vil Appeal Nos
8530 40 of 1983
Appeals by Certificate from the Judgment and Decree dated 3071983 of the Gujarat High Court in Special Civil Application Nos 883 of 1979 913 of 1979 1897 of 1981 2316 of 1982 2384of 1982 2445 of 1982 2470 of 1982 2977 of 1982 4194 of 1982 4520 of 1982 and 2542 of 1982
K Parasaran Attorney General B Sen AK Ganguli Dr YS Chitley TS Krishnamurthy Iyer N Nettar GS Narayana p Parameshwaran TVSN Chaff and NN Sharma for the Appellants
Anil B Diwan KJ Kazi Dr LM Singhvi Ms M Arora Mrs B Chib M Singhvi DA Dave Mrs M Karanja wala RN Karanjawala Mr PH Parekh Mr CA Cazi and Mrs HS Anand for the Respondents DN Misra for the Intervenor
The Judgment of the Court was delivered by RANGANATHAN J
These are eleven appeals preferred by the Oil and Natural Gas Commission ONGC for short from a judgment and order dated 30th July 1983 of a Division Bench of the High Court of Gujarat at Ahmedabad in a batch of writ petitions since reported in 1983 242 Gujarat Law Reporter 1437
The appeals are pursuant to a certificate of fitness granted by the High Court
The ONGC was initially a Department of the Government of India but in view of its expanding activities in the search for strategic and vital materials like oil petroleum and its products it was set up as a body corporate
It is now a statutory corporation constituted by and under the  Central Act 43 of 1959 hereinafter referred to as the Act 
The Act provides for the establishment of a Commission for the development of petroleum and petroleum products produced by it and for matters connected therewith
Section 2f of the Act de fines petroleum  as having the same meaning as in the Act 30 of 1934 and as including natural gas 
The Commission established under the Act took over the previously existing organisation with effect from 18959
Some of the provisions of the Act which are relevant for our 164 present purposes may be set out here
Chapter III which deals with the powers and functions of the Commission con sists of Sections 14 and 15
section 14 reads thus 14
Functions of the Commission 1 Subject to the provisions of this Act the functions of the Commission shall generally be to plan promote organise and implement programmes for the development of petroleum resources and the production and sale of petroleum and petroleum products produced by it and to perform such func tions as the Central Government may from time to time assign to the Commission
2 In particular and without prejudice to the generality of the foregoing provision the Commission may take such steps as it thinks fit a for the carrying out of geological and geophysical surveys for exploration of petroleum e for the transport and disposal of natural gas and refin ery gases produced by the Commission Provided that no industry which will use any of these gases as a raw material shall be set up by the Com mission without the previous approval of the Central Govern ment
h to perform any other function which is supplemental incidental or consequential to any of the functions afore said or which may be prescribed
 Section 15 empowers the Commission to exercise all such powers as may be necessary or expedient for the purpose of carrying out its functions under the Act
Such powers in clude the disposal of any property right or privilege the original or book value of which exceeds such amount as may be prescribed or where no such amount has been prescribed exceeds ten lakhs of rupees and this power could be exer cised after obtaining the previous approval of the Central Government 165 Clause cI Chapter IV of theAct deals with finance accounts audit and reports
Sections 16 and 17 deal with the capital of the Commission and the vesting in the Com mission of the previous set up in this regard
Section 23 of the Act requires the Commission to furnish to the Central Government such returns and statements and such particulars in regard to any proposed or existing programme for the development of petroleum resources and the production and sale of petroleum and petroleum products produced by the Commission as the Central Government may from time to time require
Section 24 in Chapter V Miscellaneous enacts that any land required by the Commission for carrying out its function under the Act shah be deemed to be needed for a public purpose and such land can be acquired by the Commis sion under the provisions of the Land Acquisition Act 1894
section 31 confers rule making powers on the Central Government in pursuance of which have been framed the Oil and Natural Gas Commission Rules 1960
The only rule relevant for our present purposes is rule 25 dealing with contracts
It reads as follows 25
Contracts 1 The Commission may enter into contracts for the purpose of performing its functions under this Act Provided that provision therefore exists in the budget ap proved by the Government
2 Contracts made on behalf of the Commission shah not be binding on it unless they are executed by a person duly authorised by it
3 A person authorised by the Commission to enter into any contract on its behalf shall not be personally liable for any assurance or contract made on its behalf and any liabil ity arising out of such assurance or contract shall be discharged from the Fund
 The statute it may be observed neither imposes a specific duty on the ONGC to supply its products to consumers at large nor contains any provisions regarding the fixation of prices for the commodities made available by the ONGC for sale
In the course of its drilling and exploration of oil the ONGC discovered oil bearing fields in Cambay and Ankles war region in 1969 166 and 1961 respectively
In most of the oil fields situated in Gujarat gas comes out along with crude oil and is commonly known as associated gas
In Cambay area gas is unaccompa nied by crude oil and is known as free gas
This is easily combustible and can be used as domestic as well as industri al fuel
We are concerned here with both these commodities which are generally known as natural gas  and we shall refer to them compendiously as gas 
In October 1961 ONGC first thought of the idea of using natural gas in addition to fuel oil in industries
It had detailed discussions with the Gujarat State Electricity Board GSEB and it was agreed between them that gas should be supplied to the GSEB at a price related to fuel oil price on the basis of thermal value equivalence
On this basis an agreement was entered into between them in March 1963 whereunder the price of fuel oil was fixed at Rs7726 per tonne including rail frieght and based on this price and thermal value equivalence the price of Cambay gas was fixed at Rs8014 per 1000 cubic metres hereinafter referred to as the Unit  and of Ankleshwar gas at Rs 10666 per unit rounded off to Rs80 and Rs 100 per unit respectively
The ONGC began to supply gas from Cambay region of Dhruvan Power Station in 1964 and from Ankleshwar to Uttaran Power Station in 1965
The ONGC also entered into discussions with the Gujarat State Fertilizer Corporation GSFC and ultimately it was agreed on the footing of the price of Rs76 per tonne in respect of Koyali Naphtha that associated gas should be supplied to the GSFC at between Rs88 and Rs90 per unit on the principle of thermal equivalence
This was in 1966
It may be mentioned here that the three parties concerned viz the ONGC GSEB and GSFC had more or less agreed to the principle of determining the price of gas on the basis of thermal equivalence with an alternative fuel or feedstock emanating from the processing of crude oil
There was no reference to the cost of production of gas as such
Despite the above agreements however the concerned parties were not all very happy
The GSFC resented the fact that discount was not given to them as bulk purchasers and that the prices charged for the Trombay fertiliser factory and power house at Bombay were substantially lower than the prices that the ONGC charged them
Eventually public dis content was expressed over the alleged high price that was being charged for gas by the ONGC to these organisations
It was felt that the ONGC was denying to them the advantage they should have obtained by the discovery of gas in the region of their operation
It was also felt that this treat ment resulted in discrimination against 167 them in comparison with advantages enjoyed by other States due to the availability of fuel resources such as coal or hydro power within their areas
In view of these expressions of public feeling the question of fixing a proper price for the gas was taken up by the Government of Gujarat with the Government of India
Eventually as no agreement could be arrived at the disputes was referred to the sole arbitra tion of Dr VKRV Rao who gave his award hereinafter referred to as the award  on 2391967
He determined the price of natural gas at Rs50 per unit ex well head to which were added royalty sales tax depreciation and the transport charges
This award was to be enforced for a period of five years ie upto 3131971
Between April 1971 and December 1975 the well head price was increased and fixed at Rs66 per unit we are all told on the interven tion of the then Gujarat Governor
These prices were revised subsequently
The supply to GSEB was revised to Rs 155 and the rate of supply to GSFC was revised to Rs320 per unit
At that time there were very few industries set up in and around Vadodara and these depended besides electricity on other forms of energy generated through coal or furnance oil
In July 1967 the supply of gas to some of these indus tries in and around Vadodara city was started initially as a temporary measure pending the effective materialisation of the Gujarat Fertilizer Corporation demand after which the industries were to go over to fuel oil if gas could no longer be supplied
After a series of discussions the Federation of Gujarat Mills and Industries agreed to a price of Rs 100 per unit of Ankleswar gas for this supply
The charging of ten rupees less per unit supplied to the Ferti liser Corporation was justified on the ground that such differentiation was consistent with general practice where a petroleum feed stock is used for chemical industry
Among the industries that thus received gas supply were the ten respondents respondents 2 to 10 in these appeals who have formed themselves in September 1978 into an association called The Association of Natural Gas Consuming Industries of Gujarat which is respondent No 1
The supply to these industries extended later to a few more was based on individual contracts entered into with each one of the concerns
Initially the ONGC entered into contracts valid for a period of five years at a time but subsequently it is said due to a fear of possible shortage in the avail ability of enough gas this was changed and the contracts were generally made annual except in regard to certain public sector undertakings and it is said a few companies
The rates of supply were also slowly stepped up as can be seen from the following table 168 Period Price of supply 111976 to 31031976 Rs32263
141976 to 31121976 Rs34145 111977 to 31031977 Rs35100 141977 to 31121977 Rs37116 111978 to 31031978 Rs38215 141978 to 31031979 Rs50400 According to the ONGC the price demanded from these industries and initially been based on alternative fuel cost ie the cost which these industries would have had to pay for fuel oil if no supply of gas had been available
Later upto December 1975 the price was based on the cost of production as determined by the award
After the expiry of the period of operation of the award the basis for calcula tion of price was revised on the basis of the thermal equiv alence of coal price
The rates of supply from 1478 as fixed above from time to time were also made subject to an automatic annual escalation at 5
The contracts as already mentioned were annual and contained no term for renewal
On the expiry of each contract a fresh contract had to be entered into and naturally the new contract stipulated prices for supply that were prevalent at the time of the respective contracts
It may be mentioned that the existing contracts with the various consumers had lapsed by efflux of time on 31379 in some cases 30180 in some other cases and in 1982 in respect of others
Aggrieved by the steady rise in the prices writ peti tion No 883 of 1979 was filed by the respondents in the Bombay High Court in March 1979
In this writ petition it was prayed that the ONGC should be directed a to continue to supply the gas to them despite the contracts in their favour having lapsed b to supply the break up and the data on the basis of which the price structure was arrived at and to fix the price after giving reasonable opportunity to the concerned industries or their associations c to discuss and negotiate a fair reasonable and just price for supply of gas d to restrict the minimum guaranteed quan tity of offtake to 75 per cent of the contracted quantity this was because the ONGC had been insisting on raising the said guarantee to 90 per cent and e to stop charging discriminatory prices for the supply to the respondents in comparison with the price charged to public sector undertak ings
Pending the hearing and final disposal of the peti tion an interim order was sought restraining the ONGC from discontinuing the supply of gas to the petitioners on such terms as the Court may think fit and proper 169 On 3031979 the Court passed an interim order permit ting the petitioners to continue to pay on the same terms as at present ie
at Rs504 in some cases and a slightly different figure in other cases
Subsequently however with the passage of time the price of gas was stepped up by the ONGC in the following manner Period Amount 141981 to 31121981 Rs 74100 0111982 to 31121982 Rs209570 0111983 Rs240303 1521983 Rs250303 1731985 Rs287800 We are told that the sudden jump in prices wef
111982 was consequent on the decision of the ONGC to change the basis of fixation of price once again to furnace oil equivalence
