Karnataka HC directs OMCs to honour ethanol offtake pact

The Karnataka High Court has directed state-run oil marketing companies (OMCs), Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) to honour their long-term offtake agreement with a Karnataka-based dedicated ethanol producer, raising hopes for ethanol manufacturers operating under similar arrangements.

In a 129-page judgment delivered on June 16, Justice M Nagaprasanna granted relief to VINP Distilleries and Sugars, a Shiggaon-based ethanol producer, and held that the OMCs could not arbitrarily depart from contractual commitments.

“Arbitrariness can never masquerade as discretion,” the court observed while rejecting the OMCs’ objections. The judgment noted that the Centre’s ethanol procurement programme envisages procurement of 1,500 crore litres of ethanol through dedicated ethanol plants (DEPs), which are contractually bound to supply ethanol exclusively to OMCs and are barred from manufacturing other products or selling ethanol to third parties.


According to the petition, the OMCs, acting under the National Policy on Biofuels, 2018, had invited bids for long-term offtake agreements and shortlisted the petitioner to establish production capacity to meet ethanol blending requirements.

VINP Distilleries responded to the expression of interest in 2021 by proposing a 300-kilo litre per day (KLPD) ethanol plant with an annual production capacity of 9.9 crore litres. The company subsequently invested in the facility and, for three years, supplied ethanol in accordance with the agreement.

The court noted that the long-term agreement effectively created a monopoly procurement arrangement, under which dedicated ethanol plants could supply only to the three OMCs.

The dispute arose after the OMCs introduced a new tender clause in 2024 permitting procurement from non-dedicated ethanol producers. Following the change, the petitioner was allocated only 3.92 crore litres against the earlier contracted quantity of 9.26 crore litres, resulting in a shortfall of 6.33 crore litres.

When the company did not receive a response to its representations, the company moved the high court, which granted an interim order in its favour. A division bench too rejected the appeal from OMCs. The Supreme Court, later, directed the high court to decide the matter on merits.