It Is For Oil Marketing Companies To Ensure Supply Of LPG Cylinders To Protect Interests Of Consumers: Kerala High Court Upholds OMC Right To Transfer LPG Distributors

The Court rejected the petitioners' arguments regarding promissory estoppel and legitimate expectation, noting that the original Distributorship Agreements explicitly allow OMCs to require the surrender of customers for market restructuring.

​The Bench of Justice MA Abdul Hakhim observed, “LPG is an essential commodity. It is for the Oil Marketing Companies to ensure the prompt supply of LPG cylinders to its subscribers through their distribution system…It is the Oil Marketing Companies which have the expertise to design proper guidelines to ensure the prompt supply of LPG cylinders to protect the interests of the consumers…Hence, I hold that it is legally permissible for the Oil Marketing Companies to formulate Policy/Guidelines for customer transfer from one Distributor to another Distributor. The Distributors who are affected by such customer transfer cannot challenge such Policy/Guidelines for customer transfer on the grounds of arbitrariness or illegality.”

Senior Advocate P. Deepak appeared for the Petitioners, while Senior Advocate E.K. Nandakumar appeared for the Respondents.

Two writ petitions were filed challenging a policy decision taken by three Oil Marketing Companies on Customer Transfer for Market Restructuring of Liquefied Petroleum Gas (LPG) Distributorships. It was mainly contended that the decision was arbitrary, illegal and ultra vires of the Constitution, hereby violative of Articles 14, 19(1)(g) & 300A.

Brief Background

Originally, LPG distributors had no "refill ceiling limit" (a cap on how many cylinders they could sell). When supply was short, Oil Marketing Companies (OMCs) would set temporary limits; when supply was plentiful, they encouraged distributors to get as many customers as possible. To keep up, distributors invested a lot of money into staff and infrastructure. However, in June 2016, the government introduced the Unified Guidelines for Selection (UGS), known as Ext.P5. These guidelines set specific monthly refill limits based on the 2011 Census.

In January 2018, the OMCs issued guidelines to restructure the market by transferring customers between distributors. These rules split distributors into two groups: Post-UGS Distributors- Followed the new, higher limits set in 2016; and Pre-UGS Distributors- Followed older, lower limits. However, the OMCs promised that transfers wouldn't drop these older distributors below 75% of the market ceiling.

In early 2025, the government removed the "prospective" protection for older distributors. They changed the rules to say that the new refill limits would now apply to everyone, regardless of when they started their business. On February 21, 2025, the OMCs issued a unified "Policy on Customer Transfer." This policy officially applied the UGS limits to all distributors for market restructuring.

The new 2025 policy was immediately challenged in court again. While High Courts in Andhra Pradesh, Telangana, and Bombay have temporarily stopped the policy from being used, the Kerala High Court initially refused to stop it. After a series of appeals and reviews regarding specific clauses and "stay orders," the matter remains active in court without a final order in favor of the distributors in this specific case.

Contention of the Parties

The Petitioners-distributors argued that the Policy is legally invalid because it was signed by General Managers rather than the Board of Directors or the Ministry. They contended that the policy unfairly changes the rules of the game; while they were originally encouraged to invest heavily in staff and infrastructure to grow their customer base, the OMCs are now "penalizing" their success by forcibly taking those customers away. They further claimed that the 2016 Guidelines were explicitly promised to apply only to new businesses, not existing ones. By applying these limits to everyone, they argue the government is violating the legal principle of "promissory estoppel" and making it impossible for established distributors to maintain their expensive infrastructure.

The Respondents- Oil Marketing Companies maintained that the issue is already settled by previous Kerala High Court rulings, which state that the companies—not the distributors—own the customer relationship. They argued that distributors are merely agents, and the company has a right to restructure the market to prioritize consumer interest over a distributor's profit. They also pointed out that the new 2025 policy is actually more generous than the 2018 version, as it allows distributors to keep 100% of the market ceiling rather than just 75%.

The Government argued that the policy is a necessary social measure to prevent a "concentration of wealth" in the hands of a few large distributors. They claimed the policy is protected by Article 31C of the Constitution because it aims to distribute resources for the "common good," as required by the Directive Principles of State Policy.

