M/s. Gas Authority of India Ltd. Vs. M/s. Indian Petrochemicals Corp. Ltd. & Ors.

Case Number: Civil Appeal Nos. 3504-3505 of 2010
Judges Name: Hon’ble Judges Mr. Justice Sanjay Kishan Kaul J and Mr. Justice Abhay Shreeniwas Oka J
Order dated: : 08.02.2023

Facts of the case:

  1. On 01.01.1999, the allocating and price-fixing authority of the Ministry of Petroleum and Natural Gas issued a letter to the respondents which was then a Public sector undertaking, and it ceased to be a PSU in 2006 regarding the allocation of natural gas which was subject to 2 conditions:
    a. Signing of a Gas supply contract with the Appellants
    b. The pipelines required to transport semi-rich gas from one unit to another unit of the respondent are to be laid by the Respondent.
  2. The parties signed a contract on 09.11.2001 for the supply of natural gas. The respondents installed a plant at Gandhar by investing approx. Rs.4500 crores and it laid down the pipelines between Hazira and Gandhar at a cost of Rs. 354 crores. As per the contract, the methodology of supply of gas was that the appellant received natural gas from the producer, i.e. ONGC, which procured the same at Hazira from the Bombay High project. Thereafter, the gas was transported from Hazira to the respondent’s Gandhar plant through pipelines laid down by them. The unutilized gas was then sent back to Hazira, also using the respondent’s pipelines.
  3. Dispute arose regarding this as the pipeline is laid by the respondent and on the other hand, the charge is levied by the Appellants for the “loss of transportation charges” in the terms of the contract. The respondents challenged Clauses 10.01 and 4.04 of the contract under Article 226 and they succeeded before the learned Single Judge and before Division Bench in the Letters Patent Appeals. It was challenged after 5 years when the Respondents transformed into a private entity from being a PSU.  The respondents challenged these clauses stating that they were contrary to Government pricing orders, arbitrary and unfair. The Respondent’s contentions were affirmed by the learned single judge whose observations were also affirmed by Division Bench, thereby leading to present the appeal by the appellants.
  4. The Appellants contended that the writ is not maintainable as the parties provided for an arbitration clause in the contract (Clause 13.1) and further the contract is purely of contractual nature and no case was made out for violation of Fundamental Rights. They further contended the petition is limited as it is time barred and added that even if the writ is maintainable, the clause should not have in validated as there were no differences in the bargaining positions of the two parties as both were powerful and public sector enterprises. The basic defence and justification for levy of loss of transportation charges was that appellants had made a huge investment in constructing its own infrastructure. had a limited number of opportunities to supply gas to consumers and, thus, an equally limited number of opportunities to levy transportation charges to recover its legitimate maintenance costs.
  5. The Respondents defended that the transportation charges were alleged to have a discriminatory effect as IPCL was being treated on par with consumers who were using the HBJ pipeline, whereas IPCL was transporting the gas through its own pipelines. That being the plea, it was urged that the writ jurisdiction was the appropriate remedy as there were questions of arbitrary state action violating the mandate of Article 14.

Supreme Court observed/held as follows:

  1. The writ petition is maintainable not because the appellant is a Public Sector Undertaking and comes under the definition of Article 12 but at the time of entering into a contract, they were enjoying a monopolistic position with respect to the supply of natural gas in the country and the respondent, having incurred a significant expense in setting up the appropriate infrastructure, had no choice but to enter into an agreement with the appellant. Thus, there was a clear public element involved in the dealings between the parties. Further, writ jurisdiction can be exercised when the State, even in its contractual dealings, fails to exercise a degree of fairness or practices any discrimination.
  2. The loss of transportation charges levied is not only arbitrary but also unfair, unjust and violative of Art.14 as it is discriminatory. The Appellant may have made a huge investment in constructing the HBJ pipeline, but at the same time, the respondent had also made a huge investment in constructing its own pipelines. This was not an option but a mandate of the allocation letter issued by the Ministry of Petroleum and Natural Gas.
  3. The Court by citing Lipton India Limited & Ors case, stated that though they are of the view that the refund should be restricted to a period of three years prior to the date of the filing of the writ petition on account of the respondent’s delay in approaching the court but writ petition was entertained because of the plea of discrimination but then the relief was restricted to what would have been claimed in the suit.
  4. The court dismiss the appeal(s) qua the aspect of maintainability of the writ petition and the quashing of the clauses dealing with loss of transportation charges in the case of IPCL. However, it deem fit to restrict the relief to period of three years insofar as refund is concerned from the date of filing of the writ petition, i.e., 09.03.2006. The Hon’ble Court is also of the view that this refund should be made within a period of two months from today, failing which it will carry interest at 8 per cent per annum from the date it became due. If the refund is made within the stipulated time, court is not inclined to levy interest on the amount due.
  5. The appeals are allowed in the aforesaid terms leaving the parties to bear their own costs.

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