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
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL Nos. 3504-3505 OF 2010
M/S. GAS AUTHORITY OF INDIA LIMITED …APPELLANT
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.
Respondent no. 2 is a shareholder of IPCL and respondent no. 3 is the Union
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
“(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
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
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.
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
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
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
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
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
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.
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.
following the signing of the contract could not extend the period of
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
3(1986) 3 SCC 156.
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
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.
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.
8 (2021) 10 SCC 401.
considered the bargaining capacity of contracting parties in a commercial
dispute as there was a seemingly unfair or unreasonable clause in the
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
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
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
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
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
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
nature of a sequitur and, thus, we do not find any reason to interfere with the
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.
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
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.
[Sanjay Kishan Kaul]
[Abhay S. Oka]
February 08, 2023.