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M/s GAIL (India) Limited vs. M/s Indian Petrochemicals Corp. Ltd. & Ors. (Civil Appeal Nos. 3504-3505 of 2010)

Civil Appeal · 2023 INSC 103Decided 8 Feb 2023
Civil Appeal Nos. 3504-3505 of 2010
Sanjay Kishan Kaul · Abhay S. Oka

Background

The Government of India allocated natural gas to Indian Petrochemicals Corporation Ltd. (IPCL) for its Gandhar plant, on condition that IPCL itself build and use its own pipelines (from Hazira to Gandhar) rather than GAIL's HBJ pipeline network. IPCL, a public sector undertaking at the time (later partly privatized), had no real choice but to sign a supply contract with GAIL, which then also charged IPCL "loss of transportation charges" as if IPCL were using GAIL's own pipeline network, even though IPCL was using pipelines it had built itself at a cost of roughly Rs. 354 crores. IPCL challenged these contract clauses in a writ petition (filed five years after signing the contract), and both the Single Judge and a Division Bench of the High Court ruled in its favour, quashing the clauses and ordering a refund of the roughly Rs. 134 crores collected; GAIL appealed to the Supreme Court.

Decision Breakdown

The Supreme Court first held the writ petition was maintainable even though the dispute arose from a commercial contract, because GAIL was a "State" instrumentality under Article 12 enjoying a monopoly position, and its action carried a clear "public element", so a citizen/entity can invoke writ jurisdiction against unfair or discriminatory state action even in contractual dealings, rather than being confined to arbitration or a civil suit. On merits, the Court agreed the charge was arbitrary and discriminatory under Article 14, since IPCL was being billed as if it used GAIL's HBJ pipeline while it was legally required (by the government's own allocation letter) to build and use its own separate pipeline: an unfair "Hobson's choice" flowing from GAIL's unequal bargaining power as a monopoly supplier. The Court upheld quashing the clauses and the consequential refund direction, but limited the actual refund to only three years prior to the date the writ petition was filed, since IPCL had delayed in approaching the court despite raising the issue in earlier correspondence. The refund was ordered to be paid within two months, with 8% annual interest if delayed.

Lesson Learnt

A writ petition can be used to challenge unfair or discriminatory terms even in a commercial contract when one party is a government/public-sector monopoly exercising unequal bargaining power, but courts will still cut back the actual monetary relief to a reasonable limitation-linked period if the aggrieved party delayed in coming to court.

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

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