OIL AND NATURAL GAS COMMISSION AND ANR. versus ASSOCIATION OF NATURAL GAS CONSUMING INDUSTRIES OF GUJARAT AND ORS., ETC. ETC.

Citation: [1990] 3 S.C.R. 157 · Decided: 04-05-1990 · Supreme Court of India · Bench: S. RANGANATHAN · Disposal: Appeal(s) allowed
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Judgment (excerpt)

OIL AND NATURAL GAS COMMISSION AND ANR. 
v. 
ASSOCIATION OF NATURAL GAS CONSUMING INDUST-
RIES OF GUJARAT AND 9 ORS., ETC. ETC. 
MAY 4, 1990 
[S. RANGANATHAN, N.D. OJHA AND J.S VERMA, JJ.] 
Constitution of India, 1950: Articles 14, 32 and 226-0GC-A 
statl'.tory corporation-Whether State agency-'Public utility' concern 
-Obliged to supply gas at reasonable rates-Price fixation-Inter-
ference by Court-Permissibility of. 
Oil and Natural Gas Commission Act, 1959: Section 14-
0NGC-Whether 'public utility' undertaking-Whether obliged to sup-
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ply gas for consumption of public. 
Words and Phrases: 'Public utility'-'Reasonab/eness of rates' 
meaning of. 
The appellant, Oil & Natural Gas Commission, is a statutory 
corporation constituted by and under the Oil and Natural Gas Commis-
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sion Act, 1959. In most of its oil fields situated in Gujarat, gas comes 
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out along with crude oil as "free gas". 
The appellant had agreed to supply this iias to the Gujarat State 
Electricity Board (GSEBl and the Gujarat State Fertiliser Corporation 
(GSFC) at a price related to fuel oil price on the basis of thermal value 
equivalence, without any reference to the cost of production of gas as 
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such. Public discontent over the alleged high price charged was expres-
sed and eventually the dispute was referred to the sole arbitration of 
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Dr. V.K.R.V. Rao who gave his award. Dr. Rao made the "cost plus" 
method the basis of his award in preference to the basis of thermal 
equivalence of alternate fuel (thermal equivalence basis). 
In July 1967, the supply of gas to some of the industries in and 
around Vadodara city was started, on the basis of individual annual 
contracts. Aggrieved by the steady rise in the prices, the respondents--
Association of Natural Gas Consuming Industries and Others-moved 
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the Bombay High Court in March 1979 by way of a writ petition. In the 
petition it was, inter alia, prayed that the UNGC be directed (i) to 
H. 
157 
158 
SUPREME COURT REPORTS 
[1990] 3 S.C.R. 
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continue to supply the gas to the respondents despite the contracts in 
their favour having lapsed; (ii) to discuss and negotiate·a fair, reason-
'->( 
able and just price for supply of gas; (iii) to stop charging discrimina-
tory prices for the supply of gas to the respondents in comparison with 
the price charged to public sector undertakings; and (iv) to restrict the 
minimum guaranteed quantity of offtake. 
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The High Court passed an interim order directing the ONGC to 
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continue the supply of gas to the respondents, at the existing rate of 
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Rs.50~ per unit which was later raised by the Court to Rs.1000 per unit. 
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The Hiizh Court held; (i) The Oil and Natural Gas Commisson is 
a public Utility t:ndertaking and has a duty to supply gas to anyone who 
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requires it so long as there is enough supply available; (ii) Price fixation 
is gmerally a legislative function. But the Oil and Natural Gas Commis-
sion being a State instrumentality, is bound to act reasonably in the 
matter of fixation of price; such price is bound to be determined by 
following any one of the modalities suggested in the judgment of the 
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High Court; (iii) There was no discrimination by the Oil and Natural 
Gas Commission between the public sector undertakings on the one 
hand and the respondents' undertakings on the other in charging diffe-
rential prices; and (iv) The clause regarding minimum guaranteed off-
take was valid and enforceable. 
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Before this Court, the appellant primarily challenged the finding 
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of the High Court that the ONGC was a 'public utility undertaking' 
which was bound to supply gas at the request of any member of the 
public at large. The appellant also contested the correctness of the High 
Court's conclusion that the price of gas must be determined on the basis 
ol cost of production plus a reasonable return for the investment made. 
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The appellant submitted that (i) the prices under the contracts entered 
into with the respondents had been determined on the basis of a well-
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known principle, viz .. the ruling prices for an alternate fuel. and this 
could not be said to be either arbitrary or unreasonable particularly 
when a large number of industries were willing to take the supply of gas 
at the prices fixed on that basis; (ii) while public sector units and State 
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instrumentalities ought not to be allowed to exploit the consumers. it 
was equally necessary to. ensure that such units and instrum
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