Summary
The Petroleum Ministry's 1999 gas allocation required IPCL to lay its own pipelines from Hazira, yet its 2001 supply contract with GAIL levied transportation charges for GAIL's HBJ pipeline, which IPCL never used; about Rs. 134 crores was collected. The Gujarat High Court quashed the clauses in a 2006 writ petition and ordered a refund. The Supreme Court upheld maintainability and the quashing: GAIL is 'State' with a monopoly, IPCL faced a Hobson's choice after heavy investment under a government allocation, and charging for a pipeline it was forbidden to use was discriminatory and manifestly arbitrary under Article 14; but as IPCL moved five years after the contract, the refund was confined to the three years preceding the writ petition, payable within two months failing which with 8 per cent interest.
Issues
- Whether a writ petition under Article 226 was maintainable to challenge clauses of a commercial gas supply contract between a public sector undertaking and its customer, despite an arbitration clause and delay.
- Whether clauses levying HBJ pipeline transportation charges on a buyer mandated to transport gas through its own pipelines were arbitrary and liable to be struck down, and to what extent a refund could be ordered.
Provisions considered
- Articles 12, 14 and 226, Constitution of IndiaGAIL, a Government undertaking with a monopoly over gas supply, is 'State'; following ABL International and Joshi Technologies, writ jurisdiction extends to the State's contractual dealings where it acts unfairly or discriminates, and treating IPCL, which used its own pipelines, on par with users of the HBJ pipeline violated the non-discrimination mandate of Article 14. (¶¶ 19, 20, 21, 22, 23)
- Clauses 4.04 and 10.01, Gas Supply Contract dated 09.11.2001 between GAIL and IPCLThe clauses required IPCL to pay, in addition to the government-fixed price of gas, transportation charges applicable along the HBJ pipeline system for gas utilised or shrinkage; since the allocation letter obliged IPCL to lay and use its own pipelines, the levy for 'loss of transportation charges' had no commercial rationale and was contrary to the allocating authority's terms. (¶¶ 2, 4, 7, 22, 23)
Held
- Two public sector enterprises contracted under a ministry allocation with a tight time frame after IPCL had spent about Rs. 4,500 crores on the plant and Rs. 354 crores on pipelines, so GAIL exercised unequal bargaining power; GAIL may structure its pipeline costs into contracts generally, but cannot charge a buyer that is mandated not to use the HBJ pipeline, and the direction for refund was a natural sequitur of quashing the clauses. (¶¶ 20, 21, 22, 23, 24)
- Although IPCL flagged the issue in correspondence, that gave it no licence to approach the court at leisure; following Lipton India, the refund is restricted to the three years preceding the filing of the writ petition on 09.03.2006. (¶¶ 25, 26, 27)
Result
Appeals partly allowed with parties bearing their own costs; Gujarat High Court judgment dated 17.06.2008 affirmed on the maintainability of the writ petition and the quashing of clauses 4.04 and 10.01 insofar as they levied loss of transportation charges on IPCL, but refund restricted to the three years preceding 09.03.2006, to be paid within two months failing which with interest at 8 per cent per annum from the date it became due.