Gudivaka Srinivasa Rao vs. Union Of INDIA

The contents of the writ affidavit, in brief, are that the petitioner is operating respondent Corporation’s A site retail petroleum outlet under the name and style of Aditya Filling Station located in Koduru, Krishna District, Andhra Pradesh. Subsequent to issuance of a Letter of Intent on 08.08.2012 and a formal Letter of Appointment dated 21.08.2014, the petitioner entered into a Dealership agreement with Indian Oil Corporation Ltd. (IOCL). In accordance with standard operating procedures for petroleum dealerships, a Systems Applications and Products in Data Processing (SAP) account (Account No. 280127) was set up for the outlet. Because IOCL retains exclusive and complete administrative access to this system, it possesses the ability to debit sums directly from the dealer's account without requiring prior consent, advance notice, or detailed explanation for the underlying financial adjustments. Clause 8(e) Dealer Ship agreement stipulates that the dealer must pay a license fee to the Corporation for the use of the premises, construction, and outfit, as determined and recovered by the Corporation from time to time at its sole discretion and without previous notice. Even though the clause states that the Corporation shall advise the dealer of the basis or formula for recovering such license fees, IOCL has consistently failed to provide any mathematical formula, rationale, or prior notice for its fee adjustments.

The respondent no.5-IOCL filed counter affidavit denying the material averments of the writ affidavit and further contending that the Writ Petition is not maintainable under Article 226 because the dispute is strictly contractual and governed by an explicit arbitration clause. It is further contended that higher officials, the Chairman (Respondent 2), Director Marketing (Respondent 3) are improper parties, since they are not involved in the day to day activities and hence they are to be removed/deleted from the writ petition. Further, Chief Vigilance Officer (Respondent 6) should be deleted from the proceedings, since Section 15 of the Central Vigilance Commission Act, 2003, statutorily immunes him from legal proceedings in respect of anything done in good faith under this Act.

The petitioner filed rejoinder and while reiterating the contents of the writ affidavit and denying the material averments of the counter affidavit filed by the respondent, it is contended that the post-debit communications sent through email, showing a mere mechanical multiplication of fuel quantities with an arbitrary rate, do not satisfy the mandatory disclosure obligation under the agreement or under law. Clause 8(e) in its present form vests unbridled, unilateral power in the Corporation, rendering it manifestly arbitrary, unconscionable, and violative of Article 14 of the Constitution of India. The arbitrary nature of IOCL's actions is further evidenced by the steep, unreasoned escalation in LFR charges. Between 2017 and 2024, LFR rates escalated sharply by over 1000%, where the per-KL rate for Motor Spirit (MS) surged from Rs.49.45 to Rs.523.33, and High-Speed Diesel (H ) jumped from Rs.41.40 to Rs.436. 10. IOCL provided no cost analysis, administrative justification, or rational basis for this huge hike. Furthermore, collecting LFR on a dynamic per-KL sales volume basis lacks any logical nexus to the actual capital investment made in the retail outlet. Because the Corporation's investment in the outlet infrastructure is fixed, levying a fluctuating fee based on monthly sales volume (such as deducting Rs.1,17,923.06 in December 2024 compared to Rs.41,778.96 in July 2025) transforms LFR into an instrument for unchecked financial extraction. This inequality is highlighted when comparing the Petitioner's outlet with similarly situated 'A-site' retail outlets. For the Petitioner's site, IOCL pays a low monthly land rent of Rs.3,260/- yet extracts Rs.1,17,923/- in monthly LFR. Conversely, for Satya Sai Filling Station, another 'A-site' outlet with a comparable corporate investment of approximately Rs. 1.5 crore, IOCL pays a monthly land lease rent of Rs.82,280/- but extracts only Rs.59,833/- as LFR. This disparity demonstrates the absence of a uniform policy and underscores the discriminatory treatment meted out to the Petitioner.

Heard Ms. Avanija Inuganti, learned counsel for petitioner, and Sri S.V.S.S.Siva Ram, learned Standing Counsel for IOCL.

