The Allahabad High Court, hearing a batch of writ petitions filed by multiple LPG distributors, upheld the 2025 "Policy on Customer Transfer-Market Restructuring" issued by the Oil Marketing Companies, finding that the policy was neither arbitrary nor violative of the distributors' legitimate expectations.
Background & Facts
The Dispute
The petitioners, a group of LPG distributors including Vikramaditya Gas Agencies, challenged the "New Policy" dated 21.02.2025 which authorised the unilateral transfer of customers from existing distributors to newly commissioned ones. They alleged that the policy was arbitrary, retrospective and violated their legitimate expectation to retain customers they had invested in.
Key Facts
- The petitioner-firm Vikramaditya Gas Agencies was incorporated as a partnership and appointed as an LPG distributor in 1994.
- The distributorship agreement with Indian Oil Corporation Limited (the "Corporation") was executed on 10.06.1998.
- The firm was restructured in 1998 with the induction of partner Vipul Purohit.
- The Ministry of Petroleum and Natural Gas introduced the "Ujjawala Scheme" on 01.05.2016 to expand LPG connections.
- The Oil Marketing Companies (OMCs) issued the "Policy on Customer Transfer-Market Restructuring" on 21.02.2025 (hereinafter “New Policy”).
- The earlier "Policy, 2018" dated 04.01.2018 was challenged before the Bombay High Court (Writ Petition No.8753 of 2018); the Bombay High Court stayed the policy and later allowed it, issuing a judgment on 30.09.2019.
- A Special Leave Petition (SLP) against the Bombay High Court judgment (SLP (Civil) No. 2425 of 2020) remains pending before the Supreme Court.
- The distributors contend that Clause 1(3) of the New Policy fails to define the "new (recipient) distributor", rendering the twelve-month sales calculation impossible and the policy vague.
- The OMCs rely on clauses of the distributorship agreement, the Letter of Intent (LOI) dated 15.07.1994, and the LPG Manual (particularly clauses 4.4, 4.5, 4.6, 4.7) which empower them to modify the area of operation and to transfer customers.
Procedural History
- 21.02.2025: OMCs issue the New Policy.
- 10.06.1998: Distributorship agreement executed between Vikramaditya Gas Agencies and the Corporation.
- 30.09.2019: Bombay High Court delivers judgment striking down the 2018 Policy for being arbitrary.
- 2025: Multiple writ petitions filed before the Allahabad High Court (WRIT-C No. 11195 of 2025, 13367 of 2025, 13531 of 2025, etc.).
- 18.02.2026: Matter reserved.
- 10.08.2026: Judgment delivered dismissing all writ petitions.
Relief Sought
The petitioners sought:
- Quashing of the New Policy dated 21.02.2025.
- A direction that the policy be applied prospectively, not retrospectively.
- Restoration of the status quo ante, allowing them to retain the customers they had enrolled.
- Costs of the proceedings.
The Legal Issue
Whether the "Policy on Customer Transfer-Market Restructuring" dated 21.02.2025 is arbitrary, irrational or mala-fide within the meaning of Article 226 of the Constitution, and whether the distributors can invoke the doctrine of legitimate expectation to restrain the OMCs from unilaterally transferring their customers.
Arguments Presented
For the Petitioners
- The New Policy is vague because it does not define the "new (recipient) distributor", making the twelve-month average refill calculation impossible.
- The policy is retrospective and defeats the distributors' legitimate expectation, cultivated through substantial investment in infrastructure and customer base.
- Reliance on the Bombay High Court judgment of 30.09.2019, which struck down the 2018 Policy as an arbitrary exercise of power.
- The OMCs’ power to curtail the area of operation does not extend to reducing the customer base, as held by the Bombay High Court.
For the Respondents
- Clauses 1(b)(iii) of the distributorship agreement, the LOI, and the LPG Manual expressly empower the OMCs to modify the area of operation and to transfer customers.
- The New Policy is a bona-fide exercise of statutory powers under the Guidelines and is consistent with the contractual framework.
- The doctrine of legitimate expectation does not apply where the expectation is not founded on a statutory or established public-policy promise.
- The policy is prospective in effect; any retrospective impact is mitigated by the safeguard that donor distributors retain 100 % of their ceiling limit (Clause 1(ii) of the New Policy).
The Court's Analysis
The Court began by examining the statutory and contractual regime governing LPG distribution. It noted that the distributorship agreement dated 10.06.1998, the LOI of 15.07.1994, and the LPG Manual are integral components of the relationship between the OMCs and the distributors.
"The 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 customer of a distributor cannot be termed to be an arbitrary exercise of power."
The Court held that:
- Clause 1(b)(iii) of the distributorship agreement gives the Corporation unfettered discretion to reduce, restrict, modify or alter the area of distributorship, which by implication includes the power to transfer customers.
- Clause 4.4 of the LPG Manual allows the OMCs to increase or decrease the area of operation, while Clause 4.6 obliges the distributor to transfer customers on intra/inter-company basis as per prevailing policy.
- The New Policy’s provision that donor distributors retain 100 % of their ceiling limit (Clause 1(ii)) safeguards their commercial interest and negates any claim of arbitrary reduction.
- The doctrine of legitimate expectation, as articulated in Union of India v. Hindustan Development Corporation and Ram Pravesh Singh v. State of Bihar, requires a clear statutory or procedural promise; such a promise is absent here because the distributors knowingly accepted clauses that expressly allow customer transfer.
- Article 226 jurisdiction is limited to cases of arbitrariness, irrationality or mala-fide action. The Court found no such infirmity in the New Policy, which is a policy decision within the executive’s domain, subject only to the narrow test of constitutional or statutory violation.
- The Bombay High Court’s earlier judgment dealt with the 2018 Policy; the New Policy, while similar in purpose, contains distinct safeguards and therefore is not bound by the earlier finding of arbitrariness.
Consequently, the Court dismissed all the writ petitions, holding that the New Policy is a valid exercise of the OMCs’ statutory powers and does not infringe any constitutional right.
The Verdict
All the writ petitions (WRIT-C No. 11195, 13367, 13531, 13934, 14594, 24763, 38929, 11259, 11261, 11324, 11469, 11688, 12133 of 2025) are dismissed. No order as to costs is awarded. The New Policy dated 21.02.2025 stands affirmed.
What This Means For Similar Cases
Policy Challenges Must Demonstrate Clear Arbitrariness
Practitioners should be aware that a policy decision will survive judicial scrutiny only if it is shown to be patently arbitrary, irrational or mala-fide. Mere inconvenience or commercial disadvantage to a party is insufficient.
- Courts will closely examine the statutory framework and contractual clauses governing the relationship.
- The presence of explicit contractual provisions granting the authority to modify the area of operation or transfer customers defeats a claim of illegality.
Legitimate Expectation Is Not a Shield in Commercial Contracts
The doctrine of legitimate expectation applies only where a clear statutory or procedural promise exists. In commercial agreements where parties have expressly consented to discretionary powers, the doctrine cannot be invoked.
- Distributors must negotiate protective clauses at the contract-formation stage if they wish to limit the OMCs’ power.
- Courts will not read contractual clauses narrowly to protect commercial expectations unless supported by law.
Article 226 Review Is Limited to Constitutional or Statutory Breaches
When challenging executive policy, counsel must frame the petition around violations of constitutional rights, statutory limits, or ultra-vires action, rather than policy wisdom.
- Emphasise any breach of Article 14, 19, or specific statutory provisions.
- Demonstrate that the policy exceeds the delegated authority or is discriminatory.
