CAUSE TITLE:
M/S. Gas Authority Of India Limited Versus M/S. Indian Petrochemicals Corp. Ltd. & Ors.
DATE OF ORDER:
08.02.2023
JUDGE(S):
Justice S.K.Kaul and Justice A.S. Oka
PARTIES:
Petitioner: /S. Gas Authority Of India Limited
Respondent: M/S. Indian Petrochemicals Corp. Ltd. & Ors.
SUBJECT
A Supreme Court Division Bench composed of Justices S.K. Kaul and A.S. Oka concluded that if the State fails to exert a degree of fairness or discrimination in its contractual dealings, writ jurisdiction can be exercised against it.
BRIEF FACTS
- The Government of India allocated 0.85 MMSCMD of natural gas to M/s. Indian Petrochemicals Corporation Ltd. (IPCL) in 1999, subject to certain conditions outlined in the allocation letter. IPCL signed a gas supply contract with M/s. Gas Authority of India Limited in 2001. (GAIL).
- According to the contract provisions, IPCL lay down its own pipelines, and only those pipelines were used to transport gas; GAIL assessed a fee for 'loss of transportation expenses' for pipelines laid down by GAIL, even though they were not used. The recovery of 'loss of transportation charges' was deemed arbitrary and unreasonable by IPCL. In this regard, contract clauses were challenged based on uneven negotiating powerGivenof the same, and IPCL requested a refund of the 'loss of transportation charges. The High Court's Single Judge overturned the challenged clauses. GAIL was also required to reimburse IPCL for the loss of transportation charges. In an appeal, the Division Bench supported the Single Judge's decision.
QUESTIONS RAISED
Whether GAIL is a public sector undertaking and falls under the Constitution's definition of "State" in Article 12?
ANALYSIS BY THE COURT
- The Court's initial concern was the problem of maintainability. Given that GAIL is a Public Sector Undertaking and would be included by the term 'State' in Article 12 of the Constitution, the High Court ruled that the writ petition was maintainable. It acknowledged that GAIL's claim that it had a monopoly in the supply of natural gas at the time the contract was signed had substance. As a result, it was discovered -
- "Writ jurisdiction can be used when the State fails to behave fairly or discriminatorily, even in its commercial dealings," according to the law.
- In determining whether the provisions under which GAIL had assessed the loss of transportation cost were valid, the Court noted that it was arbitrary, unfair, unjust, and in violation of Article 14 of the Indian Constitution that IPCL was assessed loss of transportation fee even thought it was required to install in pipelines and not transport the gas through HBJ pipeline.
- Even more so when the Ministry is required to set the price of natural gas. It was noted that IPCL was handled equally with other commercial businesses using GAIL-installed pipelines. It was also noted that Hobson hadecidedon to accept the deal with GAIL because IPCL had already spent a lot of money on infrastructure. Because IPCL is being charged for a specific purpose rather than under any generic terms, the contractual exercise of including such a clause runs counter to all common sense and businespracticeses. Given that the supreme authority, the Union of India, provides to the contrary, this objective cannot exist in the contract.
- Because GAIL had installed the pipelines for all users in general, the Court declined to recognize that the charges had to be paid even though IPCL was not using them.
- The High Court's order was upheld by the Apex Court. The Apex Court ordered that the repayment be limited to a period of three years before the date of filing of the writ petition because there was a delay in contacting the High Court. GAIL was given two months before money; otherwise, 8% p.a. in interest would be applied
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