Writ jurisdiction can be exercised in cases of unfair or discriminatory state actions in contractual dealings - SC

Supreme Court Observed in the recent judgement (M/S. GAS AUTHORITY OF INDIA LIMITED Vs M/S. INDIAN PETROCHEMICALS CORP. LTD. & ORS. D.D 08/02/2023) that GAIL, a public sector undertaking, was enjoying a monopolistic position and IPCL had no choice but to enter into an agreement with GAIL. Writ jurisdiction can be exercised in cases where the State fails to exercise fairness or practices discrimination in contractual dealings. The levying of "loss of transportation charges" by GAIL was discriminatory as IPCL was not using GAIL's HBJ pipeline.

Ministry of Petroleum and Natural Gas allocated 0.85 MMSCMD of semi-rich gas to IPCL with the condition that they enter into a gas supply contract with GAIL (M/s Gas Authority of India Limited) within 60 days. IPCL (Indian Petrochemicals Corporation Ltd.) entered into a contract with GAIL on 09.11.2001 and invested approximately Rs. 4500 crores in a plant at Gandhar and approximately Rs. 354 crores in laying pipelines between Hazira and Gandhar. As per the contract, GAIL received natural gas from the producer, ONGC, and transported it from Hazira to IPCL’s Gandhar plant using pipelines laid by IPCL. The unutilized gas was sent back to Hazira using the same pipelines. The dispute revolves around GAIL's levying of "loss of transportation charges" for carrying the gas, which IPCL argues goes against the allocation terms. The issue was challenged in writ proceedings filed by IPCL under Article 226 of the Constitution of India and IPCL succeeded.

The challenge to Clauses 10.01 and 4.04 of the contract was only made in 2006, after five years, and IPCL had ceased to be a public sector undertaking. GAIL stopped levying loss of transportation charges in May 2016 and the amount collected under the said clauses is stated to be Rs. 134 crores before it was quashed by the Single Judge and sustained by the Division Bench.

The contract between GAIL (SELLER) and IPCL (BUYER) includes clauses 4.04 and Article 10.

Clause 4.04 requires the BUYER to pay the SELLER a fortnightly service charge for terminal operation and maintenance and transportation charges for the utilization of gas. If these charges are not paid within 3 working days, the SELLER will present the invoice to the bank and draw the amount from the letter of credit.

Article 10 requires the BUYER to pay the SELLER for the price of natural gas and transportation charges. The price is exclusive of any royalty, taxes, duties, and other levies that are to be paid by the BUYER.

IPCL challenged the clauses in the contract on the ground that they were contrary to government pricing orders and allocation letter, resulting in unequal bargaining power and monopolistic position held by GAIL. IPCL also sought a refund of the transportation charges paid.

The single judge quashed the clauses as unfair and unconscionable. GAIL appealed the judgment while IPCL filed an application for clarification/modification. The division bench of the high court upheld the single judge's decision and held that the clauses were contrary to the pricing orders and resulted in unequal bargaining power. The court also directed GAIL to refund the transportation charges.

Supreme Court Observed that GAIL, a public sector undertaking, was enjoying a monopolistic position and IPCL had no choice but to enter into an agreement with GAIL. Writ jurisdiction can be exercised in cases where the State fails to exercise fairness or practices discrimination in contractual dealings. The levying of "loss of transportation charges" by GAIL was discriminatory as IPCL was not using GAIL's HBJ pipeline.

Supreme Court finds that the clauses under which "loss of transportation charges" were levied are invalid as they are arbitrary, violate Article 14 of the Constitution, and violate the principle of non-discrimination. IPCL is being treated at par with commercial entities who are using GAIL's HBJ pipeline.

Supreme Court further observed the fact that IPCL was bound to follow the allocation terms provided by the MoPNG and had very little choice but to accept the clauses levying transportation charges. It can be said that GAIL exercised unequal bargaining power at the time of signing the contract.

The Court finds that the clauses in the contract are manifestly arbitrary and run contrary to commercial and common sense as IPCL is not being charged under general terms but for a specific purpose that cannot exist in the contract. The Court finds it difficult to accept that IPCL must lay down its own pipelines and pay for loss of transportation through the HBJ pipeline even without using it. GAIL's contention that the charges could be levied because they laid the HBJ pipeline for users generally is not accepted.

Supreme Court quashed the clauses dealing with loss of transportation charges in the case of IPCL and the relief is restricted to a period of three years from the date of filing the writ petition for refund purposes.

M/S. GAS AUTHORITY OF INDIA LIMITED    Vs M/S. INDIAN PETROCHEMICALS CORP. LTD. & ORS.