Court directs Oil Marketing Companies to reconsider allocation of ethanol supply to Dedicated Ethanol Plant in line with contractual preferential allocation clause
In a landmark judgment dated June 16, 2026, the Karnataka High Court (Dharwad Bench) delivered a significant ruling in the case of M/S Vinp Distilleries and Sugars Pvt. Ltd. versus Union of India and Others, affirming the applicability of the doctrines of legitimate expectation and promissory estoppel against the State in contractual matters. The dispute arose from a contractual conflict between Vinp Distilleries, a dedicated ethanol plant (DEP), and the Oil Marketing Companies (OMCs), which are Government entities responsible for procuring ethanol for the Ethanol Blended Petrol Programme.
The petitioner, Vinp Distilleries, had entered into a Long-Term Offtake Agreement (LTOA) with the OMCs in 2022 pursuant to an Expression of Interest (EOI) floated in 2021 for establishing dedicated ethanol plants in ethanol-deficit states. The agreement assured the petitioner an annual base allocation of 1.44 crore liters of ethanol with the possibility of preferential allocation of additional quantities up to the plant’s design capacity on a “best endeavor” basis, as per Clause 6.8 of the agreement.
However, in the tender floated for Ethanol Supply Year (ESY) 2025-26, the OMCs deviated from this established framework by significantly reducing the petitioner’s allocation from the bid quantity of 9.26 crore liters to only 3.92 crore liters. The petitioner contended that this shortfall violated the preferential allocation provisions of Clause 6.8 and amounted to an arbitrary State action breaching legitimate expectations, especially after the petitioner had invested hundreds of crores in setting up the plant relying on the contractual assurances.
The High Court, after reviewing extensive submissions and judicial precedents, held that writ petitions under Article 226 of the Constitution are maintainable even in contractual disputes involving the State when the State’s action is arbitrary, unreasonable, or violates legitimate expectations. The Court underscored that the State, acting through its instrumentalities, is bound by the rule of law under Article 14 and cannot act capriciously in altering settled contractual regimes.
The Court noted that Clause 6.8 unequivocally provided for preferential allocation of ethanol beyond the base quantity on a best endeavor basis, and partial or selective invocation of this clause by the respondents was impermissible. The petitioner’s legitimate expectation, founded on the agreement and consistent past conduct of the OMCs, was entitled to protection. Arbitrary denial or dilution of preferential allocation without adequate justification would amount to a violation of Article 14.
Accordingly, the Court issued a writ of mandamus directing respondents 2 to 5 (the OMCs and related authorities) to reconsider the petitioner’s representation dated October 27, 2025, seeking enhancement of ethanol supply allocation, strictly in accordance with Clause 6.8 and the observations made in the judgment. The respondents were mandated to pass an appropriate order within four weeks, ensuring that the tender process does not override the contractual obligations and the petitioner’s legitimate expectations.
This judgment reinforces the principle that when the State enters into contracts with private entities, it must honor its commitments fairly and reasonably, and deviations must withstand judicial scrutiny to prevent arbitrariness. It also affirms the vital role of doctrines like legitimate expectation and promissory estoppel in safeguarding contractual and commercial predictability, especially in sectors critical to national policy like ethanol blending for energy security and environmental sustainability.
Bottom line:-
Legitimate expectation and promissory estoppel doctrines can be invoked to challenge the arbitrariness of a State action in contractual matters, particularly where the State enters into long-term agreements with private entities and subsequently alters the terms unilaterally, causing prejudice to the contracting party.
Statutory provision(s): Article 14, Article 226 of the Constitution of India; Clause 6.2, Clause 6.5, Clause 6.8, Clause 23.11 of the Long-Term Offtake Agreement; Expression of Interest dated 27.08.2021; Tender No. 22376 dated 23.09.2025
