The Patna High Court (Single Judge Bench) dismissed a writ challenging Indian Oil Corporation’s (IOC) decision to withdraw a Letter of Intent (LOI) for a rural LPG distributorship in Siwan. The Court held that once an applicant, after receiving an LOI, enters into a partnership for running the distributorship without the corporation’s prior consent, it amounts to a clear violation of the LOI terms, justifying its withdrawal. The judgment, dated 25 January 2021, came from Hon’ble Mr. Justice Partha Sarthy.

The petitioner sought (i) quashing of IOC’s letter dated 03.02.2020 withdrawing the LOI for the Morakhas (Siwan) rural LPG distributorship; (ii) restoration of the LOI; and (iii) restraint on IOC from allotting the distributorship to anyone else in the OBC category during the writ’s pendency.

Simplified Explanation of the Judgment

This case revolves around what an LOI means and how strictly its conditions bind an applicant before final appointment. The corporation had floated an advertisement in June 2017 inviting applications for a rural LPG distributorship at Morakhas, Siwan. The petitioner, applying under the OBC category, was successful and received an LOI on 27.06.2019.

An LOI is not a final appointment; it is a conditional expression of intent. The Court recorded that IOC’s LOI itself states that it is not a “firm offer” and specifies circumstances in which the LOI may be withdrawn, including non-satisfactory progress towards commissioning or discovery of suppression/misrepresentation in documents.

After getting the LOI, the petitioner entered into a registered partnership on 31.07.2019 with two individuals to run the distributorship. This was done without IOC’s prior approval. Later, disputes arose among the partners over profit-sharing; the petitioner issued legal notices dated 09.09.2019, 29.10.2019 and 04.01.2020 to cancel the partnership.

On a complaint received by IOC, the corporation issued a show cause notice on 04.12.2019. The petitioner replied on 30.12.2019, stating efforts to cancel the partnership and seeking sympathetic consideration. However, by letter dated 03.02.2020, IOC withdrew the LOI and forfeited ₹30,000 as per the terms.

The critical clause in the LOI was Clause 5.4 (under “Commissioning”), which categorically prohibits inducting any partner or making any change in the proposed distributorship’s constitution, except with IOC’s prior approval. The judgment quotes this clause in full.

The petitioner argued that the partnership never legally came into existence or stood dissolved via legal notice, and therefore the cause for action did not exist when IOC issued the show cause. The Court noted these submissions.

IOC countered that the petitioner had voluntarily and consciously entered into a registered partnership after the LOI, directly breaching Clause 5.4; therefore, withdrawal of the LOI was justified. IOC also pointed out that disputes among the partners were about profit share, not about LOI compliance, undermining the petitioner’s “enticed/misled” narrative.

In assessing the record, the Court found three things decisive:

1. The LOI is only an expression of intent subject to conditions, not a final grant.
2. Clause 5.4 squarely forbids inducting partners without prior approval; the petitioner admittedly executed a registered partnership on 31.07.2019.
3. The legal notices show the dispute arose due to profit-sharing demands (75–80% by the other partners), not due to realization that the partnership itself violated the LOI.

Given these findings, the Court held that IOC’s action withdrawing the LOI dated 27.06.2019 by order dated 03.02.2020 was not illegal. The writ petition was dismissed.

Significance or Implication of the Judgment

For applicants: This ruling is a clear reminder that an LOI is a conditional stage. Until a formal appointment/order is issued, the applicant must strictly adhere to every LOI clause. Any unilateral change—especially in ownership/constitution (like adding partners)—without prior written clearance from the corporation can lead to withdrawal of the LOI and forfeiture of amounts as specified.

For public sector oil companies and other grant-issuing authorities: The decision affirms their contractual discretion to enforce LOI conditions. Where the LOI itself sets out grounds and process for withdrawal, courts are slow to interfere if the decision follows those terms and the affected party had an opportunity to respond (as here, through a show cause and reply).

For governance and tender transparency: The judgment underscores that competitive processes must remain faithful to declared eligibility and post-selection conditions. Allowing post-LOI restructuring without approval could defeat the integrity of category-based selections (like OBC) and the level playing field among applicants.

Legal Issue(s) Decided and the Court’s Decision with Reasoning

• Whether IOC could withdraw an LOI for a rural LPG distributorship because the selected applicant entered into a partnership without prior approval?
  Held: Yes. Clause 5.4 of the LOI expressly prohibited inducting a partner or altering the constitution without prior approval. The petitioner’s registered partnership dated 31.07.2019 violated this clause. Therefore, IOC’s withdrawal of the LOI on 03.02.2020 was lawful.
• Whether the petitioner’s later legal notices dissolving the partnership cured the breach?
  Held: No. The Court found the partnership arose after the LOI and the dispute was over profit-sharing (75–80%) rather than compliance with LOI terms. The violation had already occurred; post-hoc notices did not erase the breach.
• Nature of an LOI: Is it a firm grant?
  Held: No. The LOI is not a firm offer; it is subject to conditions and can be withdrawn for non-compliance or unsatisfactory progress, including circumstances set out in Clauses 9.1 and 9.3.

Judgments Referred by Parties (with citations)

• Indian Oil Corporation Ltd. v. Raj Kumar Jha, 2012 (2) PLJR 783 — relied upon by the respondents to support the proposition that breach of LOI terms justifies withdrawal.

Judgments Relied Upon or Cited by Court (with citations)

• None specifically discussed as forming the ratio beyond the LOI’s own terms (as reproduced and applied by the Court).

Case Title

Petitioner v. Indian Oil Corporation & Anr. (generic styling used to avoid personal identifiers)

Case Number

Civil Writ Jurisdiction Case No. 5228 of 2020.

Citation(s)

2021(2) PLJR 476

Coram and Names of Judges

Hon’ble Mr. Justice Partha Sarthy.

Names of Advocates and who they appeared for

• Mr. Prashant Sinha — for the petitioner.
• Mr. Ankit Katriar — for the respondents (Indian Oil Corporation).

Link to Judgment

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