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.
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 by the MoPNG. There was also a time constraint for IPCL. After incurring a heavy expenditure in the construction of the Gandhar Plant, IPCL had very little choice but to enter into the contract. What is of most significance is that IPCL was bound to follow the allocation terms provided by the principal authority, i.e., MoPNG. Thus, as pleaded by IPCL, they were faced with a “Hobson’s choice”, where they had to either give up the contract or accept the clauses levying transportation charges. On a conspectus of the above factors, it can be said that GAIL exercised an unequal bargaining power at the time of signing the contract. GAIL may have made a huge investment in constructing the HBJ pipeline, but at the same time IPCL had also made a huge investment in constructing its own pipelines. This was not an option but a mandate of the allocation letter issued by the MoPNG. Thus, it is difficult to accept that on the one hand IPCL must lay down its own pipelines, and simultaneously pay for loss of transportation through the HBJ pipeline even without using it. Thus the appeal(s) are dismissed qua the aspect of maintainability of the writ petition and the quashing of the clauses dealing with loss of transportation charges in the case of IPCL. However, it is deemed fit to restrict the relief to period of three years insofar as refund is concerned from the date of filing of the writ petition, i.e., 09.03.2006. [Paras 2023, 26][336-F-H; 337-A-C, E-F, 338-C-D] Joshi Technologies International Inc. v. Union of India & Ors. (2015) 7 SCC 728 : [2015] 6 SCR 1042; Lipton India Ltd. & Ors. v. Union of India & Ors (1994) 6 SCC 524 : [1994] 3 Suppl. SCR 600; ABL International Ltd. & Anr. v. Export Credit Guarantee Corporation of India & Ors. (2004) 3 SCC 553 – relied on.
Central Inland Water Transport Corporation Limited v. Brojonath Ganguly (1986) 3 SCC 156 : [1986] 2 SCR 278; Rameshwar & Ors. v. State of Haryana and Ors (2018) 6 SCC 215 : [2018] 5 SCR 205; Kalpraj Dharamshi & Anr. v. Kotak Investment Advisors Ltd. & Anr. (2021) 10 SCC 401 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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