LPG Distributor Has No Legitimate Expectation To Retain Customers It Enrols On Behalf Of Oil Companies: Allahabad High Court

The Allahabad High Court has held that an LPG distributor has no legitimate expectation to retain customers on its rolls, as those customers are enrolled on behalf of the Oil Marketing Companies and not for the distributor itself. Upholding the Policy on Customer Transfer-Market Restructuring dated 21st Febraury 2025, the Court held that a distributor which has accepted the clauses of the Letter of Intent, the LPG Manual and the Distributorship Agreement permitting curtailment of its area of operation and customer base cannot assail the policy without challenging those clauses.The Unified Guidelines for selection of LPG distributorship issued by the Ministry of Petroleum and Natural Gas fix a refill ceiling limit for each market, restructuring being planned only after refill sale exceeds that ceiling by 50%. Clause 4.4 of the LPG Manual permits the oil companies to alter a distributorship's area of operation and binds the distributor to surrender, transfer or accept customers. Clause 4.6 requires customers to be transferred on an intra or inter company basis under prevailing policy guidelines. Clause 4.7 records that the customer is enrolled by the distributor on behalf of the oil company, which is at liberty to service its customers through any distributor.The bench of Justice Saral Srivastava and Justice Sudhanshu Chauhan held,“Once, the distributor has agreed to Clause 4.7 of the LPG Manual which is also the part of the Distributorship Agreement, the distributor cannot claim that customers enrolled by him are his customers, and therefore, he has legitimate expectation to retain those customers.”Also Read: LPG Distributors Don't Have Vested Legal Right Over Customer Base, Oil Companies Can Shift Consumers Between Distributors: Kerala High CourtPetitioner, a partnership firm, was appointed a distributor of LPG cylinders by the Indian Oil Corporation Limited. The distributorship was commissioned in 1994 and restructured in 1998, the last subsisting agreement having been executed on 10th June 1998. It pleaded that it had invested heavily in infrastructure and manpower, and that it caters to about 36,000 customers with an average refill of 24,500 cylinders a month.An earlier Market Restructuring-Transfer of Customers Policy of 2018 was quashed by the Bombay High Court in 2019, and SLP against that judgment is pending before the Supreme Court without stay. Petitioners challenged the fresh policy of 21st February 2025 on the ground that forced transfer of customers had been retained without curing the defect pointed out by the Bombay High Court.The Court held that the policy had been introduced to address the increase in LPG penetration following the Ujjawala Yojana of 2016, launched to supply clean cooking fuel to rural and deprived households then using firewood, coal and cow dung. “So, the object behind issuing the New Policy is to address the increase of LPG penetration in the country after the introduction of 'Ujjawala Yojna 2016' and by implementation of New Policy, it will benefit public at large as it has been issued to smooth supply of LPG cylinders to its customer and also to save those from health hazard who are using traditional cooking fuel which is harmful to their health and is noxious to environment. Thus, the purpose of issuing New Policy is benign.”The Court held that Clause 1(ii) of the policy retains every donor distributor at 100% of its refill ceiling limit and leaves the oil companies no discretion to go below it, while Clause 1(viii)(c) supplies the formula, with an illustration, for calculating the customers to be transferred. Counsel could not show the formula to be inaccurate, or the fixation of the ceiling and viability limits to be arbitrary or mala fide, held the Court. Declining to follow the Bombay High Court, the Court held“We beg to differ from the aforesaid observation of the Bombay High Court because the Bombay High Court did not notice certain relevant clauses of LPG Manual, Dealership agreement and LOI.”The Bombay High Court, it found, had held the agreement confined to area or territory and not to customers without considering Clause 2 of the Letter of Intent, Clauses 4.4, 4.6 and 4.7 of the LPG Manual or Clause 1(a) and (b)(iii) of the agreement.“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.”On legitimate expectation, the Court relied on Union of India and Others Vs. Hindustan Development Corporation and Others and Ram Pravesh Singh and Others Vs. State of Bihar and Others, wherein the Supreme Court held that the doctrine is a creature of public law aimed at combating arbitrariness in executive action. It was held that a legitimate expectation is one ordinarily flowing from a promise or an established practice. Such...

LPG Distributor Has No Legitimate Expectation To Retain Customers It Enrols On Behalf Of Oil Companies: Allahabad High Court

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LPG Distributor Has No Legitimate Expectation To Retain Customers It Enrols On Behalf Of Oil Companies: Allahabad High Court

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