Delhi High Court

Atmiya Chemicals vs Gas Authority Of India Ltd. on 31 January, 2011

Author: S. Muralidhar

             IN THE HIGH COURT OF DELHI AT NEW DELHI

        W.P.(C) 10398/2006 & CM Nos. 7804/2006 and 8466/2006

                                                   Reserved on: January 19, 2011
                                                   Decision on : January 31, 2011

        ATMIYA CHEMCIALS                         ..... Petitioner
                    Through: Mr. Shailesh Kapoor with
                    Mr. Afsar, Advocate.

                                          versus


        GAS AUTHORITY OF INDIA LTD.               ..... Respondent
                     Through: Mr. Ajit Pudussery with
                     Mr. Dinesh Khurana, Advocate.


        CORAM: JUSTICE S. MURALIDHAR

        1. Whether Reporters of local papers may be
             allowed to see the judgment?                                    No
        2. To be referred to the Reporter or not?                            Yes
        3. Whether the judgment should be reported in Digest?                Yes
                                       JUDGMENT

31.01.2011

1. The question raised in this writ petition under Article 226 of the

Constitution concerns the reasonableness of the charges demanded by the

Respondent GAIL (India) Ltd. („GAIL‟) from the Petitioner for

transportation/transmission of gas to the Petitioner‟s unit in Bharuch

District Gujarat from GAIL‟s Gas Generating Station (GGS) at Motwan,

Gujarat.

2. The Petitioner firm entered into an agreement dated 18th July 2003 with

the GAIL whereby GAIL agreed to supply to the Petitioner gas from GGS

Motwan with effect from 30th November 2003 up to 29th November 2005

on the terms and conditions set out in the agreement. In terms of Clause

4.01, gas was to be delivered to the Petitioner at the Gas Metering Station

(„GMS‟) located at GAIL‟s premises in Motwan. The gas was to be

transported from the downstream flange of the pipeline at the outlet of the

GMS located by means of a pipeline to be provided and maintained by the

Petitioner. Clause 4.03 of the agreement stated that in addition to the price

of gas the Petitioner was to pay monthly transmission charges of Rs.

1,14,605 for the facilities provided by GAIL for supply of gas to the

delivery point located in the Petitioner‟s premises. Clause 4.05 stated that

for effecting deliveries GAIL "shall install and maintain at its own risk and

cost the piping control and regulation and metering equipment in the

aforesaid GMS and all other accessories." The equipment installed by

GAIL was to remain its property and it had the right to remove such

equipment at any time within twelve months after the expiry of the

contract.

3. On 29th September 2003, the Petitioner wrote to GAIL stating that it

had purchased the land for its project which was at a distance of

approximately 360 m. On 8th March 2004, the Petitioner informed GAIL

that it had completed the erection of its Sodium Silicate plant and for the

pre-commissioning activities of drying of furnace it required gas. It noted

that GAIL had laid a pipeline and since its total length was 400 m, GAIL

should work out the revised transportation charges on that basis. A further

reminder was sent on 11th April 2004. The Petitioner wrote to GAIL on 7th

November 2004 pointing out that GAIL had worked out the transmission

charges on the basis of a distance of 1.5 km @ Rs. 1,14,605 whereas if it

was worked out on the basis of 400 m the amount would be Rs. 30,565.

The Petitioner pointed out that despite its request GAIL had been charging

@ Rs. 1,14,605 per month as transmission charges for the months April to

October 2004. Accordingly, the Petitioner sought refund of the excess

amount.

4. On 13th December 2004, GAIL wrote to the Petitioner saying that it was

not agreeable to the Petitioner‟s request for review of the transmission

charges. GAIL further stated that in case a decision was taken by the

corporate office to review the transmission charges, the Petitioner would

be informed.

5. By its letter dated 2nd December 2005 to GAIL, the Petitioner drew

attention to the fact that the transmission charges collected by GAIL from

the neighbouring industry Crystal Glazes Pvt. Ltd. („CGPL‟) which was at

the same distance from the GGS Motwan was Rs. 24,317 exclusive of

local sales tax whereas the Petitioner was being charged Rs. 1,18,043. The

Petitioner enclosed charts demonstrating the difference in the transmission

charges collected from the Petitioner and CGPL.

