1. Gas supply agreement — Levy of transportation charges despite mandate to use own pipelines — Challenge to contractual clauses as arbitrary and discriminatory. (Para 1 , 2 , 3 , 4 , 7 , 8 )
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2023 Supreme(SC) 94
SUPREME COURT OF INDIA
SANJAY KISHAN KAUL, ABHAY S. OKA, JJ.
M/s. Gas Authority Of India Limited - Appellant
Versus
M/s. Indian Petrochemicals Corp. Ltd. & Ors. - Respondents
Civil Appeal Nos. 3504-3505 of 2010
Decided on : 08-02-2023
Important Points
IMPORTANT POINT
Writ jurisdiction can be exercised when State, even in its contractual dealings, fails to exercise a degree of fairness or practices any discrimination.
Writ jurisdiction can be exercised when State, even in its contractual dealings, fails to exercise a degree of fairness or practices any discrimination.
Subject
Contract Disputes - Validity of Contractual Clauses
Act Referred
Headnote
(A) Constitution of India – Article 226 read with Article 12 – Writ Petition – Maintainability – Commercial contract(Gas supply contract) – Public element – Striking down a contractual clause – GAIL is a Public Sector Undertaking and qualifies under definition of ‘State’ as per Article 12 of Constitution – At the time of entering into contract, GAIL was enjoying a monopolistic position with respect to supply of natural gas in country – IPCL, having incurred a significant expense in setting up appropriate infrastructure, had no choice but to enter into agreement with GAIL – There was a clear public element involved in dealings between parties – Writ jurisdiction can be exercised when State, even in its contractual dealings, fails to exercise a degree of fairness or practices any discrimination – In 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 allocation letter and was not using GAIL’s HBJ pipeline at all – It cannot be said that merely because an alternative remedy was available, Court should opt out of exercising jurisdiction under Article 226 of Constitution and relegate the parties to a civil remedy. (Para 19)
(B) Government Contract – Gas Supply Contract – [Constitution of India – Article 226] – Levy of loss of transportation charges – It would be extremely unfair and unjust, apart from being an arbitrary action in violation of Article 14 of 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 gas through HBJ pipeline – This action also violates 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 HBJ pipeline laid down by GAIL – This is more so when pricing orders by Ministry of Petroleum and Natural Gas, Government of India stipulate a fixed price for natural gas – GAIL may have made a huge investment in constructing 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 allocation letter issued by Ministry of Petroleum and Natural Gas, Government of India – While upholding quashing of clauses, refund should be restricted to a period of three years prior to date of filing of writ petition on account of IPCL’s delay in approaching court. (Paras 20, 21, 23 and 25)
Facts of the case:
Dispute is within the following parameters. First, whether 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 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.
Findings of Court:
Alternative argument of Solicitor General was that 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.
Result : Appeals allowed.
Legal Category Hierarchy
- constitutional law
- administrative law
- contract law
- practice and procedure
Advocates appeared:
For the Appellant(s) : Mr. Sanjeev K. Kapoor, Adv. Mr. Snehal Kakrania, Adv. Mr. Prateek Kumar, Adv. Mr. Rohit Ghosh, Adv. Mr. Sanyat Lodha, AOR
For the Respondent(s): M/S. Khaitan & Co., AOR
For the Appellant(s) : Mr. Sanjeev K. Kapoor, Adv. Mr. Snehal Kakrania, Adv. Mr. Prateek Kumar, Adv. Mr. Rohit Ghosh, Adv. Mr. Sanyat Lodha, AOR
For the Respondent(s): M/S. Khaitan & Co., AOR
Table of Contents
2. Maintainability of writ petition versus arbitration clause — Validity of transportation charges — Unequal bargaining power — Limitation period for refund. (Para 11 , 12 , 13 , 14 , 15 , 16 )
3. State's monopolistic position creates public element — Charging for unused infrastructure is discriminatory and arbitrary — Unequal bargaining power exists when parties face a Hobson's choice. (Para 19 , 20 , 21 , 22 , 23 )
4. Writ jurisdiction is maintainable against State in contractual matters involving manifest arbitrariness, discrimination, or unequal bargaining power violating Article 14. (Para 19 , 20 , 21 )
5. Writ maintainability upheld — Contractual clauses quashed — Refund granted but restricted to three years prior to the date of filing. (Para 24 , 25 , 26 , 27 , 28 )
6. When is a writ petition maintainable despite the existence of an arbitration clause in a commercial contract?
A writ petition is maintainable when the State, acting in its contractual dealings, fails to exercise fairness or practices discrimination, especially where the State holds a monopolistic position and a clear public element is involved. (Para 19 )
7. Can a contractual clause be invalidated for violating Article 14 of the Constitution?
Yes, if a clause is manifestly arbitrary, discriminatory, or contrary to common sense—such as charging for the loss of transportation when the party is mandated to use its own infrastructure—it violates the principle of non-discrimination under Article 14. (Para 20 , 22 , 23 )
8. How does the court evaluate unequal bargaining power in commercial contracts involving the State?
The court considers whether a party had a Hobson's choice—where they must either accept unfair terms or abandon a significant investment—and whether the State's monopolistic position forced the acceptance of arbitrary clauses. (Para 21 )
9. Can monetary relief in a successful writ petition be restricted by the law of limitation?
Yes, while a writ may be entertained on grounds of discrimination, the resulting monetary relief can be restricted to the period that would have been claimable in a civil suit, typically three years prior to filing. (Para 25 , 26 )
JUDGMENT :
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 Petro-investments Ltd. in line with the Government’s disinvestment policy. 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 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 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) towar
