Kerala HC Dismisses LPG Distributors' Challenge to Oil Companies' 2025 Customer Transfer Policy
Justice M.A. Abdul Hakhim upholds the right of three Oil Marketing Companies to transfer LPG customers between distributors, rejecting claims of legitimate expectation, promissory estoppel, and constitutional violation.
The High Court of Kerala at Ernakulam has dismissed two writ petitions filed by LPG distributors who were appointed before the Unified Guidelines for Selection of LPG Distributorships, 2016 (“UGS”), challenging a joint policy issued on 21 February 2025 by Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd., and Hindustan Petroleum Corporation Ltd. for customer transfer and market restructuring. Justice M.A. Abdul Hakhim, sitting singly, delivered a common judgment on 10 March 2026, holding that the Oil Marketing Companies have a legally recognised right to transfer customers from one distributor to another, that the 2025 policy is more beneficial to donor distributors than the 2018 guidelines it superseded, and that the petitioners' grounds of legitimate expectation and promissory estoppel are foreclosed by binding Division Bench precedent of this Court as well as by the terms of the distributorship agreements themselves.
The Dispute Before the Court
The first writ petition, WP(C) No. 15265 of 2025, was filed by the All India LPG Distributors Federation (Kerala Circle) along with thirteen individual LPG distributors spread across Thiruvananthapuram, Malappuram, Thrissur, Alappuzha, Kozhikode, Kollam, and Palakkad districts. The second, WP(C) No. 5556 of 2026, was filed by Sree Narayana Indane Services, an IOC distributorship based in Palakkad. All petitioners held distributorships granted before Ext.P5 UGS came into force in June 2016.
The target of both petitions was Ext.P1, the “Policy on Customer Transfer, Market Restructuring” dated 21 February 2025, issued jointly by the three Oil Marketing Companies. The petitioners also challenged e-mails dated 4 April 2025 and 5 April 2025 proposing to hold customer transfer meetings. The Association of LPG Distributors in Kerala (ALDK), whose members are post-UGS distributors and the intended beneficiaries of the transfers, was impleaded as Respondent No. 6 and actively supported the Oil Marketing Companies.
The petitioners argued that Ext.P1 was arbitrary, illegal, beyond the authority of the Oil Marketing Companies, ultra vires Ext.P5 UGS, unconstitutional, and violative of Articles 14, 19(1)(g), and 300A of the Constitution of India.
The Historical and Regulatory Background
Originally, LPG distributorship agreements contained no refill ceiling limit. The Oil Marketing Companies fixed such limits only during periods of shortage and later encouraged distributors to maximise their customer base when supply stabilised. This led pre-UGS distributors to invest heavily in infrastructure and manpower to serve growing customer rolls.
Ext.P5 UGS, issued by the Ministry of Petroleum and Natural Gas in June 2016, prescribed refill ceiling limits and feasibility refill sale limits per month for different distributor area types based on the 2011 Census. Crucially, the original Note (i) under Clause 2.4.1.1.1 of Ext.P5 stated that the ceiling limits would apply prospectively and that restructuring for locations advertised before the guidelines would continue under pre-revised limits. On 21 January 2025, the Ministry amended that note to make the ceiling limits applicable to all LPG distributorships and to authorise the Oil Marketing Companies to issue restructuring policies from time to time.
One month later, on 21 February 2025, the three Oil Marketing Companies jointly issued Ext.P1, superseding their earlier 2018 customer transfer guidelines (Exts.R2(e), R3(d), and R4(e)). The 2018 guidelines had prescribed separate, lower refill ceiling limits for pre-UGS distributors and mandated that no donor distributor be brought below 75% of the market refill ceiling. Ext.P1 adopted the UGS ceiling limits uniformly for all distributors and raised the floor protection to 100% of the refill ceiling limit, with the additional condition that transfers be limited until the recipient distributor reaches viability.
The 2018 guidelines had been challenged before the Bombay High Court, which quashed them in Shailaja R. Khanvilkar and Others v. Union of India and Others (judgment dated 30 September 2019). However, a Division Bench of the Kerala High Court in Vembanad Gas Agencies v. Union of India and Others [2021:KER:50239] disagreed with the Bombay High Court and upheld the right of Oil Marketing Companies to transfer customers, following an earlier Division Bench in All India L.P.G. Distributors Federation v. Union of India [2003 (2) KLJ 451]. Two subsequent Division Benches in K. Ashraf and Others v. Bharat Petroleum Corporation Limited and Others [2022:KER:7302] and Confederation of Consumer Vigilance Centre and Others v. Bharat Petroleum Corporation Ltd. and Others [2022:KER:50089] followed Vembanad Gas Agencies.