6. By its letter dated 7th December 2005 addressed to the Petitioner, GAIL

again turned down the request and asked the Petitioner to make payment of

outstanding dues without delay. On 12th January 2006, the Petitioner again

wrote to GAIL pointing out that CGPL was being charged far less

transmission charges. In response, on 2nd February 2006, GAIL wrote to

the Petitioner stating that it was not agreeable to review the transmission

charges and that as on 27th January 2006 the Petitioner owed GAIL Rs. 46

lakhs as outstanding transmission charges. The Petitioner was asked to

clear the said dues without delay. By its letter dated 21st March 2006,

GAIL informed the Petitioner that it was agreeable to extend the validity of

the agreement dated 18th July 2003 up to 30th June 2006 on the same terms

and conditions.

7. On 29th March 2006, the Petitioner again raised the issue of transmission

charges which had been fixed as Rs. 1,14,605 in the draft renewal

agreement. According to the Petitioner this was five times higher than what

was being charged from CGPL. The Petitioner insisted on the transmission

charges being revised. Meanwhile, on 4th April 2006, the Petitioner sent

GAIL four demand drafts for an aggregate sum of Rs. 7,40,000. The

Petitioner further informed GAIL that its bankers had been asked to clear

two LCs for a total sum of Rs. 5,20,000.

8. On 11th April 2006, GAIL again declined to review the transmission

charges and informed the Petitioner that if it was not willing to sign the

extension side letter, it would be presumed that the Petitioner was not

interested availing of gas supply from GAIL. GAIL informed the Petitioner

that as on 31st March 2006 the total outstanding dues were of Rs. 52.24

lakhs which should be cleared within seven days. The Petitioner made a

further payment of Rs. 2 lakhs on 24th May 2006 and protested about the

transmission charges. GAIL once again on 5 th June 2006 declined to

review the transmission charges and asked the Petitioner to clear the

outstanding dues.

9. The present petition was filed by the Petitioner on 15th June 2006. At the

hearing on 26th June 2006, this Court noticed that in a connected matter i.e.

W.P. (C) No. 8131 of 2006 filed by Clean Glass Pvt. Ltd. a status quo

order had been passed by this Court on 18th May 2005. Consequently, a

status quo order was passed in the present petition as well.

10. On 12th July 2006, GAIL filed an application being CM No. 8466/2006

under Section 8(1) of the Arbitration and Conciliation Act, 1996. GAIL

referred to Article 30 of the agreement dated 18th July 2003 under which

the disputes arising out of the contract, which were not settled by mutual

consultation, were to be referred to a sole Arbitrator selected by the

Petitioner from the panel of three Arbitrators proposed by GAIL. Notice

was issued in the said application on 14th July 2006. At the hearing on 15th

January 2008, learned counsel for the Petitioner relied upon the judgment

of this Court in Ramjee Power Construction Ltd. v. Union of India 2006 1

AD (Delhi) 109 to urge that the present petition is maintainable

notwithstanding the Arbitration clause. It may be mentioned that Writ

Petition (Civil) No. 8131 of 2006 filed by Clean Glass Pvt. Ltd. was

subsequently dismissed as withdrawn as the transmission charges in that

case was re-worked to the mutual satisfaction of the parties.

11.Mr.Shailesh Kapoor, learned counsel for the Petitioner submitted that

GAIL had acted arbitrarily in fixing the transmission charges @ Rs.

1,14,605/- when in respect of CGPL which was at the same distance as the

Petitioner from the GGS, Motwan, GAIL was charging only Rs. 24,317/-

per month as transmission charges. He submits that there was no legal or

factual basis for this discrimination. Referring to the policy of GAIL as

displayed on its website, GAIL was looking for a return of 12% post tax on

equity. If the actual cost of laying the HDPE pipelines was computed then

it would be apparent that the transportation charges demanded from the

Petitioner by GAIL were excessive. It is submitted that the gas supplied

from GGS, Motwan was a low pressure natural gas. GAIL was merely

redirecting the gas from oil fields through 2 inch HDPE pipelines. No

pressurization or technological aids were installed by GAIL. It was

submitted that the transportation charges had to be recovered on actual cost

basis and there ought to be no profiteering by GAIL in the garb of

recovering transportation charges. Referring to the details provided by the

learned counsel for GAIL, learned counsel for the Petitioner points out that

the charging of Rs. 7,41,887 towards „metering skid‟ from the Petitioner

was contrary to Clause 4.05 of the agreement in terms of which this cost

was to be borne by GAIL. He submits that metering skids had nothing to

do with the transportation. Referring to the additional affidavit dated 9 th

November 2010 filed by GAIL enclosing a diagram which shows the

relative distances of the industrial units from the GGS Motwan, it is

submitted that there had to be an equal distribution of the cost of laying the

common pipeline among the three buyers who were located adjacent to

each other. Counsel for the Petitioner has submitted detailed notes of

calculations to show that without adding the cost of the metering skids,

transportation cost worked out to only Rs. 7,325/- per month for the

Petitioner and Rs. 4,824 per month for CGPL. If the cost of the metering

skid was to be included, and recovering the entire investment in two years

with a post-tax return computed at 16% per annum, the transportation

charges for the Petitioner would work out to Rs. 51,471/- and for CGPL

Rs. 48,973/-. In any event, therefore, there was no logic in charging Rs.

24,317/- from CGPL and Rs. 1,14,615/- from the Petitioner. Justifying the

interference by this Court under Article 226 of the Constitution in matters

like the present one, learned counsel for the Petitioner referred to a number

of decisions including Andi Mukta Sadguru Shree Muktajee Vandas

Swami Suvarna Jayanti Mahotsav Smarak Trust v. V.R. Rudani (1989) 2

SCC 691, Kumari Shrilekha Vidyarthi v. State of U.P. (1991) 1 SCC 212,

R.K. Gupta v. Delhi Administration ILR 1978 II Delhi 82, ABL

International Ltd. v. Export Credit Guarantee Corporation of India Ltd.

(2004) 3 SCC 553, Ramjee Power Construction Ltd. v. Union of India

2006 I AD (Delhi) 109, Harbanslal Sahnia v. Indian Oil Corporation

Ltd. (2003) 2 SCC 107, E. Venkatakrishna v. Indian Oil Corporation

(2000) 7 SCC 764, M.P. State Agro Industries Development Corporation

v. Jahan Khan AIR 2007 SC 3153, Himmatlal Harilal Mehta v. State of

Madhya Pradesh AIR 1954 SC 403, Binny Ltd. v. V. Sadasivan (2005) 6

SCC 657 and Punjab State Electricity Board v. Zora Singh (2005) 6 SCC

776.

12. Appearing for GAIL, Mr. Ajit Pudussery, learned counsel submits that

the matter was purely within the realm of contract and in terms thereof the

dispute was required to referred for Arbitration. Further the Petitioner was

inviting this Court to adjudicate on the reasonableness of the terms and

conditions of the contract which had been entered into by the parties of

their own free will. Reference is made to the decisions of the Supreme

Court in Assistant Excise Commissioner v. Issac Peter (1994) 4 SCC 104

and S.K. Jain v. State of Haryana (2009) 4 SCC 357. It was submitted by

Mr. Pudussery that the basis on which the transmission charges had been

computed was set out in the additional affidavit dated 9th November 2010

filed by GAIL. He denied that the transmission charges were arbitrary,

excessive and discriminatory vis-a-vis CGPL. He denied that the Petitioner

was located at the same distance as CGPS was from the GGS, Motwan. It

was submitted that the contract dated 18th July 2003 had already come to

an end and the Petitioner cold not seek extension of the contract through

interim orders of this Court.

13. The above submissions have been considered by this Court.

Undoubtedly, the present dispute arises out of a contract dated 18th July

2003 entered into between the parties for the supply of gas. Although in

terms of Article 30 of the agreement the dispute concerning the fixation of

transportation charges ought to be referred to arbitration, considering that

this petition has been pending in this Court for over four years, this Court

is not inclined to adopt that course. For the reasons hereinafter discussed,

this Court finds no merit in the principal issue raised by the Petitioner as to

the reasonableness of the transmission charges demanded by GAIL.

Therefore, the preliminary objection is not decided in this petition and is

left open for a decision in some other appropriate case.

14. The scope of interference by this Court exercising its jurisdiction under

Article 226 of the Constitution in the context of the reasonableness of a

clause in a contract is extremely limited. In Assistant Excise

Commissioner v. Issac Peter, the licencees of liquor vends sought

directions to the Excise Department of Kerala not to enforce the minimum

monthly payments due in terms of the contract entered into with the

Department but collect only such amount as was payable on the basis of

the arrack actually supplied. The writ petition filed by one of the licencees

was allowed by the Division Bench of the Kerala High Court. In certain

other matters of other licencees which reached the High Court by way

revision petitions, another Division Bench of the High Court took a

contrary view. Appeals were then filed by both parties in the Supreme

Court. While allowing the appeals preferred by the State and dismissing

the appeals preferred by the licensees, the Supreme Court observed that the

doctrine of fairness and reasonableness cannot read into contracts to which

the State was a party. The Supreme Court observed as under (SCC, p.124):