Ms.Avanija Inuganti, learned counsel for petitioner, while reiterating the contents of the writ affidavit and rejoinder would contend that IOCL, an instrumentality of the State under Article 12, is constitutionally bound to act with fairness, non-arbitrariness, and transparency. She would further contend that Clause 8(e) of the Dealership Agreement grants IOCL an unbridled, unilateral power to alter financial burdens and debit sums without prior notice or providing the underlying calculation formula. She would further contend that the standard-form Dealership Agreement is signed between parties with vastly unequal bargaining power. A weaker party with no ability to negotiate cannot be held bound to oppressive terms. Mere mechanical post-debit emails showing simple multiplication of fuel volume with an arbitrary rate fail the legal test of disclosure and do not satisfy mandatory disclosure obligations under agreement. She would further contend that the High Court has a constitutional duty to strike down unconstitutional contractual terms rather than relegating litigants to prolonged civil proceedings. She would further contend that between 2017 and 2024 has drastically increased without any cost-benefit analysis, administrative rationale, or financial breakdown provided to the dealer. She would further contend that converting LFR into a go-ahead fee based on monthly sales volume lacks logical connection to actual infrastructure investment and since the capital infrastructure investment in the outlet is fixed, levying a fluctuating fee converted the LFR into an instrument of financial extraction. She would further contend that while LFR charges were continually raised, dealer commissions remained stagnant for over seven years i.e. from 2017 to 2024, ignoring official recommendations like the Apurva Chandra Committee to revise dealer margins twice a year. She would further contend that the contention of IOCL of following a uniform system across Public Sector Oil Marketing Companies is false. Bharat Petroleum Corporation Limited (BPCL) Clause 2(a) explicitly mandates a minimum 30-day prior written notice before revising license fees, whereas IOCL is levying changes without any prior written notice. She would further contend that IOCL treats similarly situated 'A-site' outlets arbitrarily and though IOCL pays a low monthly land rent but extracts more money in monthly LFR for petitioner’s outlet, whereas for another 'A-site' outlet viz., Satya Sai Filling Station with similar corporate investment of Rs.1.5 crore, IOCL pays Rs.82,280 in monthly land lease rent but collecting only Rs.59,833/- as LFR and therefore the petitioner is being discriminated. She would further contend that the existence of an arbitration clause does not oust the High Court's writ juri iction under Article 226 when fundamental rights under Article 14 are infringed by a State instrumentality exercising overwhelming bargaining power. She would further contend that since respondent nos.2, 3 and 6 formulate and oversee the LFR policy, they impleadment as parties is justified and further Section 15 of the Central Vigilance Commission Act, 2003 does not bar relief against Respondent No. 6 since the action pertains to official capacity, not personal liability. Accordingly, prayed to allow the writ petition.

Perused the material available on record and considered the submissions made by learned counsel for the parties.

The first question is whether the writ petition can be entertained notwithstanding the contractual nature of the relationship and the arbitration clause contained in the dealership agreement. The mere existence of a contractual remedy or an arbitration clause does not, by itself, place every action of an instrumentality of the State beyond the scrutiny of Article 226 of the Constitution. Where the complaint concerns alleged arbitrariness in the action of a State instrumentality and the Court is called upon to examine the legality of such action, the juri iction under Article 226 is not completely excluded. The Court, however, must exercise such juri iction with due regard to the nature of the dispute and the contractual framework governing the parties.

In the present case, the challenge is not merely to an ordinary private claim for money. The petitioner questions the exercise of contractual power by a public sector oil company and alleges arbitrariness and discrimination in the levy. The issue, therefore, is capable of examination in writ juri iction. This Court is accordingly of the view that the writ petition is maintainable.

The next question is whether the recovery of LFR on the basis of the volume of petroleum products sold from the outlet is, by itself, sufficient to establish discrimination or arbitrariness.

The distinction between the rent paid by the Corporation for acquiring or holding the land and the licence fee recovered from the dealer under the dealership agreement has to be kept in view. The two payments operate in different fields and serve different contractual purposes. The fact that the Corporation may be paying a particular amount as land rent for a particular site does not mean that the licence fee recoverable from the dealer must correspond to, or be limited by, that land rent. The petitioner's attempt to compare the monthly land rent payable by the Corporation with the LFR recovered from the dealer proceeds on the assumption that both amounts represent the same financial component. That assumption is not borne out by the contractual arrangement.

The LFR is not pleaded or established on record as a mere reimbursement of the land rent paid by the Corporation. The material indicates that the recovery is linked to the use of the Corporation's premises, construction and outfit and is calculated with reference to the quantity/volume of petroleum products handled at the outlet. Therefore, changes in monthly recovery caused by shifting sales volumes do not, on their own, prove hostile discrimination. The amount of land rent paid by the Corporation for one site and the amount of LFR recovered from a dealer at that site are therefore not appropriate yardsticks for determining whether two dealers have been treated unequally.

The comparison with another 'A' Site outlet also does not advance the petitioner's case. The fact that another outlet may involve a different land- lease arrangement and consequently a different amount of land rent does not establish that the contractual basis of LFR recovery is different or that the petitioner has been singled out for an unequal levy. Equality under Article 14 requires comparison between persons who are similarly situated in the relevant respect. A comparison of dissimilar financial components cannot, by itself, establish discrimination.

This Court also finds no sufficient basis to accept the contention of the petitioner that the absence of a prior opportunity to object to the revised rate, by itself, invalidates the revision. The dealership agreement expressly contemplates that the licence fee may be determined and recovered by the Corporation from time to time. The absence of a contractual requirement giving the dealer a right to object to every revision cannot be converted into such a requirement by judicial interpretation. The obligation of fairness does not necessarily mean that a dealer must be given an opportunity to prevent a contractual rate revision from taking effect.

The reference to the agreements followed by other public sector oil marketing companies, under which dealers may be informed in advance of a proposed revision, also does not establish discrimination. Different contractual terms adopted by different corporate entities do not, without further material, establish that the terms governing the present dealership are unconstitutional. More importantly, even where advance information is given under another agreement, such provision does not necessarily confer upon the dealer a right to object to, or prevent, the revision. Notice and an opportunity to make a representation are distinct from a substantive right to reject a contractual revision.

