On 9 March the union government issued an order under the Essential Commodities Act, 1955 that discouraged companies which receive pooled gas supplies from legally challenging its decision to divert natural gas to priority sectors.
The move comes amid concerns over possible supply disruptions caused by the ongoing West Asia conflict, which has affected liquefied natural gas (LNG) shipments through the Strait of Hormuz.
Mint explains what the order says, the legal basis for it, and whether courts can still entertain challenges from affected companies.
What does the government order say?
The ministry of petroleum and natural gas issued the natural gas (supply regulation) order, 2026 to deal with potential LNG shortages. The order introduced a four-tier priority framework for allocating natural gas. It gives top priority to piped natural gas (PNG) for households, CNG used for transport, LPG production, and essential pipeline operations. Fertilizer plants fall under the second-priority category, while other industrial sectors are placed lower. To ensure adequate supply to priority sectors, the government may cut gas supplies to industries such as petrochemicals, power plants and refineries.
The notification also contains a clause that requires companies receiving pooled gas to undertake that they won’t challenge the revised supply arrangement. It states: “The entities from priority sector to which the pooled gas is supplied shall give an undertaking that the pooled price is acceptable to them and they shall not make the force majeure mitigation supply subject to any litigation as this may be at variance with their existing contracts.”
This effectively discourages companies that benefit from pooled gas supplies from going to court against the government’s decision.
What is the Essential Commodities Act?
The Essential Commodities Act, 1955 allows the government to regulate the production, supply and distribution of essential goods to ensure availability at fair prices and prevent hoarding or black marketing.
The law was enacted in 1955, in the early years after Independence, when India faced severe shortages of food grains and other essential goods. Weak supply chains, low agricultural output and widespread hoarding prompted the government to create a legal framework to regulate critical commodities. The Act replaced earlier wartime laws such as the Essential Supplies (Temporary Powers) Act, 1946, which had been used to manage shortages during World War II.
Under Section 3 of the Act, the government can issue orders regulating the production, storage, distribution and pricing of essential commodities.
The Essential Commodities (Amendment) Act, 2020 amended the Essential Commodities Act, 1955 to reduce routine government control over agricultural commodities. Regulation and stock limits on cereals, pulses, potatoes, onions, edible oilseeds, and oils can now be imposed only in extraordinary situations like war, famine, natural calamity, or sharp price rises.
When was the law used recently?
Before the current gas-supply order, the Act was mostly used to address shortages and price spikes in food and medical supplies. During the covid pandemic, masks and hand sanitizers were declared essential commodities to prevent hoarding and price gouging.
The government also used the law in recent years to impose stock limits on pulses, edible oils and onions when prices rose sharply.
Does the order completely bar courts from hearing challenges?
Legal experts said the notification discourages litigation but does not completely block judicial scrutiny.
Chirag Gupta, associate partner at Alpha Partners, said the restriction mainly applies to companies that receive pooled gas supplies. “The rights of entities that may be affected by the government order are not being curtailed in any manner. The direction issued only applies to the entities to whom pooled gas is being diverted,” he said.
Lawyers said affected companies can still approach constitutional courts. Companies can challenge the order by moving high courts under Article 226 or the Supreme Court under Article 32, questioning the legality, proportionality or reasonableness of the government’s decision. While contractual disputes may face limitations because of the notification, constitutional judicial review remains available since executive orders cannot place themselves beyond the scrutiny of courts.
What other legal options do companies have?
Experts said companies may explore contractual remedies depending on their agreements. Varun Lakra, associate partner at King Stubb & Kasiva, said the order overrides existing gas sale agreements. “This means contractual obligations may be temporarily superseded where government-mandated diversion of gas is required,” he said.
Companies may still look at provisions such as force majeure clauses or arbitration, although the scope of such remedies could be limited.
Rishabh Gandhi, founder of Rishabh Gandhi & Advocates, said the order could lead to renegotiations and arbitration disputes across LNG-dependent sectors. “When the state intervenes under a statutory mandate, commercial contracts often yield to public interest, and disputes shift toward force majeure, risk allocation and compensation claims,” he said.
Shryeshth Ramesh Sharma, senior partner at SKV Law Offices, said large-scale litigation over the diversion of gas is unlikely because of the emergency order. However, he noted that priority sectors such as domestic PNG, LPG, CNG and fertilizers are expected to continue receiving supplies, while lower-priority sectors including refineries, power plants and petrochemical units may face disruptions. Industries may have to switch to alternative fuels or cut output, which could lead to financial losses.
How have courts approached this issue?
Interestingly, the government order draws on a 22-year-old Supreme Court ruling in Association of Natural Gas & Ors vs Union of India, in which the apex court held that natural gas and LNG were covered under the category of “petroleum and petroleum products”.
According to lawyers, Indian courts generally allow the government wide powers to regulate essential commodities while retaining the authority to review such decisions. In the case of Dwarka Prasad Laxmi Narain v. State of Uttar Pradesh (1954), the Supreme Court held that orders regulating essential commodities could be challenged in court by affected parties.
In subsequent cases such as Narendra Kumar v. Union of India (1960) and Prag Ice & Oil Mills v. Union of India (1978), the court upheld the government’s power to regulate supply and prices in the public interest. However, in Union of India v. Cynamide India Ltd. (1987), the court clarified that such orders could still be reviewed if they were arbitrary or exceeded legal powers.