Calcutta High Court Upholds Cancellation of LPG Distributor LOI for Violating Guidelines

In a significant judgment, the Calcutta High Court dismissed the writ petition challenging the cancellation of a Letter of Intent (LOI) issued to him by Indian Oil Corporation Ltd. (IOCL) for an LPG distributorship in Murshidabad district. The court upheld IOCL's decision to cancel the LOI, citing the petitioner’s unauthorized use of additional plots of land, non-compliance with statutory requirements, and violations of tender guidelines.

The court noted that the petitioner, initially offering LR Plot Nos. 4255 and 4256 for constructing the LPG godown, subsequently constructed the godown on additional plots, LR Plot Nos. 4253 and 4258, without informing or seeking prior approval from IOCL. This action violated the Unified Guidelines for Selection of LPG Distributors, which require written approval for using alternate land either during or after field verification.

“The petitioner had never informed the authority/respondent regarding the construction of land over the additional plots. Moreover, the petitioner has constructed the godown without changing the nature of classification of Plot No. 4255,” observed the court. [Para 11]

The petitioner failed to convert LR Plot No. 4255 into the required classification for godown construction and did not secure a valid PESO (Petroleum and Explosives Safety Organization) license for all plots. IOCL pointed out these statutory deficiencies in their show cause notice, which the petitioner failed to address satisfactorily.

The court held that these lapses justified the cancellation of the LOI, emphasizing that an LOI does not constitute a firm offer or create vested rights.

“The issuance of LOI cannot create any right in favor of the petitioner, and it is not a firm offer. The petitioner admittedly violated the terms of the tender; thus, he cannot claim equitable relief,” the court ruled. [Paras 11-12]

The court referred to the brochure’s guidelines, which explicitly allow for the use of alternate land subject to prior approval by IOCL. Construction of godowns without obtaining written permission from the Area Manager/Territory Manager/Regional Manager of the concerned Oil Marketing Company (OMC) was prohibited.

The court remarked that the petitioner’s failure to comply with these guidelines rendered his claim for equitable relief untenable.

“Construction of LPG godown and/or showroom should be commenced only after permission in writing is obtained from the concerned Area Manager/Territory Manager/Regional Manager,” the court noted. [Para 8]

The petitioner argued that the additional plots used for godown construction did not cause harm or disputes with third parties. However, the court rejected this argument, stating that the violations of tender conditions and brochure guidelines precluded the grant of equitable relief.

“The conduct of the petitioner is ‘de hors’ to the conditions laid down in the brochure. Petitioner, having violated tender terms, cannot claim equitable relief,” the court held. [Para 11]

The court upheld the cancellation of the LOI dated May 2, 2022, concluding that it did not suffer from any legal infirmity. The petitioner’s failure to address the deficiencies identified in IOCL’s show cause notice justified the cancellation.

“The impugned communication, dated 02.05.2022, whereby the LOI issued in favor of the petitioner was cancelled, suffers no legal infirmity,” the court declared. [Para 12]

The court dismissed the writ petition as devoid of merit, affirming IOCL’s decision to cancel the LOI. It reiterated the importance of adhering to tender guidelines and statutory requirements in government contracts.

Date of Decision: January 13, 2025