"Doctrine of fairness of the duty to act fairly and reasonably is a doctrine developed in the administrative law field to ensure the Rule of Law and to prevent failure of justice where the action is administrative in nature. Just as principles of natural justice ensure fair decision where the function is quasi-judicial, the doctrine of fairness is evolved to ensure fair action where the function is administrative. But it can certainly not be invoked to amend, alter or vary the express terms of the contract between the parties. This is so, even if the contract is governed by statutory provisions, i.e., where it is a statutory contract - or rather more so. It is one thing to say that a contract - every contract - must be construed reasonably having regard to its language. But this is not what the licencees say. They seek to create an obligation on the other party to the contract, just because it happens to be the State. They are not prepared to apply the very same rule in a converse case, i.e., where the State has abundant supplies and wants the licencees to lift all that stocks. The licencees will undertake no obligation to lift all those stocks even if the State suffers loss. This one-sided obligation, in modification of express terms of the contract, in the name of duty to act fairly, is what we are unable to appreciate."

15. The Supreme Court in Issac Peter further observed as under (SCC,

p.125):

"We are, therefore, of the opinion that in case of contracts freely entered into with the State, like the present ones, there is no room for invoking the doctrine of fairness and reasonableness against one party to the contract (State), for the purpose of altering or adding to the terms conditions of the contract, merely because it happens to be the State. In such cases, the mutual rights and liabilities of the parties are governed by the terms of the contracts (which may be statutory in some cases) and the laws relating to contracts. It must be remembered that these contracts are entered into pursuant to public auction, floating of tenders or by negotiation. There is no compulsion on anyone to enter into these contracts. It is voluntary on both sides. There can be no question of the State power being involved in such contracts. It bears repetition to say that the State does no guarantee profit to the licencees in such contracts. There is no warranty against incurring losses. It is a businesses for the licencees. Whether they make profit or incur loss is no concern of the State. In law, it is entitled to its money under the Contract. It is not as if the licencees are going to pay more to the State in case they make substantial profits."

16. In S.K. Jain v. State of Haryana, the above legal position was

reiterated and the Court declined to accept the submission that the parties

were in an unequal bargaining power when the contract was entered into

and, therefore, the Court should examine the reasonableness of the

conditions and also whether the clauses of the contract were contrary to

Sections 23 and 28 of the Contract Act, 1872.

17. Following the ratio of aforesaid two decisions, this Court holds that it

is really not possible to examine the reasonableness of Clause 4.03 of the

agreement dated 18th July 2003 which fixes the transmission charges @ Rs.

1,14,605/- per month.

18. The Petitioner‟s submission that the amount of transmission charges

being levied on the Petitioner by GAIL is discriminatory vis-a-vis CGPL is

also without merit. The additional affidavit dated 9th November 2010 filed

by GAIL demonstrates that the location of the Petitioner‟s unit is not at the

same distance as CGPL is from the GGS Motwan. The actual distance of

the Petitioner‟s unit from the GGS is over 800 m. The explanation given in

the said additional affidavit of GAIL is as under:

"It is evident from the said diagram that two varieties of pipes of 63 mm and 125 mm have been used for providing connectivity. Further, the distance of the Petitioner‟s factory from the gas field is 0.847 kms (0.147+0.616+.084) using both 125 mm and 63 mm pipe while that of Crystal Glazes is only 0.412 (0.147+0.265+.16) kms using both 125 mm and 63 mm pipe from the gas filed. Further, the distance of the factory premises of M/s Clean Glass is 2.792 kms (0.147+2.645), all of which has been laid using 125 mm pipe."

19. The additional affidavit of GAIL further explains that the pipelines

laying work was outsourced to M/s Desai Associates. Copies of the

completion certificate issued by the said agency and the purchase orders

placed for supply of MDPE fittings and MDPE pipelines have been

enclosed with the additional affidavit. This gives a fair idea of the basis

adopted by GAIL in computing the transmission charges.

20. In exercise of its writ jurisdiction, this Court cannot possibly determine

whether the transportation/transmission cost arrived at by GAIL is

excessive or not. The limited scope of judicial review under Article 226 of

the Constitution does not permit this Court to enter into the nitty-gritty of

the calculations justifying the transmission charges. As long as GAIL has

been able to show that its decision is based on relevant materials, it is not