Dedicated Ethanol Plants Cannot Be Disadvantaged After Investing Under Procurement Framework: Karnataka High Court

Dedicated ethanol plants that were set up to exclusively supply Oil Marketing Companies and invested substantial sums on the basis of long-term assurances cannot be denied the benefit of that framework without scrutiny, the Karnataka High Court has held.

Justice M. Nagaprasanna delivered the ruling while allowing a petition filed by VINP Distilleries and Sugars Pvt. Ltd. against Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd.

The dispute arose from a change in the ethanol procurement process for the Ethanol Supply Year 2025-26. Under the impugned tender, additional quantities offered by Dedicated Ethanol Plants were no longer considered for preferential allocation and were instead subjected to the same allocation criteria applicable to non-dedicated ethanol producers.

VINP Distilleries argued that the change diluted the framework under which it had established an ethanol plant that could supply only to Oil Marketing Companies.

“The present notification seeks procurement of 1500 crore litres of ethanol. Dedicated Ethanol Plants, which have hitherto supplied ethanol exclusively to the OMCs and which are contractually prohibited from either manufacturing anything else or supplying ethanol to any third party, cannot now be relegated to the short end of the stick, thereby visiting them with grave and manifest prejudice,” the court observed.

The court found that the petitioner had acted on assurances contained in the procurement framework and the Long-Term Offtake Agreement executed with the Oil Marketing Companies.

“In the case at hand, the petitioner had a legitimate expectation of continuance of the prevailing policy, such expectation having arisen directly from the agreement itself and the consistent past conduct of the respondents. The impugned tender condition could not have travelled beyond, or contrary to, the terms of the agreement entered into between the parties,” the court held.

VINP Distilleries established a dedicated ethanol plant after responding to an Expression of Interest issued by the Oil Marketing Companies in August 2021. It was issued a Letter of Intent in November 2021 and entered into a Long-Term Offtake Agreement in January 2022.

The agreement formed part of the Government's ethanol blending programme. Dedicated Ethanol Plants were required to manufacture ethanol for supply to Oil Marketing Companies and were not permitted to supply ethanol produced at such plants to third parties.

For the Ethanol Supply Year 2025-26, the Oil Marketing Companies floated a tender seeking procurement of 1050 crore litres of ethanol. Unlike earlier years, the framework excluded condition that gave preferential treatment to dedicated plants. VINP challenged this exclusion.

Initially, it submitted a representation on October 27, 2025 seeking enhanced procurement and later approached the High Court.

It thereafter approached the High Court challenging the tender condition and seeking consideration of its request.

The Oil Marketing Companies opposed the petition. The Attorney General argued that the dispute arose from a contract and involved questions relating to allocation methodology, procurement requirements, and policy considerations.

The court rejected the objection to maintainability.

“It is not in dispute that respondents 2 to 4 are “other authorities” within the meaning of Article 12 of the Constitution of India and therefore answer the description of “State”. Once the State enters into a contractual relationship and disputes arise therefrom, judicial review does not stand eclipsed merely because the controversy has its genesis in contract. The writ petition is therefore maintainable as well as entertainable," the court held.

The court noted that the petitioner had established the plant solely pursuant to the procurement framework created by the Oil Marketing Companies. It also recorded that the company had disclosed its production capacity from the outset and continued to maintain the same capacity.

The court further found that the petitioner was expressly barred from supplying ethanol to any entity other than the Oil Marketing Companies. For more than three years, its production capacity had been utilised through supplies made to them.

The court also noted that the contractual provision dealing with preferential allocation had not become dormant and had in fact been invoked by the Oil Marketing Companies themselves.

“Even subsequent to the impugned Expression of Interest, Clause 6.8 has not remained wholly dormant; indeed, it has been invoked to permit enhancement of supply from 1.44 crore litres to 3.30 crore litres. Respondents 2 to 4, therefore, cannot now be heard to contend that the Long-Term Offtake Agreement is wholly discretionary or that they may, at whim, induct alternative suppliers and distribute procurement through preferential allocation unfettered by prior assurances,” the court observed.

Allowing the petition, the court directed the Oil Marketing Companies to consider the company's representation dated October 27, 2025 seeking enhanced procurement for the Ethanol Supply Year 2025-26.

It directed that the representation be considered before a decision is taken on the tender and that appropriate orders be passed within four weeks from receipt of the order.