In view of this increase in the prices demanded by it from other parties who according to the ONGC were willing to pay the price asked for an application was made to vacate or modify the interim order dated 3031979
On 5111982 the Division Bench of the High Court after pointing out the various difficulties and questions raised by the case thought it would be fit and proper to direct the ONGC not to discontinue the supply of gas but to continue to supply it at the rate of Rs 1000 per unit till November 30 1983 unless the petition was disposed of in the mean while subject to adjustment being made in case this Court or the machinery evolved at the time of final disposal of the petition determined the price of gas at a different rate
In other words if ultimately the price of gas should be determined at a higher rate the writ petitioners would be obliged to make good the difference
In case a lower rate should be determined the ONGC would be obliged to refund the excess amount collected or adjust it against future supplies as the Court may direct at the time of disposing of the matter finally
A similar order was passed on 29121982 in another batch of cases
When these appeals were filed a Bench of this Court on 6101983 continued the interim price of Rs 1000 per unit without prejudice to the rights and contentions of the parties and directed the appeals to be expedited
It has taken six years since then for these petitions to come up for heating and till now the respondents have continued to pay at the rate of Rs 1000 per unit
It has been stated before us that some of the respondents have failed to pay even at the rate of Rs 1000 as directed 170 by this Court and that this Court had to direct by its orders dated 15487 and 301087 that the respondents will not charge encumber or alienate except with the leave of this Court any of their immovable assets included in the respective undertakings and that they will make their immovable assets available for discharging the respective liabilities on account of the difference in the price of all the gas supplied to them and further during the pendency of the appeals as determined by the orders made by the Court while disposing of the appeals
 In order to complete the narration of relevant facts it may be mentioned here that though natural gas being a petroleum product falls within the scope of the Essential Commodities Act and though control orders have been issued under the said Act regulating the supply and distribution of several petroleum products it is only by an order dated 3011987 that the price of gas has been fixed by the Gov ernment at Rs 1400 per unit which together with taxes comes to about Rs 1848 per unit
It may also be mentioned that while on the one hand the said fixation of price has been challenged by the petitioners and certain other indus tries before the Gujarat High Court the Government on the other hand is in the process of revising the prices per haps to a higher figure in consultation with the Bureau of Industrial Costs and Prices
In the petitions which are pending before the Gujarat High Court an interim price of Rs 1000 has been fixed following the orders in the matters now before us
The result is that ever since January 1983 and till today most of the petitioners have been paying for the gas supplied only at the rate of Rs 1000 per unit and some of the industries have defaulted even in doing this
A prayer was made by the Union of India to transfer to this Court the writ petition subsequently filed challenging the price fixation of 30187 but this request was declined on 4th August 1988
This court observed that after these appeals are disposed of the High Court can proceed to dispose of the said writ petitions in accordance with the judgment
The position therefore is that we are not con cerned in these appeals with the period beyond 3011987 when the jurisdiction to fix prices came to be vested in the Central Government
We are concerned in these matters only with the period from the date of expiry of the contracts in favour of each of the respondents to 3011987 and with the following questions a whether the ONGC is at liberty to fix its own price for the gas or should be directed to fix the price in any particular manner b whether the ONGC can be directed to supply data and the break up for the price charged and to negotiate the price with the par ties concerned c whether the 171 ONGC can be compelled to continue to supply gas to the various petitioners at the interim prices fixed by the court subject to adjustment on fixation of prices determined in accordance with the directions of the court and d whether the minimum guarantee of off take could be raised by the ONGC to 90 per cent instead of 75 per cent
It is unnecessary at this stage to set out the various contentions raised by the parties before the High Court as they will have to be discussed in some detail later
Here it may be sufficient to summarise the effect of the High Court s judgment in disposing of these writ petitions
The High Court held i The ONGC is a public utility undertaking and has a duty to supply gas to anyone who requires it so long as there is enough supply available ii Price fixation is generally a legislative func tion
But the ONGC 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 High Court iii There was no discrimination by the ONGC between the public sector undertakings on the one hand and the respondents  undertakings on the other in charging differential prices iv The clause regarding minimum guarantee was valid and enforceable
However in view of its finding that the ONGC is a public utility undertaking the Court took the view that it should supply gas to the respondents subject to the availability of gas supply and also that such supply should be made at a price which was to be determined in one of the four differ ent methods set out in paragraph 36 of the judgment
It was also observed by the Court that the respondents were agree able to price fixation by anyone of three of the said meth ods
The concluding portion of the judgment reads thus 36
Now we come to the last part of this judgment
It is regarding what relief should be granted in this group of petitions
We have already said above that the action of the ONGC in charging the rate in the respective cases is 172 ex facie unreasonable and to that extent their demand for the said price is set
aside
The ONGC however shall be at liberty to get the price for that period and subsequent period fixed according to the reasonable and rational norms and for that purpose it is open to the ONGC to follow any one of the following three courses i They may request the Central Government to appoint a Commission for the purpose of deciding the prices of gas from time to time including the time for which we have set aside their demand of price invoking the provisions of the Commission of Inquiry Act or any other law ii They may invoke the arbitration of some eminent econo mist in consultation with the petitioners or iii They may themselves decide the price after bringing to their consideration all relevant factors and for that purpose they may hear fully and effectively the petitioners and other persons likely to be affected thereby If the last of the above three courses is adopted by the ONGC for deciding the price structure afresh it would be in their interest to give hearing to the persons likely to be affected so that the possibility of a new round of litiga tion is avoided
We reiterate that as far as the petitioners are concerned they are amenable to any of the three modes which the ONGC may choose to adopt
We accordingly set aside the prices demanded by the ONGC from these petitioners in this group of petitions leaving it open to the ONGC to deal with the question of price fixation in any one of the three modes suggested by us
The petitions are accordingly partly allowed
Rule is accordingly made absolute in all these petitions with costs
The civil applications in view of the final decision do not survive and stand disposed of and till the new price fixation is had the price charged last from these petition ers under the respective contracts with them shall continue to operate between the parties subject to adjustments in future after prices are fixed as stated above 173 Shri B Sen who appeared for the ONGC made R clear at the outset that he was not disputing the propositions a that the ONGC is State  within the meaning of Article 12 of the Constitution and b that it has a duty to act reasona bly and fairly so as not to infringe the provisions of Articles 14 and 19 and also in consonance with the directive principles of State policy set out inter alia in Articles 38 and 39 b of the Constitution
His challenge is pri marily to the finding of the High Court that the ONGC is a public utility undertaking  which was bound to supply gas at the request of any member of the public at large and to its direction that it should continue to supply gas to the respondents at an uncertain price till the price is fixed in accordance with the procedure outlined by it notwithstand ing that the contracts under which the respondents procured such supplies have expired long ago
He also contests the correctness of the High Court s conclusion that the price of gas must be determined on the basis of cost of production plus a reasonable return for the investments made herinaf ter referred to broadly as the cost plus basis
He sub mits that the prices under the contracts entered into with the respondents have been determined on the basis of a well known principle viz the ruling prices for an alternate fuel and this cannot be said to be either arbitrary or unreasonable particularly when a large number of industries are even today willing to take the supply of gas at the prices fixed on that basis
He also complains that the High Court overlooked that the respondents are not domestic but industrial consumers
If the ONGC were to be treated as a public utility bound to supply an essential commodity of this nature to any one for the asking subject to availabili ty it may be that the price for such supply should be fixed on a cost plus basis
But where the supply is limited to certain industries and other similarly placed industries have to produce similar goods by consuming furnance oil or other equivalent alternate fuel it is quite reasonable for the ONGC to stipulate indeed it would be discriminato ry were it not to stipulate that its prices would be based on the cost of alternate fuel which would have to be in curred by these industries otherwise and which is in fact being incurred by other industries engaged in the production of similar goods to which the ONGC is not making any supplies at all
Sri Sen urges that while public sector units and State instrumentalities should not be allowed to exploit the consumers it is equally necessary to ensure that such units and instrumentalities are enabled to make reasonable profits and made good as commercial enterprises by charging prices which the traffic can bear so that they can also contribute substantially to national development
It is submitted that as against the respondents who are receiving supplies at the rate of Rs 1000 per unit there are 29 industries paying the Govern 174 ment fixed price of Rs 1840 since 1987 12 other parties who have earlier signed contracts at the furnace oil equiva lent rate and 65 industries which are willing to sign con tracts at the aforesaid Government rates
It should not also be overlooked that even if the cost plus basis were to be contemplated the prices would require substantial revision considering the huge expenditure incurred by the Government of India in recent years in prospecting for oil and the need for heavy capital investment for meeting which the Govern ment has had to obtain huge loans from the World Bank and other organisations
In the context of this integrated activity it is almost impossible to work out the costs in respect of any particular area or of the particular bye product with which we are here concerned
The cost plus basis was fixed by the award several years ago and that too in the context of supply to certain State undertakings which in turn supplied essential commodities like elec tricity and fertilisers
Subsequent enquiry commissions such as the Damle award do not price commodities on the basis of cost
The ONGC if it is to function effectively and make reasonable profit on the supply of this commodity should be allowed the latitude atleast to fix its own prin ciple of pricing
So long as such principle is a recognised one and is not per se unfair or unreasonable the court should not interfere
Else Sri Sen submits a controversy regarding fixation of price will be raging eternally as the industries would raise some objection or other to the price fixation whatever it be and the interests of the public will suffer if the ONGC is constrained to stick to the throw away prices fixed in outdated contracts until prices can be fixed on a basis agreeable to the consumer indus tries as has indeed happened in this case during the past ten years
Sri Sen concluded by urging that the onus of showing that the price charged was unreasonable or arbitrary was on the respondents and they had done nothing to dis charge this onus except saying that the prices have been stepped up from time to time and that the increase in prices has been steep
Rather they have in their pleadings sought to throw the onus on the ONGC to prove that the prices charged by it are fair and reasonable
Even this says Sri Sen the ONGC has done
The discussions in the judgment of the High Court and to some extent the discussions before us have touched several aspects of the principles to be kept in mind for price fixation of essential commodities basic to public need and in doing so have in our opinion travelled beyond the framework and scope of the questions that arises for consid eration in this case
It is necessary to remember that the writ petitioners are a few industrial houses which had entered into con 175 tracts with the ONGC for supply of natural or associated gas