Challenges to both the Bombay and Kerala decisions were pending before the Supreme Court. When those matters came up on 28 January 2025, the Solicitor General of India, appearing for the Oil Marketing Companies, submitted that a new policy was being formulated, and the cases were adjourned. Ext.P1 followed shortly thereafter.
Ext.P1 was challenged in several High Courts. The High Courts of Andhra Pradesh, Telangana, and Bombay stayed its operation. The Kerala High Court declined to grant an interim stay by order dated 10 April 2025, though it clarified that any transfers would be subject to the outcome of the writ petition. The petitioners filed Writ Appeal No. 776 of 2025, which was disposed of on 16 April 2025 with a stay of Clause 2.4.1.1.1 Note (i) of Ext.P5 UGS. That judgment was reviewed and set aside on 18 December 2025 in Review Petition No. 1729/2025, on the ground that the challenge in the writ petition was against Ext.P1, not against the UGS clause that had been stayed. At the time of the final hearing, Writ Appeal No. 776/2025 remained pending without any favourable interim order for the petitioners.
The Petitioners' Contentions
Counsel for the petitioners, Sri Adarsh Kumar, advanced several grounds. First, Ext.P1 was signed only by the Chief General Managers of the three Oil Marketing Companies, without any demonstrated authorisation from their respective Boards of Directors, and without circulation as required by law. The petitioners had raised specific grounds on this point in the writ petition, which the respondents' counter-affidavits did not address.
Second, Ext.P5 UGS was expressly prospective under Clause 21 and its original Note (i). Since Ext.P1 was issued under Ext.P5, it could not be applied to pre-UGS distributors. The January 2025 amendment to Note (i) was inconsistent with the rest of Ext.P5 and should be ignored.
Third, the Oil Marketing Companies had openly permitted distributors to exceed the refill ceiling limit for years, encouraging them to invest in infrastructure and grow their customer base. Transferring those customers away was a penalty on the best-performing distributors and violated their legitimate expectation and the principle of promissory estoppel. It also violated Articles 14 and 19(1)(g) of the Constitution.
Fourth, the questions of legitimate expectation and promissory estoppel were not considered in Vembanad Gas Agencies and the subsequent Kerala Division Bench decisions. Since a judgment is authority only for what it actually decides, those decisions did not foreclose a fresh challenge on those grounds.
The petitioners relied on Supreme Court decisions in Delhi Development Authority v. Joint Action Committee, Allottee of SFS Flats [(2008) 2 SCC 672] for the proposition that a policy decision is subject to judicial review if the delegatee acted beyond its power or if the policy is contrary to a larger statutory policy; on Gulf Goans Hotels Company Limited v. Union of India [(2014) 10 SCC 673] on authentication and promulgation; and on N.K. Bajpai v. Union of India [(2012) 4 SCC 653] and Ramlila Maidan Incident, In Re [(2012) 5 SCC 1] on the limits of executive power to restrict fundamental rights.
The Respondents' Contentions
Counsel for the Oil Marketing Companies, Sri M. Gopikrishnan Nambiar, submitted that four Division Bench decisions of this Court had settled the question. The customers are customers of the Oil Marketing Companies, not of the distributors. The distributors sign subscription vouchers as agents of the companies. The right to transfer customers had been authoritatively upheld and could not be re-agitated.
On the authority question, counsel pointed out that the Oil Marketing Companies had appeared, received notices, and filed counter-affidavits supporting Ext.P1. They had never questioned the authority of the Chief General Managers who signed it. The Solicitor General had represented before the Supreme Court that a new policy was being formulated. These facts made it impossible to contend that Ext.P1 was not a decision of the companies.
On the comparative merits, counsel drew attention to the fact that the 2018 guidelines protected donor distributors only down to 75% of the refill ceiling, whereas Ext.P1 raised that floor to 100%. If Ext.P1 were quashed, the 2018 guidelines would revive and apply to the petitioners on less favourable terms. The petitioners had not challenged the 2018 guidelines.
Counsel for Respondent No. 6, Sri Nirmal S., additionally argued that Article 31C of the Constitution, as upheld in Kesavananda Bharati v. State of Kerala [(1973) 4 SCC 225] and confirmed by the Constitution Bench in Property Owners Association v. State of Maharashtra [2024 KLT OnLine 2648], shields laws giving effect to Articles 39(b) and 39(c) from challenge under Articles 14 and 19. Ext.P1 was formulated to distribute material resources of the community for the common good and to prevent concentration of wealth, squarely within Articles 39(b) and 39(c).
How the Court Reasoned
Justice Abdul Hakhim addressed each ground in turn.