Observations of the Court

The court addressed the first major issue regarding the legal validity and authorization of the impugned policy. The Court rejected the distributors' argument that the Policy was invalid due to a lack of proper authorization. The Court applied the "Principle of Indoor Management," which means it assumes a company’s internal procedures were followed correctly when a document is signed by its high-ranking officers. Since the policy was signed by Chief General Managers, the Court held that it could not be assumed these officers acted on their own without the companies' knowledge.

The Court also highlighted that the Oil Marketing Companies (OMCs) themselves have never disputed the authority of these officers. In fact, the OMCs actively defended the policy in court through their legal filings. Furthermore, the Court noted that the Solicitor General of India had already informed the Supreme Court that the OMCs were specifically working on this new policy, proving it was an official corporate move.

The Court then ruled that Oil Marketing Companies (OMCs) have the absolute legal right to transfer customers between distributors. The Court emphasized that the customer’s contract is with the OMC, not the distributor. Distributors act only as "agents" for the company. Because LPG is an essential commodity, the OMC has the authority to move customers around to ensure a prompt supply and protect the public interest, which outweighs a distributor's private profit.

The Court rejected the "promissory estoppel" argument (the claim that the OMCs broke a promise of growth). It pointed out that the original Letter of Intent signed by distributors specifically warns that they may have to surrender customers. Furthermore, because refill limits were introduced in 2016, distributors should have expected they would be enforced eventually, regardless of any past leniency.

It was held, “Even if it is permissible for the Petitioners to raise the grounds of legitimate expectation and promissory estoppel, the Petitioners are not entitled to succeed on those grounds. The rights and liabilities of the Petitioners and the Respondents Nos.2 to 4 are governed by the commercial contract entered into by them. In Ext.R2(d) Letter of Intent, there is a specific provision for the surrender of customers by the Distributor to other Distributors, when they are required for the same. In such case, the Petitioners could not have a legitimate expectation that they will be entitled to continue their distributorship with the customers procured by them throughout the subsistence of the Distributorship. The principle of promissory estoppel is that the State and/or an instrumentality thereof shall not resile from a promise made by it earlier after a citizen has acted upon such promise.”

The Court finalized its judgment by addressing the relationship between different guidelines and the constitutional validity of the 2025 policy. The distributors argued that the 2025 policy should not apply to them because they started their businesses before the 2016 Selection Guidelines were created. The Court rejected this, noting that Ext.P5 was about selecting new distributors, while Ext.P1 is about transferring customers for market restructuring.

“When the case on hand is considered in view of the dictum laid down in Mahinder Kumar Gupta (supra), I am of the view that the impugned Ext.P1 is issued for ensuring that the ownership and control of the material resources of the community are distributed so as to best subserve the common good and to prevent concentration of wealth and means of production to the common detriment, which principles are embodied in Clauses (b) and (c) of Article 39 of the Constitution of India”, the Court held.

The Court pointed out that the 2025 policy is actually more beneficial to older distributors: under the 2018 rules (which they didn't challenge), they could have had their customer base cut down to 75%, but the new policy ensures they keep at least 100% of their refill ceiling.

The Court ruled that the government has a "monopoly" over essential resources like petroleum and LPG. Under Article 39 of the Constitution, the State is required to distribute these resources to serve the "common good" and prevent wealth from being concentrated in too few hands. Because the 2025 policy aims to distribute business fairly among many distributors rather than a few large ones, it is protected by Article 31C. This means the distributors cannot claim the policy is "unconstitutional" just because it affects their individual business rights or equality.

The Court found no reason to interfere with the impugned 2025 policy. It ruled that the Oil Marketing Companies acted within their rights to protect the public interest and ensure a fair market. The Writ Petitions were dismissed.

Cause Title: All India LPG Distributors Federation (Kerala Circle) and Ors. v. Union of India and Ors. [Neutral Citation: 2026:KER:20906]

Appearances:

Petitioners: Senior Advocate P. Deepak, Advocate Adarsh Kumar, Advocate Shashank Devan.

Respondents: Senior Advocate E.K. Nandakumar, Central Government Counsel C. Dinesh, Advocate M. Gopikrishnan Nambiar, Advocate Nirmal.S, Advocate Tony George Kannanthanam, Advocate S. Jathin Das, Advocate K. John Mathai, Advocate Joson Manavalan, Advocate Kuryan Thomas, Advocate Paulose C. Abraham, Advocate Raja Kannan, Advocate Arun.B.Varghese, Advocate Veena Hari, Advocate S. Agila, Advocate Neethu Satheesh, Advocate Arun S., Advocate T.A. Prakash.

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