These were ordinary commercial contracts entered into by private treaty between the ONGC and these respondents to sell and buy certain goods produced by the ONGC at the prices stipulated in the contracts
Looked at purely from the contractual angle the ONGC was perfectly at liberty to stop the supply on the expiry of the relevant contract and refuse to supply further unless a fresh contract could be entered into agreeing upon a price for such supply
Assuming that the ONGC is a State instrumentality and the price demanded by it is susceptible to judicial review the court may where a contract has been entered into consider the sustainability of the price agreed upon or where no contract has been entered into injunct the ONGC from demanding a price for supply which is found unreasonable
But we doubt whether it is open to the Court to direct the ONGC to con tinue the supply indefinitely without a contract and without any price fixation
It is clear that in giving directions as above the Court was considerably weighed by its conclusion that the ONGC is a public utility undertaking which is bound to supply gas to all who demand such supply subject only to the availability of enough gas
Dr Chitale for the respond ents strongly supported this viewpoint
He urged that it is well settled law that a public utility cannot arbitrarily discontinue its supply or services merely because the cus tomer is unwilling to pay the price asked for as unconscion able and unreasonable
He submitted that this indeed is not a modern rule of constitutional law but an ancient rule of public law
He referred in this context to the early decisions of the King s Bench Division in Bolt vs Stennett CI ER
Revised p 1572 followed in Allnutt vs Inglis CIV ER Revised p 206 as laying down the basic principle in this regard
This principle he said has also been applied by the American Courts in Ira Y Munn vs People 24 LEd 77 United Fuel Gas Co vs Railroad Commission 73 LEd 390 Los Angeles Gas  Electric Corporation vs Railroad Commission   Leo Nebbia vs People 78 LEd 940 Harold E West vs Chesapeake  Potomac Telephone Co  and Federal Power Commission vs Hope Natural Gas Co  These decisions clearly lay down according to him that the price fixed must be reasonable and fair that the price should be so fixed as to give the undertaking a reasonable return on the capital employed and that there cannot be any discrimination against industrial consumers
These principles he argued are applicable with greater force in the context of the Constitutional disci pline over State Instrumentalities under Articles 38 and 39 of the Constitution which mandate the State to direct their policy towards securing that the 176 ownership and control of material resources of the community are so distributed as to subserve the common good
 As already stated the ONGC does not dispute the propo sition that it is a State instrumentality and that its actions are subject to review under Articles 14 and 19 of the Constitution it only refutes the suggestion that it has become a public utility undertaking with an obligation to supply gas to any consumer on reasonable conditions as to price etc
It is contended by Sri K Parasaran and Sri B Sen that the ONGC is not a public utility  under a duty to supply gas to members of the public
It is argued that in English common law the expression has a specific connota tion it refers to an entity dealing in a commodity which is commonly used by the members of the public and under a duty in terms of a statute licence or franchise obliging it to supply the commodity to the public at large
Thus for example in England the Public Health Act 1936 the Elec tricity Act 1947 and the Gas Act 1948 provide examples of a duty cast on suppliers of water electricity or gas
So also in India the Indian Electricity Act spells out a duty on the part of the licensee to supply electricity to members of the public
There are also other public utility undertak ings providing for water sewage connections transport and the like which are under a statutory obligation to supply goods and services to members of the society at large subject to the fulfilment of reasonable conditions pre scribed therefore
The supply of gas by the ONGC it is urged has not attained this status yet
As far as we have been able to see there is no statuto ry definition of public utility  in the context of any Indian enactment that may be relevant for our present pro pose
There is a definition of public utility service in section 2n of the which inter alia covers any industry which supplies power light or water to the public and certain notified industries
It is arguable whether supply of natural gas is included in this definition for though power  connotes generally any form of energy available for doing work it is normally related to such energy made available by mechanical or electrical means vide Webster Comprehensive Vol 2 p 990
It is also a moot question whether that definition can be appro priate in the context with which we are concerned
Dr Chitale cited profusely from American Jurisprudence 2nd Edition Vol 64 on the subject of public utilities
Some of these passages may be usefully quoted
At page 549 it discusses the definition and nature of a public utility
The passage runs thus 177 1
Definition and nature A public utility is a business or service which is engaged in regularly supplying the public with some commodi ty or service of public consequence such as electricity gas water transportation or telephone or telegraph serv ice
Publicly owned utilities are those owned by public corporations such as municipal public utility districts and public utility districts
Apart from statutes which define the public utilities which are within the purview of such statutes it would be difficult to construct a definition of a public utility which would fit every conceivable case but there are certain considerations that are of aid in deter mining whether a specific organization or business is a public utility
As its name indicates the term public utility implies a public use and service to the public and indeed the principal determinative characteristic of a public utility is that of service to or readiness to serve an indefinite public or portion of the public as such which has a legal right to demand and receive its services or commodities
 There must be a dedication or holding out either express or implied of produce or services to the public as a class
The term precludes the idea of service which is private in its nature and is not to be obtained by the public although a public utility may perform acts in its private as distinguished from the public capacity in which case it is subject to the same rules as any other private person so acting
Some courts however reject the notion that in order to be a public utility subject to governmental regulation the nature of the service must be such that all members of the public have an enforceable right to demand it and declare that business to be a public utility which in fact serves such a substantial part of the public as to make its operations a matter of public concern
This view is in close accord with what has been termed the historic basis of classification of some businesses as public callings that is economic conditions or the impor tance of the business to the public
While the terms public service corporation and quasipublic corporation are used to describe public utility corporations and the term public service commission to describe the body regulating such utilities some courts distinguish between a public sector corporation and a public utility on the basis that the latter is required to serve the 178 public generally whereas the former may be required to serve members only
The mere fact that a corporation declares itself to be a public utility does not make it such
In determining whether or not a company is a public utility the law looks at what is being done not what it asserts it is doing
Nor will the legislative declaration that a certain business shall be deemed a public utility make it such if in fact the business as conducted is not impressed with a public use or carried on for the public benefit since it is beyond the power of the state by legislative edict to make that a public utility which in fact is not and to take private property for public use by its fiat that the property is being devoted to public use
Furthermore a dedication of private property to public utility service will not be presumed from the fact that the product and service of the use of such property is the usual subject matter of utility service neither does such presumption arise from the sale by private contract of such product and service to utility corporations for purposes of resale
Such dedication is never presumed without evidence of unequivocal intention
A business affected with a public interest is not necessarily a public utility or public service commission
The fact that a business is affected with a public interest means that it may be regulated for the public good but does not imply that is under a duty to service the public
 Black s Law Dictionary Fifth Edition defines a public utility thus at p 1108 Public Utility A privately owned and operated business whose services are so essential to the general public as to justify the grant of special franchises for the use of public property or of the right of eminent domain in con sideration of which the owners must serve all persons who apply without discrimination
It is always a virtual monop oly
A business or service which is engaged in regularly supply ing the public with some commodity or service which is of public consequence and need such as electricity gas water transportation or telephone or telegraph service
179 Gulf States Utilities Co vs State Tex
App 46 SW 2d 1018 1021
Any agency instrumentality business indus try or service which is used or conducted in such manner as to affect the community at large that is which is not limited or restricted to any particular class of the commu nity
The test for determining if a concern is a public utility is whether it has held itself out as ready able and willing to serve the public
A term implies a public use of an article product or service carrying with it the duty of the producer or manufacturer or one attempting to fur nish the service to serve the public and treat all persons alike without discrimination
It is synonymous with public use and refers to persons or corporations charged with the duty to supply the public with the use of property or facil ities owned or furnished by them
Euder vs First Nat
Bank in St Louis CCA Mo  992
To constitute a true public utility the devotion to public use must be of such character that the public generally or that part of it which has been served and which has accepted the service has the legal right to demand that that service shall be conducted so long as it is continued with reasonable efficiency under reasonable charges
The devotion to public use must be of such character that the product and service is available to the public generally and indiscriminately or there must be the acceptance by the utility of public franchises or calling to its aid the police power of the State   The Corpus Juris Secundum Vol
73 p 990 also carries like definitions
Once a concern is found to be a public utility at least two consequences follow
One is a general duty to serve which is described in American Jurisprudence thus 16
General duty to serve The primary duty of a public utility is to serve on reasona ble terms all those who desire the service it renders and it may not choose to serve only the portion of the territory covered by its franchise which is presently profitable for it to serve
Upon the dedication of a public utility to a public use and in return for the grant to it of a public franchise 180 the public utility is under a legal obligation to render adequate and reasonably efficient service impartially without unjust discrimination and at reasonable rates to all members of the public to whom its public use and scope of operation extend who apply for such service and comply with the reasonable rules and regulations of the public utility
This obligation is one implied at common law and need not be expressed by statute or contract or in the charter of the public utility
The fact that the franchises granted to the company do not expressly impose upon it the obligation to serve all persons in the locality does not relieve the company nor does the fact that the person applying for gas is already supplied with gas by another company
The fact that a pipe laid by a water company along a street in the exercise of its franchise was laid under an agreement with certain persons who paid the expenses that they should have the exclusive use of water and that the company should not tap the pipe without their consent unless it first repaid them for the pipe does not relieve the company from its obligation to supply water on reasonable terms to all persons living on such street who may apply for it
A provision in an ordinance granting a franchise to an electric light company that the city should not require the company to make extensions except upon certain condi tions does not affect the right of a resident in an estab lished service zone to invoke the aid of the courts to compel the company to connect his premises with its line
This duty to serve all applicants without discrimination cannot be evaded by a natural gas company on the ground that the gas pressure has fallen so low that existing customers cannot be adequately supplied new applicants are entitled to share equally in such supply as can be furnished
Fur thermore the obligation of a public utility such as a gas water or electric company to supply a given district is inclusive of the duty under reasonable limitations to carry the mains or lines of the utility to a point on the consumer s premises where use can be made of the service