This Court is conscious that a State instrumentality is expected to act fairly, reasonably and without arbitrariness even while acting in the commercial field. The principles stated in Mahabir Auto Stores v. Indian Oil Corporation Ltd. (supra 1) recognise that public bodies do not shed their constitutional obligations merely because the transaction has a commercial character. Those principles, however, do not mean that every adverse commercial consequence suffered by a dealer becomes a violation of Article 14. The Court must identify actual arbitrariness, unequal treatment or an exercise of power wholly outside the contractual framework.

In the present case, the record shows that the LFR rates were revised after a substantial period during which they had remained unchanged. The respondent-Corporation has attributed the revision to factors including investment in the outlets, valuation of assets and inflation. The record also indicates that the Corporation communicates the monthly quantity, applicable rate, GST component and total amount recovered through its accounting and communication system. Thus, the recovery cannot be characterised merely as an unexplained debit with no ascertainable basis.

It is true that the increase in the rate may have resulted in a substantial increase in the amount payable by the dealer. The magnitude of an increase, however, does not by itself establish that the rate is unconstitutional or that the power to revise it has been exercised for an impermissible purpose. The Court exercising juri iction under Article 226 is not sitting as a price-fixing authority or as an appellate forum over every commercial decision of a public sector undertaking. Unless the decision is shown to be arbitrary in the constitutional sense, wholly unsupported by the contractual arrangement, or founded on an impermissible classification, interference is not warranted.

The contention based on the difference between the revision of dealer margins and the revision of LFR also does not furnish a sufficient basis for judicial interference. Dealer margin and licence fee are distinct components arising from different considerations. A change in one does not automatically require a corresponding change in the other. In the absence of material establishing a legal obligation that the two must move together, their different treatment cannot be treated as proof of discrimination.

In Central Inland Water Transport Corporation Limited v. Brojo Nath Ganguly (supra 2), the Hon’ble Supreme Court held that state actions and contractual terms imposed by government instrumentalities must be fair, reasonable, and non-arbitrary and that grossly unfair or unconscionable clauses resulting from unequal bargaining power are unenforceable as they violate public policy and constitutional accountability.

The authorities relied upon by the petitioner concerning unequal bargaining power and unconscionable standard-form contracts do not alter the result on the facts of the present case. This Court accepts that a State instrumentality cannot rely upon contractual power as a licence for arbitrary action. At the same time, the existence of a standard-form agreement, without demonstrating that the particular clause or its implementation is unconscionable in the legal sense, is insufficient to invalidate the contractual provision. Clause 8(e), viewed in the context of the dealership arrangement and the nature of the outlet, cannot be declared void merely because the dealer considers the revised recovery commercially onerous.

This Court has also considered the complaint regarding absence of prior notice. The material on record does not establish that the dealership agreement itself conferred upon the petitioner a right to receive a prior notice in the manner now claimed or a right to object to the revision before it could be implemented. The fact that another oil marketing company may provide advance information under a different contractual arrangement cannot supply a term which is absent from the petitioner's agreement. At the highest, the absence of advance notice may raise a question of procedural fairness in an appropriate case; it does not, on the material before this Court, render the entire contractual mechanism for LFR recovery invalid.

The decision of this Court in the earlier proceedings concerning other charges cannot be applied mechanically. Each levy has to be examined with reference to its contractual source, the circumstances in which it is imposed and the material supporting the exercise of power. The present record does not disclose a comparable factual or contractual foundation warranting the same conclusion.

It is therefore held that the petitioner has not established that the LFR is being recovered by treating the land rent and the licence fee as one and the same component. The comparison relied upon to demonstrate discrimination consequently fails. Likewise, the difference between the notice provisions contained in the agreements of other oil marketing companies and the arrangement governing the petitioner does not establish a violation of Article 14, particularly when no enforceable right to object to or veto the revision is shown.

For the reasons stated above, this Court holds that the writ petition is maintainable under Article 226 of the Constitution. However, on consideration of the merits, the petitioner has failed to establish that the recovery of LFR under Clause 8(e) is arbitrary, discriminatory or otherwise unconstitutional. The comparison between the land rent paid by the Corporation and the LFR recovered from the dealer does not furnish a valid basis for a claim of discrimination, as the two operate on different contractual foundations and the LFR is linked to the sales volume at the outlet. The reliance upon the notice provisions contained in the agreements of other oil companies also does not establish a legal right in the petitioner to object to or prevent revision of the LFR.

It is relevant to note that the petitioner executed the dealership agreement in 2014. By the petitioner's own admission, no objection was raised regarding Clause 8(e) of the agreement for an uninterrupted period of eleven years. Having voluntarily accepted the terms and conditions at the inception of the contract and slept over his rights for a considerable length of time, the petitioner is now estopped from contending that the said clause is onerous.

Consequently, since no ground is made out for exercising the discretionary juri iction of this Court under Article 226 of the Constitution, the writ petition is liable to be dismissed.

Accordingly, the writ petition is dismissed. There shall be no order as to costs. Pending miscellaneous petitions, if any, shall stand closed. ________________________ JUSTICE RAVI CHEEMALAPATI 30th September, 2026. RR