Karnataka High Court faults OMCs for departing from agreement to procure ethanol from DEP
The High Court of Karnataka has said that Oil Marketing Companies (OMCs) cannot arbitrarily dilute assurances given to Dedicated Ethanol Plants (DEPs) for procuring certain
The High Court of Karnataka has said that Oil Marketing Companies (OMCs) cannot arbitrarily dilute assurances given to Dedicated Ethanol Plants (DEPs) for procuring certain quantity of ethanol on preferential allocation basis after inducing it to invest hundreds of crores of rupees to set up the plant under the Central government’s biofuel policy. Justice M. Nagaprasanna made this observation while allowing a petition filed by VINP Distilleries and Sugars Pvt. Ltd., a dedicated ethanol producer situated in Konanakeri village at Shiggaon taluk of Haveri district, Karnataka. The company had challenged the sharp reduction in ethanol allocation for the Ethanol Supply Year (ESY) 2025-26 despite a long-term offtake agreement (LTOA) executed with Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd., and Hindustan Petroleum Corporation Ltd.
Source of dispute The dispute arose after the OMCs floated a tender in September 2025 for procurement of 1,050 crore litres of ethanol for ESY 2025-26. The petitioner company claimed that despite bidding to supply 9.26 crore litres, it was allocated only 3.92 crore litres. The company argued that the allocation ignored a term of LTOA, which envisaged preferential allocation of additional quantities beyond the assured annual offtake quantity. Examining the Centre’s Ethanol Blended Petrol Programme and 20% ethanol roadmap, the court said the Centre encouraged private investment through policies, interest subvention and long-term procurement assurances boosting capacity. Pointing out that the DEPs were established “exclusively to supply ethanol to OMCs” and such plants were “contractually barred from entering into similar supply arrangements with third parties”, the court said that the petitioner-company had invested substantial capital and established a 300 KLPD ethanol plant based on the assurances contained in the agreement with the OMCs signed way back in 2021.
The court also noted that admittedly the OMCs exercise “overwhelming monopoly over procurement of ethanol from DEPs”. Later tender conditions Analysing the issue as to whether OMCs could, through a later tender condition, deny preferential allocation assured in the agreement with the petitioner-companyand treat them on par with non-dedicated producers, the court said that when State instrumentalities exercise monopoly power, fairness and non-arbitrariness become constitutional obligations. They cannot induce investments through assurances and later defeat those expectations without compelling
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