HPCL Cannot Be Faulted for Cancelling Rural Retail Outlet LOI on State Highway Land, But Must Pay Rs. 1 Lakh Compensation: Chhattisgarh HC
Chhattisgarh High Court partly allowed a writ petition challenging HPCL’s withdrawal of a petrol pump dealership letter of intent, directing Rs. 1 lakh compensation for hardship caused by delayed site verification.
The High Court of Chhattisgarh at Bilaspur has partly allowed a writ petition filed by Smt. Ananta Chowdhary, a resident of Village Toresingha, Tahsil Saraipali, District Mahasamund, who challenged the cancellation of a Letter of Intent (LOI) granted to her by Hindustan Petroleum Corporation Limited (HPCL) for a motor spirit and high speed diesel retail outlet dealership. Justice Amitendra Kishore Prasad, sitting singly, declined to restore the LOI but directed HPCL to pay a consolidated compensation of Rs. 1,00,000/- within 60 days, holding that although the cancellation was legally defensible, the petitioner suffered real financial loss because HPCL's own verification came far too late.
The Dispute Before the High Court
HPCL published an advertisement on 14 December 2018 inviting applications for appointment of Rural Retail Outlet dealers across Chhattisgarh. The petitioner applied under that advertisement, offering her land bearing Khasra No. 339/1, P.H. No. 00025, situated at Village Nawagaon on the Saraipali–Padampur Road, District Mahasamund, as the proposed site. The location was listed as Serial No. 887 under the “Open” category.
HPCL scrutinised the petitioner's candidature, inspected the proposed site, and issued an LOI dated 29 December 2020 in her favour. In compliance with the conditions attached to that LOI, the petitioner deposited Demand Draft No. 001979 dated 18 June 2021 for Rs. 5,00,000/- and Demand Draft No. 001978 dated 18 June 2021 for Rs. 3,60,000/- in favour of HPCL. The authorities had informed her that the retail outlet was likely to be commissioned on or before 19 October 2021. The Collector, Mahasamund, and the Chief Regional Manager (Retail), HPCL, both issued No Objection Certificates in her favour, and the petitioner submitted those before the competent authorities.
Acting on the LOI and the assurances given, the petitioner began construction at the proposed site, availed a loan from Axis Bank, got the land demarcated by revenue authorities (demarcation report dated 4 January 2021), and installed an electricity transformer for operation of the outlet.
On 31 December 2021, HPCL issued a communication seeking clarification on whether the petitioner's land was situated on a state highway rather than in a rural area. The petitioner replied that State Highway No. 16 passes through the area but the land itself lies within a rural area and satisfies all prescribed criteria. Despite that reply, HPCL's Chief Regional Manager (Retail) at Bilaspur issued the impugned order dated 1 February 2022 withdrawing the LOI on the ground that the petitioner's land was situated on State Highway No. 16, rendering it ineligible under the Dealer Selection Guidelines for Rural Markets.
The petitioner had already approached the High Court once before. In WPC No. 5421 of 2021, filed because HPCL failed to operationalise the retail outlet despite compliance, this Court had directed the respondents by order dated 11 January 2022 to take appropriate action on the LOI at the earliest, preferably within four weeks. Instead of commissioning the outlet, HPCL passed the impugned cancellation order dated 1 February 2022 immediately after the petitioner presented that court direction to the authorities.
The Legal Issue: Rural Eligibility and a State Highway
The core legal question was whether HPCL was entitled to withdraw the LOI after the petitioner had fully complied with its conditions, or whether such withdrawal was arbitrary and violative of legitimate expectation.
The Dealer Selection Guidelines for Rural Markets expressly prohibit development of a Rural Retail Outlet on National Highways, State Highways, Coastal Highways, Expressways, A, B and C Class markets, or areas falling within municipal limits. HPCL's position was that the petitioner's land, lying on State Highway No. 16, fell squarely within this prohibition, leaving it no option but to cancel the LOI even after deposits had been accepted and demarcation completed.
The petitioner's counsel countered that the mere fact of land abutting a state highway does not alter its rural character or render it ineligible. Reliance was placed on the judgment of the Andhra Pradesh High Court in Gurram Praveen Babu v. State of Andhra Pradesh, 2022 SCC Online AP 1847. It was further argued that the respondents had inspected the site, accepted all deposits, and issued the LOI only after being satisfied about eligibility — and that a subsequent reversal on the same facts was wholly arbitrary.
How the Bench Reasoned
Justice Prasad examined the advertisement dated 14 December 2018 and the sequence of events that followed. The Court accepted that the land was admittedly situated on State Highway No. 16. Given the explicit prohibition in the Dealer Selection Guidelines, the Court found that the land did not satisfy the eligibility criteria for a Rural Retail Outlet. On that basis, the Court held that the respondent authorities could not be said to have committed any illegality in withdrawing the LOI, as the cancellation was taken strictly in accordance with mandatory guidelines.
The Court declined to follow Gurram Praveen Babu, finding it distinguishable on facts and inapplicable to the present case.
However, the Court did not stop there. It noted a distinct and troubling dimension: before issuing the LOI, HPCL itself had inspected the site, verified the documents, accepted demand drafts totalling Rs. 8,60,000/-, and only then issued the LOI on 29 December 2020. The discovery that the land lay on State Highway No. 16 came only during subsequent verification, long after the petitioner had acted upon the LOI to her detriment.
The Court found that the petitioner had acted entirely in good faith. She had deposited Rs. 40,000/- for spot inspection charges, paid Rs. 5,00,000/- and Rs. 3,60,000/- as demanded under the LOI, obtained all required NOCs, carried out land demarcation, commenced construction, availed a bank loan, and installed an electricity transformer. All of this was done in reasonable reliance on HPCL's own representations and the formal LOI.
The Court observed that the hardship suffered by the petitioner substantially arose from the delayed verification conducted by HPCL itself. Had the corporation examined the site's highway status before issuing the LOI, the petitioner would never have altered her position. The fact that HPCL returned the two demand drafts uncashed at the time of cancellation did not undo the expenditure already incurred by the petitioner on demarcation, construction, and the electricity transformer, nor did it address the loan liability she had taken on.
While the Court was not inclined to quash the cancellation order or direct restoration of the LOI contrary to the Dealer Selection Guidelines, it held that the petitioner's hardship deserved to be suitably compensated, given that the situation arose substantially from HPCL's own failure to verify the site's eligibility before issuing the LOI.
Order
The writ petition was partly allowed. The Court declined to quash the order dated 1 February 2022 withdrawing the LOI and declined to direct establishment of the Retail Outlet in the petitioner's favour.
Respondents No. 1 to 3 (HPCL entities) were directed to pay consolidated compensation of Rs. 1,00,000/- to the petitioner within 60 days from the date of receipt of a certified copy of the order. Of this amount, Rs. 40,000/- was treated as reimbursement of the demarcation expenditure incurred by the petitioner, and the remaining Rs. 60,000/- as compensation for the financial loss, inconvenience, and mental agony suffered on account of the issuance and subsequent withdrawal of the LOI after she had altered her position in reliance on HPCL's conduct.