Allahabad HC Upholds OMCs' 2025 LPG Customer Transfer Policy, Disagrees with Bombay HC on Distributors' Rights
A Division Bench dismissed twelve writ petitions challenging the Oil Marketing Companies' February 2025 policy on forced customer transfers from existing LPG distributors to newly commissioned ones.
A Division Bench of the Allahabad High Court, comprising Justice Saral Srivastava and Justice Sudhanshu Chauhan, on 10 August 2026 dismissed a batch of twelve writ petitions filed by LPG distributors across Uttar Pradesh who had challenged two policies notified by Oil Marketing Companies (OMCs) on 21 February 2025: the Policy on Customer Transfer—Market Restructuring and the Policy on Customer Transfer—Based on Area of Operation. The judgment was delivered by Justice Saral Srivastava. The petitioners argued that the policies permitted the unilateral transfer of customers they had painstakingly enrolled, without removing defects that the Bombay High Court had identified when it struck down an earlier 2018 version of the same framework. The Allahabad bench disagreed, holding that clauses in the Letter of Intent, the LPG Manual, and the Distributorship Agreement itself authorised the OMCs to reduce a distributor's customer base, and that the policies pursued a legitimate public purpose under the Ujjawala Yojana.
The Dispute Before the Court
The lead petitioner, Vikramaditya Gas Agencies, is a partnership firm commissioned as an Indian Oil Corporation LPG distributor in 1994. It was restructured in 1998, and its last subsisting distributorship agreement with the OMC was executed on 10 June 1998. The firm stated it had built a customer base of approximately 36,000 connections and averaged about 24,500 cylinder refills per month.
The eleven other petitioners — including M/s J.C Bharat Gas Service and 34 others, M/s Vijay Gas Service Allahabad, M/s Deep Gas Agency, M/s Jhunsi Gas Service, M/s Niramal Gas Service, M/s Durga Gas Service, M/s Mainpuri Gas Service, M/s Surajpur Indane Gas Sewa, M/s Sikari Khurd Indane Sewa, Udaiveer Indane Sewa, M/s Ashoka Gas Service, M/s Ramlakhan Gas Service Holagarh, and Hari Subhadra Indane Gas Service — raised common issues and were decided by the same judgment.
All petitioners assailed the two OMC policies dated 21 February 2025. The central grievance was that the new policies, like the scrapped Policy, 2018, permitted OMCs to compulsorily transfer customers from an existing “donor” distributor to a newly commissioned “recipient” distributor in order to bring the new entrant up to a prescribed viability threshold — without the donor's consent and without compensating for investments made in building that customer base.
Background: The 2018 Policy and the Bombay High Court Judgment
The Ministry of Petroleum and Natural Gas introduced Unified Guidelines for selection of LPG distributorship. These Guidelines defined categories of distributorship area and set market refill ceiling limits. For a city with a population of 20 to 40 lakh, the refill ceiling limit was fixed at 15,000 cylinders per month with a feasibility norm of 7,500 (50% of ceiling).
Acting under these Guidelines, the OMCs in January 2018 notified a Market Restructuring—Transfer of Customers Policy. Clause A(3) of that policy empowered OMCs to unilaterally transfer customers of existing distributors to newly set-up distributors until the new entrant achieved its viability limit. The Policy, 2018 was challenged before the Bombay High Court in Writ Petition No. 8753 of 2018. The Bombay High Court stayed and later allowed that petition, holding in its judgment dated 30 September 2019 that the OMCs' power to curtail the area of operation could not be read to mean a power to curtail or reduce customers. A Special Leave Petition against that judgment — SLP (Civil) No. 2425 of 2020 — remains pending before the Supreme Court, which did not stay the Bombay High Court's ruling.
In February 2025, the OMCs notified the two fresh policies that are the subject of the present batch of petitions.
Arguments of the Petitioners
Senior Counsel for the petitioners, assisted by several advocates, pressed multiple grounds. First, it was argued that Clause 1(v) of the New Policy was vague because the policy did not define the “new (recipient) distributor,” making it impossible to identify the commissioning date from which the twelve-month average refill sales of the donor distributor were to be calculated.
Second, petitioners contended that the Bombay High Court had already settled the position that OMCs' contractual right to alter the area of operation did not extend to forcibly stripping customers from a distributor who had invested heavily and had no complaints against it. Since that judgment had not been set aside, the OMCs were obliged to follow it before introducing a fresh policy.
Third, it was urged that Clauses 4.4 and 4.6 of the LPG Manual had to be read together: Clause 4.4 dealt with area of operation and Clause 4.6 with customer transfer on an intra/inter-company basis. Reading Clause 4.6 as a standalone plenary power would render Clause 4.4 redundant.
Fourth, the petitioners invoked the doctrine of legitimate expectation. They argued that having been directed by OMCs to expand their customer base, and having invested heavily in infrastructure and manpower to do so, they had a legitimate expectation of retaining those customers.
Fifth, it was submitted that the New Policy, if valid, should operate prospectively and not be applied retrospectively to customers already enrolled.
Petitioners in Writ-C No. 13531 of 2025 additionally emphasised that they had incurred significant capital in creating and retaining their customer base in compliance with OMC directives, and that such investment generated a legitimate expectation of continuity.
Arguments of the OMCs
Senior Counsel for Indian Oil Corporation pointed to three contractual instruments binding the petitioners. Clause 1(b)(iii) of the Distributorship Agreement dated 10 June 1998 gave the Corporation sole discretion to reduce, restrict, modify or alter the area of distributorship territory, with the Corporation's decision stated to be final and binding. Clause 2 of the Letter of Intent (LOI) dated 15 July 1994 explicitly stated that the area of operation was subject to change, and that the distributor “may be required to surrender some customers to other Distributors.” Clause 11 of the Distributorship Agreement bound the distributor to observe and carry out all directions, orders, terms and conditions issued by the Corporation from time to time, including those in the LPG Manual.