However neither by common law nor by statute is a public utility required to serve all the conduct prohibited on the part of a public utility is unjust discrimination unfair rates or practices or unreasonable rules
 The second constraint is in regard to the rates that can be charged by such an undertaking 181 A public utility may in the absence of a legislative pre scription or limitation of rates fix and exact reasonable rates for services furnished in which respect the reasona bleness of the rate is to be considered in relation to the value of the property used by the utility in the public service
Thus in the absence of legislation carriers are ordinarily entitled to establish such rates and to adopt such policy of ratemaking as they may deem best
They may voluntarily render service for less than they could be compelled to accept
The right of a public utility or carrier to set its own rates is subject to the limitation that such rates must be nondiscriminatory and reasonable
xxx xxx xxx This obligation to furnish service at a reasonable price is implied by law and is incurred by acceptance of the fran chise and privilege to serve the public
Furthermore there is authority to the effect that a public utility must give a consumer the benefit of the most favourable rate which he is entitled to receive
 We do not think that ONGC satisfies the primary condi tions enunciated above for being a public utility undertak ing as it has not so far held itself out or undertaken or been obliged by any law to provide gas supply to the public in general or to any particular cross section of the public
The proviso to sec
141e of the Act which lays down that the setting up of industries to be run with the aid of gas was not to be undertaken by the ONGC without the Central Government s approval also gives an indication that the supply of gas to various industries on a general basis was not in the immediate contemplation of the Act but was envis aged as a further expansion to be initiated with Central Government s approval
Perhaps a stage in the developmental activities of the ONGC will soon come when such an obliga tion can be inferred but at present the ONGC supplies gas only to certain selected contractees
It does not supply gas to the public either in the sense that any individual member of the public or any identifiable cross section of the public is entitled to demand and receive such supply due to various limitations we shah now touch upon
The main activity of the ONGC is that of exploration and 182 prospecting for petroleum and petroleum products
So tar as gas which is a bye product is concerned the ONGC has not so far been able voluntarily or constrained statutorily to harness and utilise its production for consumption by the public
Even as per the information placed on record by the respondents about 3000 million cubic metres of gas were burnt in 1985 86 due to the inability of the ONGC to harness it for industrial or domestic use
Such large scale utilisa tion will involve capital outlay to a considerable extent particularly for the laying of pipe lines to convey the gas to sites of its user
The quantity of gas which is put to such use at present is an insignificant part of the gas that is being produced and so far the Government does not appear to have called upon the ONGC to draw up or submit to the Government under section 23 of the Act any programme of sale of natural gas to the public generally or even to some catego ries of public consumers
There is no doubt that the expan sion of the oil sector in recent years including the recent construction of the HBJ pipeline will eventually require the ONGC to set up and devise a rational and equitable scheme of distribution and supply of gas to various types of consumers situate over various parts of India
But as yet the ONGC has not embarked on any such scheme
It has been supplying gas to certain consumers on the basis of individu al contracts and it is in regard to these consumers alone that the question of price has been raised before us
We do not however think that it is at all necessary for us to delve further into the above concept or express any final opinion as to whether the ONGC is a public utility or not because the claim of the respondents is for a contin uance of the present system followed by the ONGC of supply ing gas to select customers on the basis of contracts en tered into with them
They only want the price to be regu lated by the court they do not challenge for obvious reasons the system of distribution thus far adopted by the ONGC
If the argument that the ONGC is a public utility is accepted then the first consequence to follow will be that gas should be made available by it to all persons who need it for use
It cannot be supplied by the ONGC to only a few public sector undertakings like the GSEB and GSFC or only to a few industries like those of the respondents or only to a few municipalities like the Vadodara Municipality for domes tic supply at its sweet will and pleasure
It would then be open to all undertakings industries and domestic consumers in Bombay Gujarat and perhaps elsewhere in the country to demand that steps should be taken for the supply of gas to them also
We are unable to agree with the observation of the High Court that even if the ONGC is treated as a public utility the respon 183 dents merely because they had entered into temporary con tracts for supply of gas with the ONGC could still insist on continued supply to themselves on the first come first served basis to the exclusion of later arrivals on the scene
If as suggested by the respondents the ONGC is to be treated as a public utility and the price of gas is bound to be on cost plus basis it may be that quite a few other industries would like to avail themselves of such supply
They have perhaps kept out so far only because the supply price based on alternative fuel price is not acceptable to them
They are keeping out only because they are under the impression that the ONGC is entitled to supply gas to per sons with whom it has entered into commercial contracts and on the terms of supply envisaged in those contracts
The treatment of the ONGC as a public utility undertaking for the supply of gas will raise innumerable basic questions totally inconsistent with the present system of selective supply which the respondents want to be continued
It will transpose the area of controversy to a totally different and wider plane
We cannot say that the ONGC is a public utility undertaking and yet direct that it should supply gas to the respondents and a few other industries with which it has entered into contracts
The court would then be constrained to hold that the present system of supply is inconsistent with public law and the constitutional requirements of a public utility undertaking and direct the ONGC to completely overhaul its system of public distribution on sound lines qua types of consumers to be catered to areas of supply to be covered price for supply and all other matters
That is not the relief sought by the respondents
All that they want is a declaration that they are entitled to the supply of gas at a reasonable price
It is sufficient for disposing of this claim to deal with this aspect of the matter and the larger aspect of ONGC being a public utility undertaking should be left out of account
We therefore do not express any final opinion on the issue except to say prima facie that it cannot be placed on par with a public utility under taking
In this context we should like to point out once again that the ONGC does not dispute that the price to be charged by it for gas supply should have some basis and not be arbitrary or unconscionable
Their stand before the High Court vide para 29 of the judgment and before us has been that the prices are fixed by them from time to time on a well recognised principle viz on the basis of the alterna tive fuel cost which the consumers may have to incur had they not been in receipt of gas supply
Assuming this to be correct is there any illegality in the procedure adopted by them that is the question
The respondents contend and the High Court has held that there is 184 According to them a public sector undertaking must supply its goods at a price which will cover their cost and leave them a reasonable margin of profit and no more
Dr Chitale says that this is the only reasonable way of price fixation and refers to the award in support of this proposition
He points out that this is the basis incorporated in several statutory instruments such as the Sugarcane Price Control order or the Drug Prices Control order or other orders passed under the Essential Commodities Act
He cites the following decisions of this Court in
relation to the fixation of such prices Premier Automobiles vs Union   Panipat Cooperative Sugar Mills vs Union 1973 2 SCR 860 Shree Meenakshi Mills vs Union  Saraswati Industrial Syndicate vs Union   Prag Ice and Oil Mills vs Union 1978 3 SCR 293 and Union of India vs Cynamide India Ltd 1987 2 SCC 720
He urges that to allow the ONGC to sell gas at a higher price than this merely because otherwise but for the availability of gas the consumers would nave to spend more for their sources of energy will really amount to introducing an irrelevant element i the process of price fixation and result in allowing the ONGC to make unreasona ble profits at the expense of unhappy consumers
The ques tion for consideration is whether this argument is correct
Is the ONGC bound to adopt only the cost plus basis in fixing its prices or can it also invoke any other well known and reasonable if commercial formula in fixing its prices We shall first consider the findings in the award
Dr VKRV Rao was arbitrating on a dispute between the ONGC and the Gujarat State Government as to the price at which gas was to be supplied by the ONGC
Though the dispute arose as a result of the dissatisfaction of the GSEB and the GSFC with the prices charged by the ONGC the terms of reference to Dr Rao were very much wider
They read The point at issue is the price that should be charged by the ONGC for gas that may be supplied after taking into consideration the volume and pressure of gas supplied to any particular party and the distance to which it has to be carried
You may also indicate if ONGC should offer any differential rates in respect of gas supplied to a Undertakings for the generation of power b Fertiliser plants c State projects 185 d Private sector industries e Domestic fuel The contentions urged by the two parties arrayed before the arbitrator and set out in sections IV and V of the award also covered a very wide ground
The award starts with a discussion of certain general considerations and while doing so dealing with a contention comparing the price fixation in Assam and Gujarat the award says The Gujarat contention that in fixing the price of gas in Gujarat note should be taken of the price fixed by Oil India for the sale of Assam gas to the Assam Electricity Board at 25 paise per cubic foot cannot be dismissed as lightly as the ONGC seem to have done
Nor can it be contended by Gujarat that if a mistake has been made once in one area that therefore it should be extended to other areas
It must be added also that the price of gas in Assam and in Gujarat is not on all fours for the reasons that I shall mention later
All the same one cannot ignore the relevance of the Assam gas price even though the remedical action required is perhaps more on the Assam side than on the ONGC attitude in Gujarat
I shall have something to say on the question later on in this report though it is not strictly within the terms of reference given to the arbitra tor
I am not prepared to accept the ONGC contention that because they are All India agency expected to function as a commercial undertaking in the public sector they are entitled to take no account of the fact that the cost of power generation is high in Gujarat that this has hampered the possible development of some industries for which Guja rat has natural resources and that public opinion in Gujarat has a natural expectation of a reduction in the cost of power production on account of the discovery of gas in their area
After all the ONGC is an enterprise in the public sector and is expected to take public interest into account and not be exclusively concerned with commercial considera tions that would be more appropriate to a private enter prise
Moreover there as in the United States the gas industry is in the private sector there is also governmen tal regulation through the Federal Power Authority in the public interest
I believe that Gujarat has a valid point in 186 urging that advantages that accrue to the coal bearing provinces by way of low cost in fuel or power generation should also apply to Gujarat because of the discovery of gas in its area and its protected use for power generation
I propose therefore to take into account the pit head price of Bengal coal and its thermal equivalence with Gujarat gas in determining my award on the price of gas
I must add that this will not be the primary basis for my award though it will certainly be treated as a relevant consideration
At p 16 the report deals with the contention that the price of gas should be based on the price of substitute products in the following words As regards the ONGC contention that the price of gas should be based on the price of substitute products and that this is the practice generally followed in the oil industry I am not prepared to accept the ONGC constention
While the price of substitutes undoubtedly would determine the demand price for gas the position becomes different when prices are sought to be fixed and not left to market forces and prices have to be fixed because the ONGC is virtually a monopoly at least as far as Gujarat is concerned there is no market price in the normally understood sense of the term as emerg ing from sales by competing sellers the ONGC is a public sector enterprise and considerations of public policy cannot be considered irrelevant in the fixation of prices
