M/S. GAIL (INDIA) LIMITED versus M/S. INDIAN PETROCHEMICALS CORP. LTD. & ORS.

Citation: [2023] 2 S.C.R. 326 · Decided: 08-02-2023 · Supreme Court of India · Bench: SANJAY KISHAN KAUL · Disposal: Case Partly allowed

cites 3 · see the full citation network in Lexace

Judgment (excerpt)

A
B
C
D
E
F
G
H
326
SUPREME COURT REPORTS
[2023] 2 S.C.R.
   [2023] 2 S.C.R. 326
326
M/S. GAIL (INDIA) LIMITED
v.
M/S. INDIAN PETROCHEMICALS CORP. LTD. & ORS.
(Civil Appeal Nos. 3504-3505 of 2010)
FEBRUARY 08, 2023
[SANJAY KISHAN KAUL AND ABHAY S. OKA, JJ.]
Constitution of India – Arts. 226, 12, 14 – Commercial Contract
– Unequal bargaining power – Maintainability of writ petition –
Ministry of Petroleum and Natural Gas issued a letter for allocation
of natural gas to IPCL (formerly a PSU) – IPCL entered into a
contract with GAIL for supply of natural gas – As per the allocation
terms, IPCL had to lay down its own pipelines and those pipelines
alone were utilised for carrying gas – IPCL laid down pipelines –
However, GAIL levied charge for ‘loss of transportation charges’
in terms of the contract – Clauses of the contract levying such
charges were challenged by IPCL after five years of entering into
the contract – Clauses quashed – Justification of – Held: Although
the dispute arises from a commercial contract, the writ petition was
maintainable – At the time of entering into contract, GAIL was
enjoying a monopolistic position w.r.t the supply of natural gas in
the country – IPCL, having incurred a significant expense in setting
up the appropriate infrastructure, had no choice but to enter into
agreement with GAIL – Thus, there was a clear public element
involved in the dealings between the parties – Writ jurisdiction can
be exercised when the State, even in its contractual dealings, fails
to exercise a degree of fairness or practices any discrimination –
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 the allocation letter and was not using GAIL’s
pipeline at all – GAIL exercised an unequal bargaining power at
the time of signing the contract – The contractual exercise of
providing such a clause runs contrary to every commercial and
common sense and is arbitrary – While, the quashing of the clauses
is upheld, the refund is restricted to a period of three years prior to
the date of the filing of the writ petition on account of IPCL’s delay
in approaching the court.
A
B
C
D
E
F
G
H
327
Partly allowing the appeals, the Court
HELD: 1.1 Although the dispute arises from a commercial
contract, find that the writ petition challenging the clauses was
maintainable. It is not disputed that GAIL is a Public Sector
Undertaking and thus qualifies under the definition of ‘State’ as
per Article 12 of the Constitution. At the time of entering into
contract, GAIL was enjoying a monopolistic position with respect
to the supply of natural gas in the country. IPCL, having incurred
a significant expense in setting up the appropriate infrastructure,
had no choice but to enter into agreement with GAIL. Thus, there
was a clear public element involved in the dealings between the
parties. Further, writ jurisdiction can be exercised when the State,
even in its contractual dealings, fails to exercise a degree of
fairness or practices any discrimination. In the 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 the allocation letter and was not using
GAIL’s HBJ pipeline at all. Thus, it cannot be said that merely
because an alternative remedy was available, the Court should
opt out of exercising jurisdiction under Article 226 of the
Constitution and relegate the parties to a civil remedy. [Para
19][336-B-E]
1.2 It would be extremely unfair and unjust, apart from being
an arbitrary action in violation of Article 14 of the 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
the gas through the HBJ pipeline. This action also violates the
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 the HBJ
pipeline laid down by GAIL. This is more so when the pricing
orders by the concerned authority, i.e. MoPNG stipulate a fixed
price for natural gas. On a basic principle, it cannot be doubted
that once GAIL has laid down the pipeline, it is entitled to
structure in its cost in the contract. However, the issue is not
simply that. Two public sector enterprises entered into a contract
in pursuance of the allocation made

Excerpt shown. Read the full judgment & AI analysis in Lexace.