Proposed legislation seeks to replace criminal liability for minor licence breaches with civil penalties while introducing specific offences and stronger deterrence for serious petroleum-sector violations

The Ministry of Petroleum and Natural Gas (MoPNG) has floated the draft Petroleum (Amendment) Bill, 2026, for stakeholder consultation, proposing a major overhaul of the penalty framework under the Petroleum Act, 1934.

The draft legislation seeks to decriminalise certain minor regulatory violations relating to the import, transport, storage, production, refining and blending of petroleum products. Instead of treating breaches of licence conditions as criminal offences, the proposed framework would provide for civil penalties through an administrative mechanism.

At the same time, the government is proposing specific offences for more serious violations, with the stated objective of maintaining adequate deterrence and protecting the integrity and safety of petroleum-sector operations.

Why the Government Wants to Change the Petroleum Act

The Petroleum Act, 1934, provides the basic statutory framework governing the import, transport and storage of petroleum, along with provisions relating to production, refining and blending.

The government says the existing offence framework has become outdated and does not adequately distinguish between routine regulatory breaches and serious violations.

According to the Petroleum Ministry, the existing Section 23 creates a broad offence structure under which breaches of licence conditions can become criminal offences. The proposed amendments seek to make the framework more specific and proportionate by separating regulatory non-compliance from conduct that warrants criminal liability.

The Ministry has also pointed out that the existing penalty framework was last substantially amended in 1970.

What the Draft Bill Proposes

The draft legislation proposes changes to Chapter III of the Petroleum Act, which deals with penalties and procedure.

The proposed amendments include:

• Substitution of Section 23

• Substitution of Section 25

• Amendment of Section 24

• Introduction of new Sections 23A, 23B, 23C, 23D and 23E

• Creation of specific offences for different categories of petroleum-sector violations

• Introduction of an administrative mechanism for imposing civil penalties for specified regulatory breaches

The Ministry said the changes are intended to rationalise the existing framework and establish a clearer distinction between licence-related regulatory violations and serious offences.

Minor Licence Breaches Could Move to Civil Penalties

One of the central changes proposed is the decriminalisation of regulatory issues such as breaches of the terms and conditions attached to licences.

Under the proposed framework, specified violations would no longer automatically attract criminal prosecution. Instead, an administrative mechanism would allow civil penalties to be imposed.

This approach is intended to make enforcement more proportionate, particularly where a violation relates to regulatory compliance rather than conduct involving serious safety, operational or security consequences.

The government has said the proposed system is designed to avoid treating every licence breach as a criminal matter while ensuring that penalties remain effective enough to encourage compliance.

Serious Petroleum Offences to Get Specific Treatment

The proposed changes do not represent a blanket relaxation of penalties across the petroleum sector.

The draft Bill proposes specific offences covering different aspects of petroleum operations. The government has said that these provisions are intended to provide adequate deterrence against serious violations and protect the integrity of critical petroleum infrastructure.

This distinction is particularly relevant because petroleum facilities, refineries, storage installations, transportation systems and related infrastructure have significant safety and economic implications.

The Ministry said the proposed offences have been framed after examining other Indian laws as well as international precedents from countries including the United States, Japan, Australia, Germany and Singapore.

Existing Penalties Considered Outdated

The government has also highlighted the gap between the monetary penalties prescribed under the existing law and the scale of today's petroleum industry.

When the Petroleum Act was amended in 1970, the penalty under Section 23 was increased from ₹500 to simple imprisonment of up to one month or a fine of ₹1,000.

For repeat offences, the earlier penalty of up to ₹2,000 was replaced with imprisonment of up to three months or a fine of up to ₹5,000, or both.

The Ministry has argued that these amounts have become insignificant in today's economic environment. It cited the rise in petrol prices from around ₹0.90 per litre in 1970 to roughly ₹95–₹105 per litre in 2026 as one illustration of the change in economic scale.