Above all it has always been the practice in India when prices are fixed
to base it on the cost of production plus a reasonable profit and this has been what the Tariff Com mission has been doing all these yeas in regard to other commodities
Under the circumstances while the price of substitutes is undoubtedly a relevant factor in the fixation of the price of gas I have no doubt that it cannot be treated as the primary factor under the Indian circum stances referred to earlier Again at p 18 the basic formula is expounded as follows I have already indicated my thinking on the question of   prices of substitute materials on the basis of thermal equivalence in the concluding para of the previous section
Gas pricing in relation to the prices of substitute materials 187 understandable in foreign countries where gas has been deliberately pushed into the fuel market by pipe line compa nies which have constructed long and expensive pipe lines and sold gas at a price lower than that of alternative fuels in order to capture and retain the market
In fact the price of gas in the initial stage was much less than that of competing alternative fuels and not on par with their prices
With the growing recognition of the special advan tages obtained by the use of gas in manufacturing operation where close control of heat and cleanliness of operation are essential and worth paying for or in commercial and residen tial cooking water heating and space heating gas prices have been steadily rising over the last few years
Thus while crude oil wholesale prices have moved downward since 1957 gas prices have recorded a steady rise throughout the post war period
At the same time drilling of gas wells is increasing and so is the place of gas in world energy con sumption
It is therefore not correct to suggest that the oil companies were selling gas on the basis of the price and thermal equivalence of alternative fuels
Gas was sold at the price which it could fetch and not on the basis of either cost of production or parity with substitute fuels
As regard the price of gas in the field Prof Adleman has pointed out that it is not correct to expect any particular ceiling for this price
He adds if the special advantage uses could generate enough effective demand the field price of gas in the United States or elsewhere could conceivably equal or surpass the thermal equivalent of the crude oil otherwise it will not
In actualfact the principal use of gas is till not now in its field of special advantages
There is validity therefore for his view that Since gas costs roughly three times to deliver per BTU as oil the price of gas in the producing area could not possibly equal the price of oil
Scarce resources are best used of this fuel expensive to transport is used to the maximum nearest its source of supply whiles the transport cheap oil moves greater distances
Thermal equivalence with substitute fuels and a price based thereon could therefore only be a ceiling on the price of gas rather than a parity basis for its price fixation
Moreover in the case of Gujarat the substitute fuel comes from long distance and bears heavy frieght charges while the gas is found within the State
It must also be remembered that unlike in the case of foreign oil companies cost 188 data are more readily available in the case of ONGC as it is a public sector enterprise and subject to the control of Parliament and the scrutiny of its Public Accounts Commit tee
All cost data have been made available to the Arbitra tor by the ONGC
Under the circumstances it is my consid ered judgment that formula of fixing the price of gas on the basis of the thermal equivalence and price of substitute fuel or feedstock should not be accepted though the price resulting from such a formula certainly is a relevant con sideration as indicating the ceiling below which the price of gas should be fixed by the Arbitrator
I would therefore reject the ONGC proposal that the formula to be used for the price of gas should be based on the price of the avail able alternative fuels or feedstock
 The only other basic formula is the one advanced by the Gujarat Government namely that the only rational approach to the pricing of gas is via the cost plus profits formula
And it is the cost plus profit formula that I propose to adopt as the primary base for determining my award on the price of gas in Gujarat
Having said this I must hasten to add that this does not mean my acceptance either of the connotation that the Gujarat Government gives to this formula in terms of the content postulated for the cost of production and profit or the figures they have put forward for the price of gas on the basis of their interpre tation of the content of cost of production and profit
What I accept is the principle of cost of production plus reason able profit and not the interpretation that is sought to be given to this principle by the Gujarat Government
The second part of the issue referred to the arbitration was disposed of summarily by the award in a few words Finally on the question whether there should be any dif ferentiation between the prices to be charged for power generation fertilisers and other industries I am not in favour of any such differentiation as it would only intro duce an unnecessary complication in the pricing machinery and my award is primarily based on estimated cost of produc tion plus reasonable profit
If however in order to regu late supplies in adjustment to different intensities of demand from the different users of gas some premium or 189 discount becomes necessary on the price suggested by me this would not be inconsistent with my award provided the total receipts do not exceed the amount that would accrue from the application of my award on the price of gas
Dr Chitale naturally placed considerable reliance on this award
He contended that the reasoning of the award is impeccable and that the considerations that impelled Dr Rao to adopt the cost plus basis are more weighty in today s context and in the background of the State s duties under Articles 38 and 39b of the Constitution
There is no doubt that Dr Rao made the cost plus method the basis of his award in preference to the basis of thermal equivalence of alternate fuel which we shall refer to as thermal equivalence basis
But at least two important aspects have to be kept in mind in assessing the applicabil ity of the same principle in the present context
In the first place as explained earlier Dr Rao was concerned primarily with an issue raised by the public of Gujarat as against the ONGC
He was really adjudicating upon the price which the ONGC should charge to public sector undertaking catering to the essential needs of the State
In the con text his objective was understandably to fix the price as low as possible
The consumers under consideration by him represented the public need of the State of Gujarat and as against such public interest the ONGC s profit requirements paled into insignificance
He proceeded more or less on the footing that the ONGC was obliged to supply gas for meeting those essential purposes
Secondly Dr Rao also agrees that the thermal equivalence basis is a recognised method for fixation of price that it has a relevance and that it has to be taken into account in determining the price for gas supply
We also wonder whether in the present set up of the ONGC with a vast expansion of its exploratory activities enough data are available to work out a price on the cost plus basis
Any such computation will have to provide adequately for future explorations infructuous expenditure expenditure on modern uptodate machinery and research and above all expenditure that will be necessary to reach the gas to the consumers
In these circumstances the cost plus basis fixed by Shri Rao in the background of the real nature of the dispute before him three decades ago cannot be taken as conclusive in the present situation
Here we are dealing with a price to be fixed under a contract between the ONGC and one set of industries in the State who wish to make a change over from the furnace oil system to that of gas supply with a view to increase their own prof itability and gain an advantage if possible over other industries in the State
In this context we think ONGC is entitled to a 190 larger latitude and charge a price which the market can bear
The only restrictions is that being a State instru mentality it should not be a whimsical or capricious price but should be one based on relevant considerations and on some recognised basis
While the cost plus basis is a recognised basis for fixation of prices of essential commodities or for the services rendered by a public utility undertaking it would not in our view be correct to treat it as the only permis sible basis in all situations
On behalf of the ONGC it has been pointed out that even in the fixation of prices of essential commodities like levy sugar the concept of cost plus is not necessarily the only method of fixing the price for the commodity
In considering the question whether the price fixation in that case was based on proper principles and by following correct methods in accordance with section 33C of the Essential Commodities Act this Court observed in the Anakapallee case  at p 899 While examining question No 3 learned Solicitor General has reminded us that cost plus  cannot always be the proper basis for price fixation
Even if there is no price control each unit will have to compete in the market and those units which are uneconomic and whose cost is unduly high will have to compete with others which are more efficient and the cost of which is much lower
It may be that uneconomic units may suffer losses but what they cannot achieve in the open market they cannot insist on where price has to be fixed by the government
The Sugar Enquiry Commission in its 1965 report expressed the view that cost plus  basis for price fixation perpetuates inefficiency in the industry and is therefore against the longterm interest of the country
The Court quoted from a study prepared in collaboration with the Institute of Chartered Accountants of India Costs alone do not determine the prices
Cost is only one of the many complex factors which together determine prices
The only general principle that can be stated is that in the end there must be some margin in prices over total costs if capital is to be unimpaired and production maximised by the utilisation of internal surpluses   while the cost plus pricing method is the most common it may be argued that it is not the best available method 191 because it ignores demand or fails to adequately reflect competition or is based upon a concept of cost which is not solely relevant for pricing decision in all cases
What is essential is not so much of current of past costs but fore cast of future cost with accuracy  
Generally pricing should be such as to increase production and sales and secure an adequate return on capital employed
 Again in a somewhat different context in relation K a State transport undertaking this Court observed in Venka tachalam vs Deputy Transport Commissioner     the special status of a Government owned transport undertaking is obvious  
Its functional motto is not more profits at any cost but service to citizens first and in a far larger measure than private companies and individu als although profitability is also a factor even in public utilities
emphasis added These passages indicate that cost plus is not a satis factory basis in all situations
The basis may need to be made more stringent in some situations and more broad based in others
May be the cost plus is an ideal basis where the commodity supplied is the product of a monopoly vital  to human needs
In that context the price fixed should be minimum possible as the customer or consumer must have the commodity for his survival and cannot afford more than the minimum
The producer should not therefore be allowed to get back more than a minimum profit
Indeed in certain situations it may even be inequitable to fix varying prices on the basis of the cost of each individual manufacturer and thus encourage inefficiency it may be necessary to base it uniformly for a whole industry on the cost of the most efficient manufacturer as has been done in the case of drugs vide Cynamide case 1987 2 SCC 720
It was so vital that the goods should be available to the common man that the prices were statutorily fixed so low as to drive away inefficient producers and so as to make it possible only for the most efficient manufacturers to survive
Per contra there can be situations where the need of the consumer is not so vital and the requirements of the economic scene are such that the needs of the producer should be given greater consideration
In such situations the plus element in the cost plus basis namely the allowable profit margin should not be confined to a reasonable return on the capital but should be allowed to have a much larger content depending on the circumstances
192 The notion that the cost plus basis can be the only criterion for fixation of prices in the case of public enterprises stems basically from a concept that such enter prises should function either on a no profit no loss basis or on a minimum profit basis
This is not a correct ap proach
In the case of vital commodities or services while private concerns must be allowed a minimial return on capi tal invested public undertakings or utilities may even have to run at losses if need be and even a minimal return may not be assured
In the case of less vital but still basic commodities they may be required to cater to needs with a minimal profit margin for themselves
But given a favourable area of operation commercial profits need not be either anathema or forbidden fruit even to public sector enter prises
A publication on Public Enterprises by the Indian Institute of Public Administration produced before us elaborates on the above aspects
