Karnataka High Court Strikes Down Arbitrary Ethanol Allocation Cut by Oil Firms

The Karnataka High Court has ruled that Oil Marketing Companies (OMCs) cannot arbitrarily reduce ethanol procurement from Dedicated Ethanol Plants (DEPs) after inducing them to invest hundreds of crores of rupees. Justice M. Nagaprasanna made this observation while allowing a petition by VINP Distilleries and Sugars Pvt. Ltd., a DEP in Haveri district.

The court found that OMCs—Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum—had sharply cut ethanol allocation for 2025-26 despite a long-term offtake agreement (LTOA) signed in 2021. The company had bid to supply 9.26 crore litres but was allocated only 3.92 crore litres, ignoring a clause for preferential allocation of additional quantities.

Examining the Centre's Ethanol Blended Petrol Programme and 20% ethanol blending target, the court noted that the government encouraged private investment through policies, interest subvention, and long-term procurement assurances. DEPs were established exclusively to supply ethanol to OMCs and were contractually barred from selling to third parties. The petitioner had set up a 300 KLPD plant based on these assurances.

The court emphasized 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 public interest justification. The court observed that treating DEPs on par with non-dedicated producers through later tender conditions was arbitrary.

“DEPs, 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,” the court said. It directed OMCs to consider the company's plea for enhanced procurement before the next batch of ethanol procurement.