1. Gas supply agreement — Levy of transportation charges despite use of buyer's own pipelines — Challenge to contractual clauses as arbitrary and discriminatory. (Para 1 , 2 , 3 , 4 , 7 , 8 )
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2023 Supreme(SC) 119
SUPREME COURT OF INDIA
SANJAY KISHAN KAUL, ABHAY S. OKA, JJ.
M/s. Gail (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
Writ jurisdiction is maintainable against a PSU in commercial contracts involving public elements or arbitrariness. Contractual clauses imposed via unequal bargaining power that are discriminatory and violate Article 14—such as charging for transportation services not utilized—are manifestly arbitrary and invalid.
Subject
Constitutional Law - Writ Jurisdiction
Act Referred
Headnote
GAIL - Natural Gas Transportation Charges - Article 226 of the Constitution of India, Government Pricing Orders - The court discussed the validity of clauses in a contract between GAIL and IPCL regarding transportation charges for natural gas. The court examined the maintainability of the writ petition, unequal bargaining power, and the validity of the clauses under Article 14 of the Constitution. It also addressed the issue of refund and limitation period. FACT OF THE CASE IPCL challenged clauses in a contract with GAIL regarding transportation charges for natural gas. The dispute arose from a commercial contract but involved public sector enterprises. FINDING OF THE COURT The court found that IPCL's writ petition challenging the clauses was maintainable due to GAIL's monopolistic position and discriminatory action. It held that GAIL exercised unequal bargaining power and invalidated the clauses as arbitrary and unfair. The court restricted the refund to a three-year period due to IPCL's delay in approaching the court. ISSUES 1. Maintainability of the writ petition. 2. Validity of contractual clauses under Article 14. 3. Refund period and limitation. RATIO DECIDENDI The court held that despite being a commercial dispute, there was a public element involved, justifying exercise of writ jurisdiction under Article 226. It found GAIL's actions discriminatory and upheld IPCL's challenge to the clauses based on unequal bargaining power. FINAL DECISION The appeal was dismissed concerning maintainability and quashing of clauses related to loss of transportation charges. However, it restricted the refund to a three-year period from the date of filing the writ petition.
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 non-used infrastructure is discriminatory and arbitrary — Unequal bargaining power exists when parties face Hobson's choice. (Para 19 , 20 , 21 , 22 , 23 )
4. Writ jurisdiction is maintainable against State in contractual dealings involving discrimination or arbitrariness, regardless of alternative remedies or unequal bargaining power. (Para 19 , 20 , 21 )
5. Appeal dismissed regarding maintainability and quashing of clauses; refund granted but restricted to three years prior to filing the writ petition. (Para 24 , 25 , 26 , 27 , 28 )
6. When is a writ petition maintainable in a dispute arising from a commercial contract with the State?
A writ petition is maintainable when the State, acting in a monopolistic position or in contractual dealings, fails to exercise fairness or practices discrimination, even if an alternative remedy like arbitration is available. (Para 19 )
7. How does unequal bargaining power affect the validity of contractual clauses?
Contractual clauses may be invalidated if they are manifestly arbitrary, discriminatory, or result from unequal bargaining power where one party is forced into a Hobson's choice, having no viable alternative but to accept unfair terms. (Para 20 , 21 , 22 )
8. Can monetary refunds in a successful writ petition be limited by the law of limitation?
Yes. While a writ may be entertained to address discrimination, the court may restrict monetary relief, such as refunds, to a specific period (e.g., three years) to prevent the petitioner from bypassing the law of limitation. (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 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 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) towards
