LPG Distributor's Writ Petition Against Customer Transfer Policy Succeeds: "Forced Customer Transfers Violate Business Rights": Calcutta High Court Strikes Down HPCL Directive
Safiya Malik
The Calcutta High Court has quashed a directive by Hindustan Petroleum Corporation Limited (HPCL) that mandated the transfer of 1,429 customers from an existing LPG distributor to another distributor. The court, in its judgment, ruled that the action, based on a circular issued on January 9, 2018, was "irrational and unreasonable" and directed HPCL to restore the transferred customers to the petitioner within four weeks.
M/s CLS Limited, the petitioner, is a private limited company engaged in the distribution of Liquefied Petroleum Gas (LPG) under a dealership agreement executed with HPCL in 2012. The dealership agreement outlined the designated trading area for the petitioner, which included Central Howrah, Baruipara, Bantra, Ichhapur, and Baltikuri within the jurisdiction of the Howrah Municipal Corporation.
The petitioner contended that it had been operating its distributorship in compliance with the agreement and regulatory guidelines. However, on January 4, 2018, Oil Marketing Companies (OMCs), including Bharat Petroleum Corporation Limited (BPCL), Indian Oil Corporation Limited (IOCL), and HPCL, issued a circular titled "Market Restructuring - Transfer of Customers." The policy aimed to reallocate customers from distributors with a high consumer base to those with a lower number of customers in order to maintain equitable distribution.
The circular permitted the compulsory transfer of up to 75% of customers from a distributor exceeding its sales limit to another distributor whose consumer base was below 50% of the designated limit. BPCL and IOCL issued their circulars on January 4, 2018, followed by HPCL on January 9, 2018.
Legal challenges ensued against BPCL’s circular before the Bombay High Court in W.P. No. 8753 of 2018. The Bombay High Court, on September 30, 2019, ruled that BPCL’s circular was "arbitrary and irrational." The Madurai Bench of the Madras High Court later struck down the IOCL circular on similar grounds. BPCL subsequently filed a Special Leave Petition (SLP No. 2425 of 2020) before the Supreme Court, which was admitted but did not receive an order of stay against the Bombay High Court's decision.
In the present case, HPCL issued an e-mail notification transferring 1,429 customers from the petitioner’s business to another distributor. The petitioner challenged this transfer, arguing that it was executed solely on the basis of the previously invalidated circular.
HPCL opposed the writ petition, asserting that the dealership agreement contained an arbitration clause, making the petition non-maintainable. The corporation further argued that the agreement conferred upon it the authority to "modify, increase, reduce the business area and transfer customers" at its discretion.
The court addressed the issue of maintainability, ruling that: “The arbitration clause in the dealership agreement cannot debar the writ petitioner from approaching the writ court.”
Referring to precedents, including Whirlpool v. Registrar of Trade Marks (1998) 8 SCC 1, Rama Dayaram Shetty v. International Airport Authority (1979) 3 SCC 489, and Tata Cellular v. Union of India (1994) 6 SCC 651, the court stated that contractual disputes involving public law elements and arbitrary State action could be addressed under writ jurisdiction.
The court further noted that the Bombay High Court and Madras High Court had already quashed identical circulars issued by BPCL and IOCL. The Division Bench of the Calcutta High Court, in its order dated February 28, 2024, in MAT 1849 of 2023, found HPCL’s circular to be a “verbatim representation” of the previously quashed BPCL circular.
Observing the need for consistency in judicial determinations, the court stated: “The law of the land should maintain parity in deciding issues appearing before courts in different parts of the country.”
The court further examined the dealership agreement, particularly Clause 2(b)(iii), (iv), and (v), which granted HPCL the right to modify dealership territories but did not explicitly authorize the transfer of customers. The court observed that: “Customers are the assets of a business, which are earned through business reputation over long unblemished relations between the dealer and customers. Such relations cannot be curtailed by the corporation through a dealership agreement or any circular.”
The judgment stated that while HPCL retained authority over modifying business areas, it lacked the right to arbitrarily transfer customers. The court further noted that HPCL’s directive sought to enforce the same policy that had already been judicially invalidated in multiple High Court rulings.
The court ruled in favor of the petitioner and issued the following directives:
- The impugned memo dated May 18, 2023, issued by HPCL, is quashed.
- HPCL is directed to transfer back 1,429 customers to the petitioner who were initially transferred via e-mail dated August 19, 2023.
- HPCL must complete this restoration process within four weeks from the date of the judgment.
Case Title: M/s CLS Limited & Ors. v. Union of India & Ors.
Case Number: WPA 20391 of 2023
Bench: Justice Subhendu Samanta
[Read/Download order]