Counsel for Bharat Petroleum elaborated that the LOI was an offer document; the letter of appointment was issued only after the distributor accepted its terms. Paragraph 20 of the letter of appointment additionally required the distributor to implement circulars sent by OMCs. The LPG Manual was a supplement to the Distributorship Agreement and equally binding.
On the Bombay High Court judgment, the OMCs argued it should not be followed because the Bombay court had not considered the full range of contractual clauses — specifically Clause 4.7 of the LPG Manual, Clause 2 of the LOI, and Clauses 1(a) and 1(b)(iii) of the Distributorship Agreement. The Kerala High Court and the Andhra Pradesh High Court had not followed the Bombay ruling.
On the scope of judicial review, the OMCs submitted that a policy could be set aside under Article 226 only if shown to be plainly arbitrary, irrational, or mala fide, and that no such case had been made out.
A key distinction the OMCs drew between the 2018 policy and the 2025 policy was that the earlier policy permitted reducing a donor distributor's customers below the ceiling limit, whereas the New Policy guarantees that all donor distributors are retained at 100% of their applicable refill ceiling limit.
How the Division Bench Reasoned
The bench began by identifying the purpose of the New Policy: to address the expansion of LPG penetration following the Ujjawala Yojana launched on 1 May 2016, which aimed to provide clean cooking fuel to rural and deprived households who relied on firewood, coal, and cow dung. The court found this purpose “benign” and serving the public interest.
On the vagueness argument regarding Clause 1(v), the bench rejected it. Clause 1(ii) of the New Policy unequivocally provided that all donor distributors would be retained at 100% of their applicable refill ceiling limit as set out in Clause 1's table, with no discretion given to OMCs to reduce below that floor. Even if the twelve-month calculation period had some ambiguity, the bench held that the donor distributor's interest was protected by the 100% ceiling guarantee. The bench further noted that petitioners had failed to demonstrate that the formula in Clause 1(viii)(c) for calculating the number of customers to be transferred was inaccurate.
On the Bombay High Court judgment, the Division Bench expressly departed from it. The Allahabad bench found that the Bombay High Court had considered only Clauses 1(b)(ii) and 1(b)(iv) of the Distributorship Agreement while holding that the contractual power was restricted to area or territory, not customers. The Allahabad bench held that the Bombay court had not examined Clause 2 of the LOI, Clauses 4.4, 4.6, and 4.7 of the LPG Manual, or Clauses 1(a) and 1(b)(iii) of the Distributorship Agreement — all of which, in the bench's reading, unambiguously authorised OMCs to reduce area of operation, appoint additional distributors, and direct surrender of customers.
The bench read Clause 4.7 of the LPG Manual as decisive on the ownership question: customers are enrolled by the distributor on behalf of the OMC, the subscription voucher is signed by the distributor on behalf of the Corporation, and the OMCs are explicitly stated to be at liberty to service their customers through any distributor. Given this, the bench held that distributors could not claim customers as their own.
On Clauses 4.4 and 4.6 read together, the bench rejected the petitioners' argument that the two clauses must be read conjunctively. It found both clauses to be independent, each serving a distinct purpose: Clause 4.4 operated in the context of the OMC's business needs and new distributorship viability, while Clause 4.6 applied to intra/inter-company customer transfers in line with prevailing policy guidelines.
On legitimate expectation, the bench applied the standard from Union of India v. Hindustan Development Corporation (1993) 3 SCC 499 and Ram Pravesh Singh v. State of Bihar (2006) 8 SCC 381, requiring that an expectation be real, logical, and based on consistent official conduct. Since Clause 4.7 of the LPG Manual made clear from the outset that customers belonged to the OMCs, the bench held that no distributor could claim a legitimate expectation of retaining customers. The distributors knew when they entered the venture that they were enrolling customers on behalf of the Corporation. There was no promise by the OMCs that all enrolled customers would remain permanently with the enroller. The bench also held that the doctrine of legitimate expectation does not prevail where public interest is involved, and in this case, the public interest in clean cooking fuel supply was evident.
On the argument that distributors had invested heavily at OMC insistence and could not now be deprived of the fruits, the bench held that since distributors made those investments knowing the terms of Clause 4.7, promissory estoppel was also not available to them.
The retrospectivity argument was dismissed on the same basis: petitioners had no vested right to retain customers enrolled on behalf of the OMCs, and the contractual framework had always authorised the Corporation to direct transfers.
On judicial review of policy, the bench cited State of M.P. v. Nandlal Jaiswal (1986) 4 SCC 566 and Directorate of Film Festivals v. Gaurav Ashwin Jain (2007) 4 SCC 737 for the proposition that courts may not substitute their view for a policy decision and may interfere only if a policy is patently arbitrary, discriminatory, or mala fide. The bench found none of those conditions satisfied here.
The bench also agreed with, and adopted, the reasoning of the Kerala High Court in Vembanad Gas Agencies v. Union of India (Writ-A No. 1785 of 2019), which had rejected the argument that distributor business efficacy should override consumer interest in a public utility service, and had held that the Corporation was entitled to appoint new distributors and bifurcate allotted areas to serve growing subscriber bases.
Outcome
All twelve writ petitions were dismissed. The court made no order as to costs. The judgment was reserved on 18 February 2026 and delivered on 10 August 2026.