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