Authority to issue Ext.P1: The court applied the principle of indoor management. The Oil Marketing Companies had not disowned Ext.P1 or disputed the authority of the signatories. They had appeared and filed counter-affidavits in support of the policy. The Solicitor General had represented before the Supreme Court that a new policy was forthcoming. Even if the Chief General Managers had acted without formal authorisation, the companies had ratified their conduct by subsequent action. The contention was unsustainable.
Right to transfer customers: The court held itself bound by four Division Bench decisions of this Court - All India L.P.G. Distributors Federation, Vembanad Gas Agencies, K. Ashraf, and Confederation of Consumer Vigilance Centre. Those decisions had authoritatively held that the Oil Marketing Companies have the right to transfer customers from one distributor to another. The court reiterated that LPG is an essential commodity, that the contract of the subscriber is with the Oil Marketing Company, and that the distributor signs the subscription voucher as the company's agent. Consumer interest has primacy over the profit element and business efficacy of distributors.
Legitimate expectation and promissory estoppel: The court rejected the argument that Vembanad Gas Agencies was not an authority on these grounds because it had not expressly considered them. The Division Bench in Vembanad Gas Agencies had considered and disagreed with the Bombay High Court's decision in Shailaja R. Khanvilkar, which had upheld those very grounds. The legal proposition actually decided that the Oil Marketing Companies have the right to transfer customers could not be revisited merely because some grounds were not raised. The petitioners were parties to Vembanad Gas Agencies and were barred from raising new grounds against the same challenge on the principle of constructive res judicata.
Even on the merits, the court found the grounds unavailing. The Letter of Intent (Ext.R2(d)) issued to one of the petitioners specifically provided that the distributor may be required to surrender customers to other distributors. Given that contractual provision, no legitimate expectation could arise that the customer base would remain intact throughout the distributorship. As for promissory estoppel, the court held that the Oil Marketing Companies' tolerance of customers exceeding the refill ceiling limit could not amount to a promise contrary to Ext.P5 UGS, which had always prescribed those limits. The distributors could have expected enforcement of the ceiling at any time. In any event, any such expectation was extinguished no later than the issuance of the 2018 customer transfer guidelines, which the petitioners had not challenged.
Prospective application of Ext.P5: The court held that Ext.P5 UGS deals with the selection of distributors, not with customer transfer. The Oil Marketing Companies could formulate customer transfer guidelines independently of Ext.P5. The refill ceiling limit in Ext.P5 was used in both the 2018 guidelines and Ext.P1 only as a reference point to ensure a minimum customer base for donor distributors. Using that reference did not make Ext.P1 a creature of Ext.P5 or subject it to Ext.P5's prospectivity clause.
Comparative position under Ext.P1 versus 2018 guidelines: The court accepted the respondents' submission that Ext.P1 is more favourable to the petitioners than the 2018 guidelines. The floor protection was raised from 75% to 100% of the refill ceiling limit, and transfers are additionally capped at the point where the recipient distributor reaches viability. Quashing Ext.P1 would revive the 2018 guidelines, which would be more detrimental to the petitioners.
Article 31C and Articles 39(b) and 39(c): The court found that Ext.P1 was formulated to ensure that the ownership and control of material resources of the community are distributed to best subserve the common good and to prevent concentration of wealth and means of production to the common detriment which are the principles in Articles 39(b) and 39(c). Applying the Constitution Bench decision in Property Owners Association, which confirmed that Article 31C as upheld in Kesavananda Bharati remains in force, the court held that the petitioners' challenge based on Articles 14 and 19 was not available to them.
Court fee question: During the hearing, a question arose whether the petitioner association was required to pay court fee for each of its members, following the Division Bench decision in Maradu Market Traders' Association v. State of Kerala [2018 (3) KLT 212]. The court had by order dated 20 February 2026 directed payment of balance court fee within ten days. The association complied, paying Rs. 1,12,500 for its total membership. The petitioners then argued, relying on a Single Bench decision in Association of LPG Distributors in Kerala, Ekm v. Indian Oil Corporation and Others [2021 (5) KHC 488], that a single court fee sufficed. The court declined to resolve the conflict between the Division Bench and Single Bench decisions since the fee had already been paid, leaving the question open for an appropriate case.
Outcome
Justice M.A. Abdul Hakhim dismissed both WP(C) No. 15265 of 2025 and WP(C) No. 5556 of 2026 by common judgment dated 10 March 2026, holding that the petitioners had not made out any ground to interfere with Ext.P1 the Policy on Customer Transfer, Market Restructuring dated 21 February 2025 issued jointly by Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd., and Hindustan Petroleum Corporation Ltd.