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Essar Steel Ltd. v. Union of India & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 4610 of 2009)Decided 19 Apr 2016
Civil Appeal No. 4610 of 2009
Justice V. Gopala Gowda · Justice Uday Umesh Lalit

Background

Essar Steel bought Regasified Liquefied Natural Gas (RLNG) from IOCL, BPCL and GSPCL under long-term supply contracts at a fixed price. In 2007, the Central Government issued a policy directive requiring that RLNG from long-term contracts be sold to all customers at a uniform "pooled" price instead of the earlier fixed contract price, which raised the price Essar Steel had to pay. Essar Steel and two other companies challenged this policy before the Gujarat High Court, which upheld it by a 2:1 majority. They then appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that price-fixing, though traditionally seen as a legislative function, can validly be delegated to and exercised through an executive policy decision, and that the 2007 directive was properly authenticated and issued after detailed deliberation among the Ministry, PSUs and Petronet. The Court found the policy was applied uniformly to all similarly placed long-term contract holders, so there was no discrimination or arbitrariness under Article 14. It also noted that Clause 11.4 of the supply agreements itself allowed for price changes resulting from government policy shifts, which undercut the appellants' claim of a unilateral and improper variation of contract terms. Since the policy was upheld as legal, the appellants' claim for refund of the extra amounts paid did not survive. The appeals were accordingly dismissed and the High Court's judgment upheld.

Lesson Learnt

A government policy decision affecting commercial pricing is not automatically invalid merely because it changes the economics of an existing contract: if the decision is applied even-handedly, backed by a rational process, and the contract itself anticipates policy-driven price changes, courts will generally not interfere with it as "arbitrary" or discriminatory.

Official source (sci.gov.in)View Judgment (PDF)

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