be construed to mean curtailment/deduction of customers.

Per Contra, the Respondents-OMCs submitted that the distributorship agreements, letters of intent, and the LPG Manual bind the distributor to observe and carry out all directions, orders, terms and conditions issued by the Corporation from time to time.

The respondents contended that the ratio laid down by the Bombay High Court did not apply in the facts of the present case inasmuch as the judgment of the Bombay High Court has not considered the effect of various clauses of the Distributorship Agreement as well as the LOI. 

It was submitted by Bharat Petroleum that the LOI is an offer document which contains several clauses stipulating the terms and conditions, and the distributor was issued a letter of appointment after he accepted the terms and conditions of LOI. It was contended that since the letter of appointment was issued to the distributor after accepting the terms and conditions of the LOI, the distributor is bound by the terms and conditions of the LOI.

Observations of the Court

The Court said that vide Clause 1 (ii) of New Policy, donors distributors' interest is protected as the said clause unequivocally states that all the donor distributors will be retained at 100% of the refill ceiling limit applicable to them as per the table provided in Clause-1 and does not give discretion to OMC’s to reduce the ceiling limit provided in Clause-1 (i) of New Policy.

As regards the Bombay High Court judgment which had quashed the earlier Policy, 2018 by observing that power of OMCs to curtail/reduce the area of operation could not be construed to mean curtailment/deduction of customers, the Court differed from the aforesaid observation of the Bombay High Court because the Bombay High Court did not notice certain relevant clauses of the LPG Manual, Dealership agreement and LOI.

While referring to clauses of the LPG Manual, the Court said, "Once the distributor has agreed to various clauses referred above which authorises OMCs to reduce the Area of Operation, customer sale etc. of the distributor, the distributor is bound to adhere to those terms and conditions and cannot resile from it."

The Court said that in the absence of any challenge to various clauses of LOI, LPG Manual and Distributorship Agreement authorising OMC’s to reduce the area of operation, appointment of additional distributor and reduction in customers, the distributor cannot raise a grievance with regard to reduction in customer base. 

It was further observed, "It has also been urged that New Policy shall be enforced prospectively and not retrospectively. The said argument lacks substance as petitioners do not have vested right to retain the customers enrolled by them as the distributors enroll the customers on behalf of OMC’s in view of Clause 4.7 of LPG Manual, and further OMC’s under various clauses of LOI, Distributorship Agreement and LPG Manual are authorised to reduce the customer base or area of operation of a Distributor."

Regarding the argument of 'Legitimate Expectation', the Court observed, "Doctrine of legitimate expectation would not attract where public interest is involved. In the instant case, we have already detailed above the object for introducing New Policy which is for the benefit of the public, and for this reason also, the petitioners cannot invoke the principle of doctrine of legitimate expectation in the present case...It is also pertinent to note that argument of learned counsel for the petitioner that by the New Policy, the OMCs are benefiting laggards who have been unsuccessful. The argument is misconceived as no material has been placed on record to substantiate the said argument."

Therefore, the Court concluded that the Distributor is bound by Clause 11 of the Distributorship Agreement and cannot resile from it; therefore, the Distributor is bound to follow all directions and orders issued by OMCs from time to time. It added that the only exception when he can resist following an order or direction of OMCs is if he can succeed in establishing that such order or direction is arbitrary, malafide or is against public policy. 

Accordingly, the Writ Petitions were dismissed.

Cause Title: Vikramaditya Gas Agencies v. Union of India and others and connected matters [Neutral Citation: 2026:AHC:166335-DB]

Appearances:

Petitioners: Senior Advocate Tarun Agrawal, Advocate Prakhar Saran Srivastava 

Respondents: A.S.G.I. Anand Tiwari, Senior Advocate Anil Kumar Sharma, Gaurav Kumar Chand, Nishant Mehrotra, Shrey Sharma, Yash Padia

Click here to read/download the Judgment

Tags: