M/S. GAS AUTHORITY OF INDIA LIMITED Versus M/S. INDIAN PETROCHEMICALS CORP. LTD. & ORS

M/S. GAS AUTHORITY OF INDIA LIMITED Versus M/S. INDIAN PETROCHEMICALS CORP. LTD. & ORS

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

REPORTABLE

 IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL Nos. 3504-3505 OF 2010

M/S. GAS AUTHORITY OF INDIA LIMITED …APPELLANT

Versus

M/S. INDIAN PETROCHEMICALS CORP.

LTD. & ORS. …RESPONDENTS

J U D G M E N T

SANJAY KISHAN KAUL, J.

1. M/s Gas Authority of India Limited (for short ‘GAIL’), the appellant

herein, is a Government of India undertaking, incorporated on 16.08.1984,

engaged primarily in the activity of providing services for the utilisation of

natural or associated gas. Indian Petrochemicals Corporation Ltd. (for short

‘IPCL’), respondent no.1 herein, formerly a public sector undertaking, is

engaged in the manufacture of petrochemicals. It ceased to be a public

undertaking w.e.f. June 2002, when 26% of its shares were sold to Reliance

Petroinvestments Ltd. in line with the Government’s disinvestment policy.

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Respondent no. 2 is a shareholder of IPCL and respondent no. 3 is the Union

of India.

Background

2. On 01.01.1999, the Ministry of Petroleum and Natural Gas,

Government of India (hereinafter referred to as ‘MoPNG’), the allocating

and price-fixing authority for natural gas, issued a letter for allocation of

natural gas to IPCL. IPCL was allotted 0.85 MMSCMD of semi-rich gas on

firm basis from Hazira to IPCL’s Gandhar Unit (at Dahej) for extraction of

C-2 and C-3 fractions. The same was made subject to the following

conditions:

“(i) Signing of gas supply contract with GAIL.

(ii) The pipelines require to transport semi-rich gas from Hazira to IPCL

Unit at Gandhar and to transport the lean gas back to Hazira shall be laid by

M/s IPCL.

2. You are requested to enter into necessary gas supply contract with

GAIL within 60 days of issue of this letter failing which above allocation

will be liable for allocation.”

Looking to the significance of the time period in the letter, the parties began

negotiating the terms of the gas supply contract. IPCL thus entered into a

contract with GAIL on 09.11.2001 for supply of natural gas. IPCL had set

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up and installed a plant at Gandhar by investing approximately Rs. 4500

crores. Further, in order to meet the stipulation of the allocation letter, it laid

down pipelines between Hazira and Gandhar at a cost of approximately Rs.

354 crores.

3. As per the contract, the methodology of supply of gas was that GAIL

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 IPCL’s Gandhar plant through pipelines laid down by IPCL.

The unutilised gas was then sent back to Hazira, also using IPCL’s pipelines.

4. We may flag at this stage itself the significance of the manner in

which the gas is carried, as the dispute before us revolves around this

particular aspect. On one hand, as per the allocation terms, IPCL had to lay

down its own pipelines (which were so laid), and those pipelines alone were

utilised for carrying gas. On the other hand, the charge is levied by GAIL for

‘loss of transportation charges’ in terms of the contract. It is this aspect of

the contract between the parties which has been the subject matter of

adjudication in writ proceedings filed by IPCL under Article 226 of the

Constitution of India. IPCL succeeded before the learned Single Judge in

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terms of the orders dated 19.09.2006 and 11.04.2007, and before the

Division Bench in the Letters Patent Appeals vide order dated 17.06.2008.

5. We may note that though the contract inter se the parties was signed

on 09.11.2001, the challenge was laid to Clauses 10.01 and 4.04 of the

contract only on 09.03.2006, i.e. after five years. In this interregnum, IPCL

ceased to be a public sector undertaking.

6. The other development is the decision of GAIL to stop levying loss of

transportation charges in May 2016. Thus, the total amount collected under

the aforesaid clauses is stated to be Rs. 134 crores before it was quashed by

the Single Judge and sustained by the Division Bench.

7. In order to understand the contractual context, the relevant two

clauses are extracted below:

“4.04 The BUYER, in addition to price of GAS mentioned in

Article 10, shall pay to the SELLER Rs. 4,16,700/- (Rupees Four

Lakh Sixteen Thousand and Seven Hundred) towards fortnightly

service charges on account of deployment of manpower by the

SELLER for terminal operation and routine maintenance along

with applicable taxes / levies thereon, connected with delivery of

Gas at the Point of Onward Delivery and receipt of Gas returned

by the BUYER at the Point of Return Delivery. The above

service charges is exclusive of any material requirements like

tools, tackles etc. and also the spares / items / equipments to

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maintain the terminal in operable condition. Any interruptions in

supply of gas to any consumers on account of such material

requirement shall be at the risk and cost of the BUYER. The

above Service charges shall be increased by 3 (Three) percent per

annum on yearly rest basis with effect from 1st April following

the scheduled date of commencement of gas supply mentioned

under article 2.01 hereinabove. In addition to the above, the

BUYER shall also pay to the SELLER transportation charges, as

 applicable from time to time along the HBJ pipeline system for

the quantity of GAS utilized / shrinkage as per formula provided

under Article 5.02 or for the difference in quantity of gas

measured at the Point of Onward Delivery at Metering Station

 No. – I (after adjusting the quantity of Gas Bye Passed as

mentioned under Article 4.03 hereinabove) and Point of Return

Delivery at Metering Station No. – II, whichever is higher. The

BUYER shall pay above charges to the SELLER in addition to

invoice for supply of gas to be raised as per Article 11 hereinafter

along with all applicable taxes / levies thereon. Provided that in

case above charges are not paid by the BUYER within 3 (Three)

working days of presentation of the invoice, the SELLER will

present the invoice for the same to the Bank against Letter of

Credit and draw the amount. The BUYER will make

arrangements with the Bank in a manner that in such an

eventuality the full L/C amount gets automatically reinstated.

…. …. …. …. ….

ARTICLE 10-PRICE OF GAS

10.01 Present price of 1000 (One Thousand) Standard Cubic

meters of GAS w.e.f. 1.10.1997 is applicable as per

Government Pricing Order No. L-12015/3/94-GP dated

18.9.1997 (Annexure-IV) after which the SELLER shall have

right to fix the price of GAS which may be as per directive,

instruction, order, etc. of the Government of India which is

likely to be market related in accordance with current policy of

liberalisation of the Government of India and the BUYER shall

pay to the SELLER such price of GAS. In addition to the

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above, the BUYER shall also pay to the SELLER transportation

 charges, as applicable from time to time along the HBJ pipeline

system, for the quantity of GAS utilised/ shrinkage. Provided

further, the price of GAS so fixed is exclusive of Royalty,

Taxes, Duties, Service/Transportation charges and all other

statutory levies as applicable at present or to be levied in future.

By the Central or State Government of Municipality or any

other local body or bodies payable on purchase of Gas from

ONGCL/Other Producer(s) by the SELLER or on sale from

SELLER to the BUYER or on return of the balance quantity of

GAS after processing by the BUYER to the SELLER and these

shall be borne by the BUYER over and above the aforesaid

price.”

 (Emphasis supplied)

8. IPCL challenged the aforesaid clauses primarily on the ground that

they were contrary to the Government pricing orders dated 30.01.1987,

31.12.1991, 18.09.1997, 30.09.1997 and 20.06.2005, whereby the price of

natural gas was fixed. Further, the allocation letter by the MoPNG mandated

that transportation of gas to IPCL’s plant had to be through IPCL’s own

pipelines from the ONGC Metering Station. Thus, it was contended that

recovery of ‘loss of transportation charges’ by GAIL was arbitrary and

unfair. IPCL did not have the option to transport gas through GAIL’s

pipelines due to the mandate of the contract and the allocation letter. IPCL

also challenged the aforesaid clauses on the ground of unequal bargaining

power. It was contended that GAIL occupied a monopolistic position in

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respect of supply of gas at the time of entering into the contract.

Additionally, IPCL had a limited time frame to enter into the contract,

particularly as a hefty investment had been made in setting up the gas

cracker plant. As a consequence, IPCL claimed refund of the ‘loss of

transportation charges’ paid by them. The Single Judge quashed these

clauses vide order dated 19.09.2006 as being contrary to the pricing orders,

and thus unfair and unconscionable.

9. GAIL, being aggrieved by the said judgment, preferred a Letters

Patent Appeal. In the meantime, IPCL also preferred an application for

clarification/modification, seeking directions to GAIL to refund loss of

transportation charges, as apparently no such specific direction had been

passed by the learned Single Judge. IPCL’s application was allowed by an

order dated 11.04.2007, predicated on the reasoning that while upholding the

claim of IPCL, inadvertently the direction of refund had not been

specifically passed. This latter order also came to be assailed before the

Division Bench by GAIL.

10. The Division Bench affirmed the Single Judge’s observations vide

order dated 17.06.2008, thereby leading to the present appeal by GAIL.

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GAIL’s Plea:

11. At the outset, Mr. Tushar Mehta, learned Solicitor General, appearing

for GAIL, contested the very maintainability of the writ petition filed by

IPCL. He contended that the parties had provided for arbitration before the

Permanent Machinery of Arbitrators in the Bureau of Public Enterprises

under Clause 13.1 of the contract. Further, the matter was stated to be purely

contractual in nature, involving the enforceability and validity of the terms

of the contract, and no case was made out for violation of Fundamental

Rights. The presence of a public law element was a sine qua non for the

exercise of writ jurisdiction, as elucidated in Joshi Technologies

International Inc. v. Union of India & Ors.1

. The endeavour of IPCL, by

invoking such writ jurisdiction, was alleged to be an attempt to bypass the

law of limitation, as the contract had been signed way back in 09.11.2001. In

any case, the writ petition was also barred by limitation, having been filed

on 09.03.2006, i.e. after a period of five years. Reliance was placed on

Lipton India Ltd. & Ors. v. Union of India & Ors2

 to contend that

communications between the parties about levy of transportation charges

1(2015) 7 SCC 728.

2(1994) 6 SCC 524.

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following the signing of the contract could not extend the period of

limitation.

12. He stated that even if the petition was maintainable, the clauses could

not have been invalidated by the High Court. It was pointed out that there

were no differences in the bargaining positions of the two organisations

where one could be said to be more powerful. Both organisations were

public sector enterprises at the relevant time. The contract was stated to be

carefully negotiated and reflected the mutual consensus between the parties,

as was evident from the inter se communications at the pre-contractual

stages. Thus, the clauses could not thus be treated as arbitrary or unfair.

IPCL’s and the High Court’s reliance on Central Inland Water Transport

Corporation Limited v. Brojonath Ganguly3 was misplaced as a principle

applied to a service contract between the employer and the employee could

not be imported to a commercial contract, and that too between two public

sector enterprises. The alternative plea was that even were the impugned

judgments to be sustained, the amount of refund could not be granted

beyond the period of limitation, i.e. three years after the signing of the

contract.

3(1986) 3 SCC 156.

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13. The basic defence and justification for levy of loss of transportation

charges was that GAIL had made a huge investment in constructing its own

infrastructure, i.e. the HBJ pipeline (Hazira - Bijaipur - Jagdishpur). GAIL

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. The allotment had pre-supposed

the imposition of such transportation costs.

14. Finally, it was emphasized that the learned Single Judge had become

functus officio having pronounced the judgment dated 19.09.2006. Thus,

there was no question of directing a refund through a

clarification/modification application. Such a refund raised questions of

unjust enrichment, as IPCL would have passed on the ‘loss of transportation

charges’ paid by them to their own customers. As to what constituted unjust

enrichment, the Solicitor General sought to refer to Rameshwar & Ors. v.

State of Haryana and Ors4

.

IPCL’s Defence:

15. Dr. A.M. Singhvi, learned Senior Counsel, sought to defend the

impugned order and the maintainability of writ proceedings with respect to a

4(2018) 6 SCC 215.

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private contract. 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. This was notwithstanding

the fact that the issue arose from a contract between the parties, as was also

the case in ABL International Ltd. & Anr. v. Export Credit Guarantee

Corporation of India & Ors.5

 It is in these circumstances that the High

Court exercised its writ jurisdiction notwithstanding the availability of an

alternative remedy, i.e. the arbitration clause or through the civil suit. ABL

International6 was also relied on to show that consequent monetary relief

could be granted where such a writ petition was successful.

16. With respect to striking down a contractual clause, Dr. Singhvi was at

pains to point out that the ambit of Brojonath Ganguly’s7

 case had been

expanded and was not only restricted to service disputes. In Kalpraj

Dharamshi & Anr. v. Kotak Investment Advisors Ltd. & Anr.8

, this Court

5 (2004) 3 SCC 553.

6 (supra).

7 (supra).

8 (2021) 10 SCC 401.

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considered the bargaining capacity of contracting parties in a commercial

dispute as there was a seemingly unfair or unreasonable clause in the

contract.

Discussion:

17. We have considered the arguments and counter arguments of the

counsel for the parties, and also examined whether the present case is a fit

one for this Court to exercise jurisdiction under Article 136 of the

Constitution of India, albeit leave having been granted.

18. In our view, the dispute is within the following parameters. First,

whether the writ petition filed by IPCL challenging Clauses 4.04 and 10.01

of the contract was maintainable. Second, assuming such a petition was

maintainable, whether the High Court could have invalidated the

aforementioned clauses on the ground of unequal bargaining power and

arbitrariness / unfairness. Third, whether monetary relief in the form of

refund could have been granted after the order dated 19.09.2006 was passed.

19. Although the dispute arises from a commercial contract, we find that

the writ petition challenging the clauses was maintainable. It is not disputed

that GAIL is a Public Sector Undertaking and thus qualifies under the

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definition of ‘State’ as per Article 12 of the Constitution. At the time of

entering into contract, GAIL was enjoying a monopolistic position with

respect to the supply of natural gas in the country. IPCL, having incurred a

significant expense in setting up the appropriate infrastructure, had no

choice but to enter into agreement with GAIL. 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. We are

fortified in our view by this Court’s decision in ABL Enterprises9

and Joshi

Technologies10. In the present case, GAIL’s action in levying ‘loss of

transportation charges’ was ex facie discriminatory, insofar as IPCL was

mandated to build its own pipeline in terms of the allocation letter and was

not using GAIL’s HBJ pipeline at all. Thus, it cannot be said that merely

because an alternative remedy was available, the Court should opt out of

exercising jurisdiction under Article 226 of the Constitution and relegate the

parties to a civil remedy.

20. Now, we come to the validity of the clauses under which ‘loss of

transportation charges’ were levied. In our view, it would be extremely

unfair and unjust, apart from being an arbitrary action in violation of Article

9 (supra).

10 (supra).

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14 of the Constitution of India that IPCL is charged for loss of transportation

charges when it is mandated to lay down its own pipelines and not to

transport the gas through the HBJ pipeline. This action also violates the

principle of non-discrimination enshrined in Article 14. IPCL, which is

using its own pipelines, is being treated at par with other commercial entities

who are carrying gas through the HBJ pipeline laid down by GAIL. This is

more so when the pricing orders by the concerned authority, i.e. MoPNG

stipulate a fixed price for natural gas.

21. On a basic principle, it cannot be doubted that once GAIL has laid

down the pipeline, it is entitled to structure in its cost in the contract.

However, the issue is not simply that. We are faced with a scenario where

two public sector enterprises entered into a contract in pursuance of the

allocation made by the MoPNG. There was also a time constraint for IPCL.

After incurring a heavy expenditure in the construction of the Gandhar

Plant, IPCL had very little choice but to enter into the contract. What is of

most significance is that IPCL was bound to follow the allocation terms

provided by the principal authority, i.e., MoPNG. Thus, as pleaded by IPCL,

they were faced with a “Hobson’s choice”, where they had to either give up

the contract or accept the clauses levying transportation charges. On a

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conspectus of the above factors, it can be said that GAIL exercised an

unequal bargaining power at the time of signing the contract.

22. In fact, the contractual exercise of providing such a clause runs

contrary to every commercial and common sense and is manifestly arbitrary,

as IPCL is not being charged under any general terms but for a specific

purpose. This purpose cannot exist in the contract in view of the master

authority, i.e., the Union of India, providing to the contrary.

23. GAIL may have made a huge investment in constructing the HBJ

pipeline, but at the same time IPCL 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 MoPNG. Thus, it is difficult for us to accept

that on the one hand IPCL must lay down its own pipelines, and

simultaneously pay for loss of transportation through the HBJ pipeline even

without using it. We do not accept GAIL’s contention that the charges could

be levied merely because GAIL had laid the HBJ pipeline for users

generally.

24. Further, we may note that the direction for refund vide order dated

11.04.2007 arose as a consequence of quashing of the clauses. It was in the

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nature of a sequitur and, thus, we do not find any reason to interfere with the

same.

25. We, however, now turn to whether the whole amount is to be

refunded. The alternative argument of the learned Solicitor General was that

the period of limitation, in any case, could not have been expanded in

granting the refund. No doubt the issue of loss of transportation charges was

flagged by IPCL in various communications exchanged inter se the parties

subsequent to the signing of the contract. That, however, cannot grant a

license to IPCL to approach the court as and when it considers proper. Thus,

while upholding the quashing of the clauses, we 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 IPCL’s delay in approaching the

court. Here we draw strength from judgement in Lipton India Limited &

Ors.11 case referred to aforesaid, which observed that the 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.

Conclusion:

26. We thus dismiss the appeal(s) qua the aspect of maintainability of the

writ petition and the quashing of the clauses dealing with loss of

11 (supra).

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transportation charges in the case of IPCL. However, we deem it 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.

27. We are 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, we are not inclined to levy interest on the amount due.

28. The appeals are allowed in the aforesaid terms leaving the parties to

bear their own costs.

...................……………………J.

[Sanjay Kishan Kaul]

 ...................……………………J.

[Abhay S. Oka]

New Delhi.

February 08, 2023.

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