Headnote
Constitution of India – Article 19(1)(g), Article 226 – Proportionality – Integrated Payment Solution – Electronic Data Capture terminals – Oil marketing companies – Dealers’ banking autonomy – Exclusive arrangements – Public sector undertakings.
Held, while adoption of technologically advanced Integrated Payment Solutions to promote transparency and consumer convenience constitutes a legitimate objective, compelling petrol pump dealers to exclusively use Electronic Data Capture terminals tied to select banks, and mandating removal of existing terminals of other banks, imposes a disproportionate and unreasonable restriction on the dealers’ right to carry on business. The Court held that once fuel is sold by dealers to customers after full advance payment to the oil company, the manner of collection of payment from customers lies within the dealers’ commercial domain. Alleged malpractices such as misuse of Merchant Discount Rate claims or lack of geo-fencing were found insufficiently substantiated to justify a monopolistic payment architecture. Applying the four-pronged proportionality test, the Court held that less restrictive alternatives existed, such as allowing multiple bank terminals while retaining integrated systems. The impugned directive mandating exclusive routing through specific vendors and banks was quashed as arbitrary, excessive, and violative of Article 19(1)(g).
Court’s decision
The Delhi High Court allowed the writ petition filed by the association of petrol dealers and quashed the notice dated 08 October 2020 issued by the public sector oil marketing company. The Court held that compelling dealers to discontinue existing bank-provided EDC terminals and mandating exclusive use of terminals routed through selected vendors and banks was unconstitutional and disproportionate. Interim protection granted earlier was made absolute.
Facts
The petitioner is an association representing petrol pump dealers operating retail outlets of various oil marketing companies, including the respondent public sector undertaking. The dealers purchase fuel from the respondent by making 100% advance payment and thereafter sell fuel to retail customers. Traditionally, dealers used Electronic Data Capture terminals provided by banks of their choice to accept card and digital payments from customers.
The respondent introduced an Integrated Payment Solution as part of a technological initiative aimed at automation and transparency. Under this system, Android-based POS machines integrated with fuel dispensing units were provided through selected vendors, Pine Labs and AGS, with payment gateways limited to two banks. Initially projected as rent-free, the system later involved rental charges. Dealers were directed to remove all other bank-provided EDC terminals and route all card transactions exclusively through the respondent’s system. This directive was challenged as arbitrary and restrictive.
Issues
The primary issue before the Court was whether the respondent, a State instrumentality, could mandate exclusive use of EDC terminals linked to specific vendors and banks, thereby compelling dealers to abandon their existing banking arrangements. The Court also examined whether such restriction satisfied the test of proportionality under Article 19(1)(g) and whether the alleged malpractices justified such compulsion.
Petitioner’s arguments
The petitioner argued that once fuel is sold to dealers on advance payment basis, the respondent has no nexus with the manner in which dealers collect payment from customers. It was contended that forcing exclusive use of selected bank gateways disrupted existing credit arrangements, delayed cash flows, imposed additional rental burdens, and restricted dealers’ freedom to bank with institutions of their choice. The petitioner submitted that consumer convenience and automation could be achieved without excluding other banks and that the directive created an artificial monopoly benefiting select entities. Reliance was placed on proportionality jurisprudence and earlier competition law precedent disapproving exclusive banking mandates.
Respondent’s arguments
The respondent contended that the Integrated Payment Solution was part of a nationwide initiative to curb malpractices, eliminate manual intervention, ensure exact billing, and promote digital transactions. It was argued that integration required a closed architecture and that vendors were free to choose acquirer banks capable of supporting such systems. The respondent maintained that dealers remained free to maintain other banking relationships and that the directive was a legitimate business decision falling within contractual domain, immune from writ interference.
Analysis of the law
The Court analysed the scope of judicial review over contractual and policy decisions of State instrumentalities, emphasising that such decisions must still satisfy constitutional standards of fairness and proportionality. Applying the four-pronged proportionality test laid down in constitutional jurisprudence, the Court accepted that digitisation and transparency were legitimate aims and that integrated systems were suitable to achieve them. However, the necessity and balancing prongs were found wanting, as the respondent failed to demonstrate why integration could not coexist with multiple bank terminals.
Precedent analysis
The Court relied on Supreme Court decisions on proportionality, including Om Kumar v. Union of India and Akshay N. Patel v. Reserve Bank of India, to assess the reasonableness of restrictions on trade. It also referred to earlier competition law rulings involving oil companies, noting that insistence on exclusive banking arrangements had previously been held contrary to public interest. These precedents were used not as binding authority on facts, but as persuasive guidance on balancing competition, consumer interest, and business freedom.
Court’s reasoning
The Court found that alleged malpractices cited by the respondent were either inadequately substantiated or could be addressed through less restrictive means, such as audit mechanisms or technological safeguards without excluding other banks. It noted that benefits like SMS alerts and transaction records were not unique to the impugned system. The Court held that compelling dealers to dismantle existing infrastructure and alter banking relationships imposed a disproportionate burden unrelated to the stated objectives.
Conclusion
The writ petition was allowed, and the impugned notice mandating exclusive use of respondent-provided EDC terminals was quashed. The Court clarified that while the respondent could introduce integrated systems, it could not do so by imposing monopolistic or exclusionary conditions on dealers.
Implications
The judgment reinforces limits on the commercial control exercisable by public sector undertakings over their dealers. It affirms that technological modernisation cannot be pursued at the cost of constitutional business freedoms and sets an important precedent against exclusive digital payment arrangements imposed by dominant entities.
Case-law references
- Om Kumar v. Union of India – Doctrine of proportionality in administrative action.
- Akshay N. Patel v. Reserve Bank of India – Four-pronged proportionality test.
- Federation of All Maharashtra Petrol Dealers Association v. HPCL – Exclusive bank terminal mandates held anti-competitive.
FAQs
1. Can oil companies mandate exclusive digital payment systems?
They may introduce systems for transparency, but cannot impose exclusive or monopolistic arrangements that unreasonably restrict dealers’ business autonomy.
2. Does automation justify removal of existing bank terminals?
No, unless exclusivity is shown to be necessary and proportionate, which was not established in this case.
3. Are dealers free to choose their banks for customer payments?
Yes. The Court affirmed that dealers retain autonomy over banking arrangements for collecting payments from customers.