It also gives an interest ing analysis of pricing policies adopted in respect of various commodities
It is unnecessary to touch upon all the details
It is sufficient for our present purposes to say that the monograph points out a propos such pricing policy that several state undertakings are already earning profits and the general policy has been accepted that the maximum economic returns should be secured from all public enter prises whether these are operated by the Central or State Governments directly or through corporation or companies and that the surplus of public enterprises will have to play an increasing part in financing economic development under the various National Plans
It proceeds to say at p 173 A growing source of governmental revenue in many countries is the profits of public undertaking
In under developed countries public enterprises fostered on public revenues are expected to play a more positive role in financing the countries  development than similar enterprises do in de veloped economies
In determining the price policies of these undertakings considerations of maximising revenue will not play as important a part as profits do in private enter prises but within the limits set by the necessity to foster economic development their price policies are designed to bring in some profits to the countries  general revenues
Public enterprises in the under developed areas are to break ground in projects which are the core of development
If such projects are to be financed on an increasing scale the price policies have to be so designed that significant surpluses are left with the projects 193 to be employed either for their own expansion or for financing the expansion of other projects
In other words there should be an element of profit in the prices of their products or in the cost of their services to the public The Krishna Menon Committee on State undertakings November 1959 the booklet proceeds
to point out enunci ated the following pricing policy for public enterprises We have stressed in these pages the importance of incentive and healthy competition and emphasised that concerns must be able to stand on their own legs for efficient and proper conduct of business  
The considerations that should govern prices appear to be the following
Consumer prices nave to be based upon general market prices and other fac tors as well
The decision as to what economy in cost has to be passed on to the consumer on the one hand or should benefit the taxpayer on the other and the likelihood of non availabilities and therefore of scarcities in the near future has also to be considered
The principle of what the traffic can bear  has also to be taken into account   Dr VKRV Rao has been quoted again as saying As regards profits it should be pointed out that contrary to some popular notions on the subject profits have an important place in a socialist society the difference between the economic price and the social price would be what may be called the planned profit and this would largely correspond to the excise duties and sales tax and other indirect taxes that are imposed in a capitalist society
These planned profits being no more than a way of mobilising resources and making them available to the community for purposes both of investment and maintenance expenditure
Profits also have another important role to play in so far as they relate to the economic price itself
The economic price fixed at any particular moment of time is obviously based on the capital technique and productivity of the given base period when this price is fixed any improvement in productivity is bound to lead to a decrease in the cost production and in turn this would lead to the emergence of a surplus within the economic price itself and that would be a 194 surplus which will represent a measure of the nation s increase in productivity this surplus would not be the result of the policies laid down at national level as in the case of difference between the economic price and the social price
On the contrary it would represent the result of the motivations and efforts of a larger number of persons en gaged in productive activity
Hence the importance of ar ranging for proper incentive to stimulate the creation of this kind of surplus
That is the reason why in socialist societies now adays individual enterprises are permitted to retain a larger share of such surpluses as they may create by an increase in productivity this larger share to be used by them partly for increasing individual incomes of those engaged in the enterprises and partly for giving an opportu nity to the enterprises in question to build up the finan cial resources needed to following their own independent investment policies
Public enterprise must be carried on a profitmaking basis not only in the sense that public enter prise must yield an economic price in the terms described in a previous section but must also get for the community sufficient resources for financing a part of the investment and maintenance expenditure of government
Increasingly the share of the profits of public enterprises in financing the investment and maintenance expenditure of government must keep on increasing
It is not only the expenditure on the public sector as such that will indicate the march of the economy towards its socialist goal
Even more important is the increasing role that the public sector must play for finding the resources needed for meeting both the mainte nance and investment expenditure of government
This in volves a price and profit policy in regard to public enter prise which goes against accepted opinion so far in regard to public enterprise
The theory no profit no loss  in public enterprise is particularly inconsistent with a so cialist economy and if pursued in a mixed economy it will hamper the evolution of the mixed economy into a socialist society
The sooner therefore this theory of no profit no loss  in public enterprise is given up and the policy ac cepted of having a price and profit policy for public enter prise such as will make the State increasingly reliant on its own resources as distinguished from taxing the personal incomes of its citizens the quicker will be the evolution of a socialist society
195 In another article on The Public sector in India quoted in Issues in Public Enterprise by Sri KR Gupta Dr Rao is quoted as saying at p 84    the pricing policy should be such as to promote the growth of national income and the rate of this growth  public enterprises must make profits and the larger the share of public enterprises in all enterprises the greater is their need for making profits
Profits con stitute the surplus available for savings and investment on the one hand and contribution to national social welfare programme on the other and if public enterprises do not make profits the national surplus available for stepping up the rate of investment and the increase of social welfare will suffer a corresponding reduction 
Hence the need for giving up the irrational belief that public enterprise should by definition be run on a no profit basis
 In the light of the foregoing discussion we are of opinion that it would not be right to insist that the ONGC should fix oil prices only on cost plus basis
Indeed its policy of pricing should be based on the several factors peculiar to the industry and its current situation and so long as such a policy is not irrational or whimsical the court may not interfere
The question of fixation of a fair and reasonable price for goods placed on the market has come up for consideration of Parliament and Courts in different contexts
Price fixa tion it is common ground is generally a legislative func tion
But Parliament generally provides for interference only at a stage where in pursuance of social and economic objectives or to discharge duties under the Directive Prin ciples of State Policy control has to be exercised over the distribution and consumption of the material resources of the community
Thus while Parliament has enacted the Essen tial Commodities Act it has left it to the discretion of the Executive to take concrete steps for fixing the prices of essential commodities as and when necessity arises by promulgating Control Orders in exercise of the powers vested in the Act
Various types of foodgrains sugarcane and drugs have come under the purview of such control orders and the modalities of fixation of fair prices thereunder have also come up for consideration of the Courts
There has also been such fixation of price under the Industries Development  Regulation Act 1951 vide Premier Automobiles vs Union In all these cases the primary concern of 196 Government and Parliament has been that the articles in question should be available to the members of the consumer public at the minimum prices possible and in that context these legislations no doubt adopt the cost plus reasonable return on investment test in the fixation of prices
That even in respect of such commodities the cost plus method is not the only reasonable method has been recognised in judicial decisions
The cases on this topic have been re viewed and the limitations on judicial review of price fixations fully discussed recently by a Constitution Bench of this Court in Ms Shri Sitaram Sugar Company Ltd  Another vs Union JT 19901 SC 462
It is however not necessary here to enter into a discussion of this and the earlier cases because those cases were primarily concerned with the question whether the price fixation had been made in consonance with the requirements of the relevant legisla tion fixing prices of essential commodities in the interests of the general public and also because ONGC does not deny that as a State instrumentality its price fixation should be based on relevant material and should be fair and reason able
None of these decisions hold that the cost plus method is the only relevant method for fixation of prices
On the contrary there are indications in some judgments to indi cate that not a minimum but a reasonable profit margin is permissible
Even in relation to a public utility undertak ing like the State Electricity Boards where the duty not to make undue profits by abusing its monopoly position is clear vide Jagadamba Paper Industries vs Haryana State Electric ity Board   this Court said in Kerala State Electricity Board etc
vs Ms SN Govinda Prabhu  Bros and Ors etc Now a State Electricity Board created under the provisions of the Electricity Supply Act is an instrumentality of the State subject to the same constitutional and public law limitations as are applicable to the government including the principle of law which inhibits arbitrary action by the government See Rohtas Industries vs Bihar State Electricity Board  It is a public utility monopoly undertaking which may not be driven by pure profit motive not that profit is to be shunned but that service and not profit should inform its actions
It is not the function of the Board to so manage its affairs as to earn the maximum profit even as a private corporate body may be inspired to earn huge profits with a view to paying large dividends to its shareholders
But it does not follow that the Board may not and need not earn profits for the 197 purpose of performing its duties and discharging its obliga tions under the statute
It stands to common sense that the Board must manage its affairs on sound economic principles
Having ventured into the field of commerce no public serv ice undertaking can afford to say it will ignore business principles which are an essential to public service under takings as to commercial ventures
See Lord Scarman in Bromely vs Greater London Council  If the Board borrows sums either from the government or from other sources or by the issue of debentures and bonds surely the Board must of necessity make provision year after year for the payment of interest on the loans taken by it and for the repayment of the capital amounts of the loans
If the Board is unable to pay interest in any year for want of sufficient revenue receipts the Board must make provi sion for payment of such arrears of interest in succeeding years
The Board is not expected to run on a bare year to year survival basis
It must have its feet firmly planted on the earth
It must be able to pay the interest on the loans taken by it must be able to discharge its debts it must be able to give efficient and economic service it must be able to continue the due performance of its services by providing for depreciation etc it must provide for the expansion of its services for no one can pretend the country is already well supplied with electricity
Sufficient surplus has to be generated for this purpose
That we take it is what the Board would necessarily do if it was an ordinary commercial undertaking properly and prudently managed on sound commer cial lines
Is the position any different because the Board is a public utility undertakings or because of the provi sions of the Electricity Supply Act We do not think that either the character of Electricity Board as a Public Utili ty Undertaking or the provisions of the Electricity Supply Act preclude the Board from managing its affairs on sound commercial lines though not with a profit thirst
A plain reading of Section 59 as amended in 1978 plain ly indicates that it is the mandate of Parliament that the Board should adjust its tariffs so that after meeting the various expenses properly required to be met a surplus is 198 left
The original negative approach of functioning so as not to suffer a loss is replaced by the positive approach of requiring a surplus to be created
Under the above provision the Board is under a statutory obligation to carry on its operations and adjust its tariffs in such a way to ensure that the total revenues earned in any year of account shall after meeting all expenses chargeable to revenue leave such surplus as the State Government may from time to time specify