The government also noted that India's petroleum infrastructure has expanded substantially since the original penalty framework was established.

Petroleum Sector Could Get a More Proportionate Compliance Framework

For companies operating across petroleum logistics, storage, refining, blending and related activities, the proposed distinction between civil regulatory penalties and criminal offences could have implications for compliance management.

A more clearly defined penalty structure could allow businesses to distinguish between technical or administrative non-compliance and violations involving more serious risks.

The proposal may also reduce the possibility of criminal proceedings being triggered by relatively minor licence-condition breaches, subject to the final provisions enacted into law.

However, companies would still need to maintain strong compliance systems because civil penalties can continue to carry financial and operational consequences.

Why the Reform Matters for the Oil and Gas Industry

India's petroleum sector covers a broad chain of activities, including crude-oil processing, petroleum-product transportation, storage, refining, blending and distribution.

The Ministry of Petroleum and Natural Gas continues to administer policies and regulations covering petroleum products, refining, LPG, city gas distribution, biofuels and other parts of the energy ecosystem.

A clearer penalty framework could therefore affect a wide range of companies and operators, particularly those that hold licences or approvals under the Petroleum Act and related rules.

The Petroleum Rules, 1976, for example, contain detailed requirements concerning licences, amendments and renewals for several petroleum-related activities.

Stakeholder Consultation Now Underway

The draft Bill has been released for stakeholder consultation, meaning the provisions are not yet the final law.

Industry participants, companies, experts and other stakeholders can examine the proposed amendments and provide feedback during the consultation process. Changes could therefore be made to the draft before it moves through the legislative process.

The consultation stage will be important because the final framework will determine precisely which violations are treated as civil breaches, what penalties can be imposed administratively and which activities remain subject to criminal liability.

Potential Impact on Businesses

The proposed reform could have several implications for petroleum-sector businesses.

Lower Criminal-Liability Exposure for Certain Regulatory Breaches

If enacted in its proposed form, companies could face civil penalties rather than criminal proceedings for specified licence-related violations.

Greater Clarity in Enforcement

Specific categories of offences could make it easier for businesses to understand the consequences associated with different types of non-compliance.

Continued Focus on Safety

The government's decision to introduce specific offences for serious violations indicates that safety and operational integrity will remain central to the regulatory framework.

Possible Compliance-Cost Changes

Companies may need to update internal compliance systems, licence-monitoring procedures and legal processes once the final provisions become clear.

Broader Ease-of-Doing-Business Context

The proposed amendments are also consistent with a broader policy approach of reviewing older laws and replacing criminal penalties for certain regulatory and procedural violations with civil or administrative mechanisms.

For businesses, the distinction is important. Criminal liability can involve prosecution and imprisonment, whereas civil penalties generally focus on financial or administrative consequences.

The effectiveness of the proposed framework, however, will ultimately depend on how clearly the offences and penalties are defined and how consistently the enforcement mechanism operates.

What Happens Next?

The draft Petroleum (Amendment) Bill, 2026, will first go through the consultation and review process. Stakeholder feedback could result in changes to the proposed provisions before the government takes further legislative steps.

Until the amendments are enacted, the existing Petroleum Act and applicable rules continue to govern the relevant offences and licensing framework.

The next important development will therefore be the government's response to stakeholder feedback and the final form of the legislation presented for parliamentary consideration.

Industry Outlook

The proposed Petroleum Amendment Bill represents a significant attempt to modernise a penalty framework that the government considers outdated.

The key change is not simply a reduction in penalties. Instead, the draft seeks to create a two-track enforcement structure: civil penalties for specified regulatory and licence-related breaches, alongside specific offences and stronger deterrence for serious violations.

For petroleum companies, the final details will matter more than the headline change. Clear definitions of minor and serious violations, transparent administrative procedures and proportionate penalties will determine how the revised framework affects day-to-day compliance.

As the Bill is still under stakeholder consultation, businesses and investors should treat the current provisions as proposed changes rather than final law.