The tariff fixation has therefore to be so made as to raise suffi cient revenue which will not merely avoid any net loss being incurred during the financial year but will ensure a profit being earned the rate of minimum profit to be earned being such as may be specified by the State Government
Shri Potti learned counsel for the consumers placed great reliance on the observations of this Court in Kerala State Electricity Board vs Indian Aluminium Co 1976 1 SCR 552 Bihar State Electricity Board vs Workmen  and P Nalla Thampy Thera vs Union of India to con tend that the Electricity Board was barred from conducting its operations on commercial lines so as to earn a profit
We do not think that any of these observations is in con flict with what we have said
Pure profit motive unjusti fiable according to us even in the case of a private trading concern can never be the sole guiding factor in the case of a public enterprise
If profit is made not for profit s sake but for the purpose of fulfilling better and more exten sively the obligation of the services expected of it cannot be said that the public enterprise acted beyond its authority
The observations in the first case which were refined to us merely emphasised the fact that the Electrici ty Board is not an ordinary trading corporation and that as a public utility 199 undertaking its emphasis should be on service and not prof it
In the second case for example the Court said that it is not expected to make any profit and proceeded to explain why it is not expected to make a profit by saying that it is expected to extend the supply of electricity to unserved areas without reference to considerations of loss
It is of interest that in the second case dealing with the question whether interest cannot be taken into account in working out profits the Court observed SCC p 235 para 5 The facile assumption by the Tribunal that the interest should not be taken into account in working out the profits is not borne out by the provisions of the statute 
In the third case the court appeared to take the view that the railway rate and fares should cover operational ex penses interest on investment depreciation and payment of public obligations
It was stated more than once that the total operational cost would include the interest on the capital outlay out of the national exchequer
While the court expressed the view that there was no justification to run a public utility monopoly service undertaking merely as a commercial venture with a view to make profits the court did not rule out but refrained from expressing any opinion on the question whether a public utility monopoly service undertaking should ever be geared to earn profits to support the general revenue of the State
We are of the view that the failure of the government to specify the surplus which may be generated by the Board cannot prevent the Board from generating a surplus after meeting the expenses required to be met
Perhaps the quan tum of surplus may not exceed what a prudent public service undertaking may be expected to generate without sacrificing the interests it is expected to serve and without being obsessed by the pure profit motive of the private enterpre neur
The Board may not allow its character as a public utility undertaking to be changed into that of a profit motivated private trading or manufacturing house
Neither the tariffs nor the resulting surplus may reach such heights as to lead to the inevitable conclusion that the Bard has shed its public utility character
When that happens the court may strike down the revision of tariffs as plainly 200 arbitrary
But not until then
Not merely because a surplus has been generated a surplus which can by no means be said to be extravagant
The court will then refrain from touching the tariffs
After all as has been said by this Court often enough price fixation is neither the forte nor the func tion of the court
 We are not called upon here in the view we take to decide whether the cost plus basis or the thermal equiva lence basis is more appropriate
All that we wish to say is that having regard to the basis on which the claims of the respondents have proceeded thus far our task is a very limited one
We cannot say for reasons set out below that the ONGC has acted arbitrarily in fixing the prices on the thermal equivalence basis the fact that it has not done it on cost plus basis does not vitiate the price fixation
The only question we have to address ourselves to is as to whether the ONGC has fixed a price based on relevant materials and on some known principle
At the outset one must notice that the price is not directly and specifically related to or based on any unreasonable margin of profit
There is nothing to indicate that the ONGC was prompted in fixing its prices on the one and only consideration of deriving maximum profits for itself
On the other hand it appears to have been guided by the needs of the situation and the nature of the distribution system that is in opera tion
As we said earlier the manufacture distribution and consumption of gas has yet not attained the status of an essential commodity till recently
It is still at a stage where the goods are being distributed under private con tracts
Whether this is any longer justified and whether there should not be a greater amount of control over the modes of as well as price for such distribution is a larger question with which we are not now concerned
At present we are in the penumbral region where the commodity is free to be distributed at the manufacturer s choice but yet where such manufacturer being a State instrumentality has to conform to Articles 14 and 19 of the Constitution
At this stage of development of the industry we think a much wider latitude is permissible in the fixation of prices than the imposition of a no profit no loss basis or a cost plus basis on the producer
In fixing the prices it is legitimate for the ONGC to take into account the fact that its supplies are restricted only to a few industries that have entered into contracts with it
Like industries producing the same or similar commodities are carrying on business with other sources of energy such as coal or fur nace oil and the supply of gas is intended to supplement that source of energy
The supply of 201 gas to a few chosen industries at a much lower rate than what the companies may have to pay for an alternative fuel may indeed lead to cries of discrimination as the ONGC is scarcely in a position to supply gas to all industries and replace furnace oil as a source of energy altogether
Also it must be kept in mind that exploration of oil is capital intensive and money consuming and the ONGC would be well justified in supplying gas to voluntary contractors at a price which several parties are willing to accept and which will enable the ONGC to build up a surplus to meet its manifold requirements The surpluses it should be remem bered are not to fatten the coffers of a private individual but only to strengthen the backbone of the public enter prise
To fix its prices on the basis of alternative fuel cannot therefore be described in the present situation as irrational or arbitrary
Our attention has been drawn to a passage from Joan Mitchell on Price Determination and Price Policy where dealing with the basis of fixation of gas price by negotiation between the British Gas Commission and companies producing North Sea gas it is pointed out hat the price is set by the nearest alternative fuel usually fuel oil
This was also the basis it will be remembered on which initially the GSEB and GSFC had agreed to receive supplies from the ONGC
Thus this is a basis of fixation of price that is recognised in this field
Fixation of price on this basis is therefore a logical and appropriate one in the circumstances We should once again like to emphasise that different considerations may perhaps have to prevail if the treatment of ONGC as a public utility is taken to its logical conclu sion but that is not the basis on which the present writ petitions can be decided
Even at present the ONGC is sup plying to public sector undertakings at a much lower price
That has not been challenged by those organisations and the differentiation has also been upheld in principle by the High Court rightly in our opinion
Fortunately with the discovery of more and more oil wells in various parts of the country the economy of the country is booming and gas supply may also become more plentifully available in course of time
The time will perhaps soon come for the evolution of proper schemes of distribution and price control
We are now concerned however with the price fixation regarding supply to a few parties who considered it all right to enter into contractual agreements for supply of gas to them on the basis of the price fixed by the ONGC
So far as the scheme of supply is concerned the respondents also stand by the existing contract scheme as they want the supply to contin ue It is certainly not their prayer that the existing supply of gas such as it is should be considered a public utility and rationed to meet the needs of all industries and consumers in Bombay or Vadodara or 202 elsewhere
Nor is there any complaint today from any indus try not receiving gas supply that they are being discrimi nated against and that the supply to selective industries should stop
There is therefore no justification to strike down the scheme of supply on the basis of contracts
The only objection that survives therefore is that the price for the supply should be reasonable and fair
It should be based on principle not caprice
We have pointed out that though the ONGC has stepped up the prices considerably it has claimed to have done so on a principle and the correct ness of this has not been challenged
The claim of the respondents only is that prices should not be fixed on that basis but should instead be fixed on the basis of cost plus
For reasons indicated earlier we do not think that the respondents are justified in challenging this basis of fixation
The basis on which the ONGC has fixed the prices is a known basis and as pointed out by us also a basis permissible at this stage of the industry where a certain amount of freedom is permitted to the organisation in sup plying the gas produced by it
The situation really is one where the choice is between making the limited supply of gas available to a few chosen individuals at rock bottom prices so that they can make huge profits and making the price higher but competitive so that it subserves the common good and does not benefit only a chosen few
The ONGC has rightly chosen the second alternative
We would therefore hold that the respondents can insist on a supply only if they agree to pay the prices fixed by the ONGC
They are also not entitled to demand supply as of right without contracts
But as they have in fact had the benefit of the supplies under interim orders of the Court this question does not survive and all that we can declare is that the prices demanded by the ONGC are not unreasonable or capricious and are binding on the respondents
Having dealt with the principal issue we may now refer to certain subsidiary matters touched upon in the course of arguments i A point was made about the ONGC s right to insist on a minimum offtake guarantee to the extent of 90
This has been upheld by the High Court and there is no appeal the crossappeals having been dismissed as time barred by the respondents
There can however be no doubt that the High Court was right in its conclusion on this issue
If any authority regarding the rationale of such a clause is needed it is to be found in the decision of this Court in Amalgamated Electricity Co Ltd vs Jalgaon Borough Munici pality  203 ii A statement was filed before us to show that if the prices had been determined on the basis of the thermal equivalence of coal they would have been much smaller
This statement has been filed before us for the first time and its correctness would need verification
It is however unnecessary to go into this question
The acceptability of this argument may depend inter alia on how far the coal basis is relevant for the industries located in Vadodara where the principal alternate fuel is fuel oil
It is possi ble that this is one alternative that may be available and it was open to the petitioners to have had discuss and mediations with the ONGC for alteration of the prices on that footing
The ONGC has fixed prices on the basis of the thermal equivalence of furnance oil which by an large was the source of energy tapped by the local industries
There being no irrationality in adopting this basis it is not open to us to say that the basis of thermal equivalence of coal should be adopted rather than that of furnance oil particularly in the absence of fuller material and discus sion
iii A point was made that the ONGC is charging differ ent prices to different industries
The answer of the ONGC is that save in the case of certain public sector enter prises their prices are fixed on the basis of the prices prevalent on the thermal equivalence of fuel oil basis as on the date the relevant contract is entered into
This has not been shown to be wrong
The only discrimination urged at the stage of the High Court was in regard to the disparities in prices between supply to public sector undertakings and private industries
Though the award towards the end suggested that there should be no such differentiation it is now well settled that a favourable treatment of public sector organisations particularly ones dealing in essential commodities or services would not be discriminatory
Also this differentiation as already pointed out has been upheld by the High Court we think rightly
No tangible material has been brought to our notice which would support the plea of unfair discrimination
iv A point has been made that the ONGC had entered into a contract for a ten year period with the Amul dairy for supply of gas at Rs741 per unit which demonstrates the unreasonableness of the prices charged to the respondents
We do not agree
We have already pointed out that the ONGC is supplying gas to certain public sector undertakings at much lower rates and that this differentiation has been upheld
Though the Amul Dairy is a cooperative society it deals with a basic need of society and 204 stands on no different footing from Electricity Boards or Fertiliser Corporations or Municipal Corporations
The instance of the Amul Dairy cannot therefore be treated as an index of the unreasonableness of the price charged from the respondents particularly when the basis of fixation has been explained and is an intelligible and rational one
v Reference has been made to the price of gas in Assam and USA
So far as the former is concerned the High Court has rightly in our view discarded the comparison
So far as the latter is concerned the point made by the ONGC was that Dr Rao had fixed the price of gas in India in 1967 at 15 below the then US price and that on the same basis the price of Rs2000 per unit today could not be said to be unreasonable as prices in USA have also shot up about thirty fold in the meantime
We find no effective reply to this argument
The High Court has just brushed it aside by reiterating that the well head prices alone would be the reasonable basis for fixation of price
vi The High Court in its judgment has observed if the ONGC were acting fairly and reasonably there was nothing to prevent them from placing all their cards on the table of the court
They did not put the price structure that possibly be worked out on the lines similar or akin to those suggested by Dr VKRV Rao in his award
Nor did they put forward any other reasonable criteria for price fixation
All throughout they harped on the thermal equiva lence and furnace oil equivalance and the prices in USA and the prices of crude but did not allow the Court to have the bare glimpse of what could possibly be the well head price of gas by making allowances for amortisation and all other conceivable factors having their sway in the ultimate price fixation
This also is indicative of the unreasonable ness on their part and we would say that Mr Singhvi was justified in complaining that the return filed by the ONGC in this group of petitions was far from being satisfactory and therefore was liable to be brandished as no real return at all We think this criticism is not justified
The stand of the ONGC was that it had fixed the prices on the thermal equiva lence basis and this has not been controverted or found against
It was the 205 respondents  case that the cost plus price would work out much cheaper and the onus was on them to prove it
We fail to see how the blame for not allowing the court to have a glimpse of what could possibly be the well head price of gas can be put at the doors of the ONGC
However this aspect is irrelevant as the case throughout has proceeded on the assumption that the cost plus basis would yield lower fig ures and the question debated was whether the ONGC could discard this and adopt the thermal equivalence basis
vii Turning now to para 36 of the judgment of the High Court we may observe that these directions do not survive in view of the conclusion we have reached that the prices demanded by ONGC are based on proper and relevant criteria
However we may observe that directions i and ii in this paragraph virtually throw open the entire issue for fresh discussion
It may have been helpful if such a direction had been given before the hearing of the writ petitions but the exercises would not be futile
Having reached the conclusion that the cost plus was the only proper basis of fixation of price the High Court should perhaps have directed the ONGC to charge prices on that basis and given a reasonable time to work out the said price and implement the direction
Instead the High Court appears to have by its directions in para 36 left the matter at large for it asks the ONGC to get the price fixed according to the reasonable and ration al norms
We do not also see any justification for provid ing that the price fixation should be done in consultation with or after giving an opportunity to the respondents
It is for the ONGC to fix the prices and there can be no re quirement of a prior consultation with the present respond ents or with prospective customers
In such cases of price fixation as in the case of price fixations by Government see Cynamide case 1987 2 SCC 720 the only remedy of aggrieved consumers can perhaps be to have some sort of post decisional reconsideration by the ONGC after heating the view points of those affected
But this question does not arise now in the view we have taken to the ONGC s obli gations in this regard
We should also like to add that now that the prices have been fixed by the Government since 3011987 and gas has already been supplied to the respond ents till then on the basis of interim prices the implemen tation of the directions contained in this paragraph would be a prolonged and unmeaningful exercise and it would have been much better to fix some ad hoc price for this period after heating both parties
In fact Sri B 206 Sen who appeared for the ONGC very fairly stated before us that so far as this period was concerned the ONGC was prepared to leave it to this Court to fix the price of supply at any figure that the Court might consider reasona ble
We also suggested to the respondents keeping the price fixed by the order dated 3031987 in mind a figure which we thought was reasonable but the respondents were not agreeable to the course suggested
They put forward certain alternative proposals which were not acceptable to the ONGC
In these circumstances we have been constrained to hear the appeals on merits
viii On behalf of the ONGC it has been pointed out that a sum of Rs 1435 crores is outstanding for the period from December 1982 to August 1989 from eighteen concerns even on the basis of the interim prices at which the ONGC has been supplying them gas under the orders of this Court primarily due to shortfalls in the guaranteed off take and that four concerns who have stopped taking supply of gas are in arrears to the tune of about Rs 12 lakhs
We need hardly say that the ONGC will be at liberty to take immediate steps to recover the charges due from the respondents in the light of this judgment
ix We wish to add that we are not called upon to and do not express any opinion regarding the notification dated 30187 of the Government issued subsequently fixing the price at Rs 1400 plus
We do not know the circumstances or the statutory authority or the basis on which the said price fixation was made and that is totally outside the purview of these appeals
This concludes a discussion of all the points urged before us
For the reasons detailed above we allow these appeals and uphold the prices charged by the ONGC for supply of gas to the various respondents
We however make no order regarding costs
RSS Appeals allowed


Summary:
In the former appeal the appellant is a nationalised Bank
In 1977 some demands for wage revision made by the employees of all Banks were pending and in support of their demands a call for a country wide strike was given
The appellant Bank issued a Circular on September 23 1977 to its managers and agents directing them to deduct wages of the employees for the days they go on strike
The respondent Unions gave a car for a four hour strike on December 29 1977
Two days before the strike the appellant Bank issued an Administrative Circular warning the employees that if they participate in the strike they would be committing a breach of their contract of service and they would not be entitled to salary for the full day and they need not report for work for the rest of the working hours on that day
However the employees went on strike as scheduled for four hours which included banking hours of the public and re sumed duty thereafter
The appellant Bank did not prevent them from doing so
The appellant Bank by its circular di rected the managers and agents to deduct the full day s salary of those employees who participated in the strike
On a writ petition filed by the respondents the High Court quashed the said Circular
The Letters Patent Appeal filed by the appellant was dismissed
Hence the appeal by the Bank
In the latter appeal the appellant is a company whose workers had indulged in go slow in July 1984 thereby bringing down production
The workers did not attend to their work and were loitering in the premises and were indulging in go slow tactics to pressurise the 215 company to concede their demands
The company suspended its operation by giving a notice of lock out
It did not pay wages to the workers for July  1984 on the ground that they did not work during all the working hours and had not their wags
The workers  union filed a complaint before the Indus trial Court complaining that the appellant company had indulged in unfair labour practice and that the lock out declared was illegal The Industrial Court held that the deduction of wages for July 1984 on account of the go slow was not justified It also declared that the company had committed an unfair labour practice by not paying full monthly wages to the workers and directed the company to pay the said wages for the month of July 1984
Aggrieved the appellant company has preferred the appeal
Allowing the appeals this Court HELD 11 There is no doubt that whenever a worker indulges in a misconduct such as a deliberate refusal to work the employer can take disciplinary action against him and impose on him the penalty prescribed for it which may include some deduction from his wages
However when miscon duct is not disputed but is on the other band  admitted and is resorted to on a mass scale such as when the employ ees go on strike legal or illegal there is no need to hold an inquiry
To insist on an inquiry even in such cases is to pervert the very object of the inquiry
In a mass action such as strike it is not possible to hold an inquiry against every employee nor is it necessary to do so unless of course an employee contends that although he did not want to go on strike and wanted to resume his duty he was pre vented from doing so by the other employees or that the employer did not give him proper assistance to resume his duty though he had asked for it
That was certainly not the situation in the present case in respect of any of the employees and that is not the contention of the employees either
It is true that in the present case when the employ ees came back to work after their four hours strike they were not prevented from entering the Bank premises
But admittedly their attendance after the four hours strike was useless because there was no work to do during the rest of the hours
It is for this reason that the Bank had made it clear in advance that if they went on strike for the four hours as threatened they would not be entitled to the wages for the whole day and hence they need not report for work thereafter Short of physically preventing the employ ees from resuming the work which it was unnecessary to do the Bank had done all hi its power to warn the employees of the consequences of their action and if the employees in spite of it chose to enter the Bank s premises where they had no work to do and in fact did not 216 do any they did so of their own choice and not according to the requirement of the service or at the direction of the Bank
In fact the direction was to the contrary
Hence the later resumption of work by the employees was not in fulfil ment of the contract of service or any obligation under it
The Bank was therefore not liable to pay either full day s salary or even the pro rata salary for the hours or work that the employees remained in the Bank premises without doing any work
It is not a mere presence of the workmen at the place of work but the work that they do according to the terms of the contract which constitutes the fulfilment of the contract of employment and for which they were entitled to be paid
222E H 223A F 12 Although the service regulations do not provide for a situation where employees on a mass scale resort to ab sence from duty for whole day or a part of the day whether during crucial hours or otherwise they do provide for treat ing an absence from duty of an individual employee as a misconduct and for taking appropriate action against him for such absence
224D E 21
When the contract Standing Orders or the service rules regulations are silent but enactment such as the payment of Wages Act providing for wage cuts for the absence from duty is applicable to the establishment concerned the wages can be deducted even under the provisions of such enactment
231F 22
The working class has indisputably earned the right to strike as an industrial action after a long struggle so much so that the relevant industrial legislation recognises it as their implied right
However the legislation also circumscribes this right by prescribing conditions under which alone its exercise may become legal
Whereas there fore a legal strike may not invite disciplinary proceed ings an illegal strike may do so it being a misconduct
However whether the strike is legal or illegal the workers are liable to lose wages for the period of strike
The liability to lose wages does not either make the strike illegal as a weapon or deprive the workers of it
When workers resort to it they do so knowing full well its consequences
During the period of strike the contract of employment continues but the workers withhold their labour
Consequently they cannot expect to be paid
232C E 23
The contract which is this case is monthly cannot be subdivided into days and hours
If the contract comes to an end amidst a month by death resignation or retirement of the employee he would not be entitled to the proportionate payment for the part of the month 217 he served
If the employment contract is held indivisible it will be so for both the parties
There is no difficulty inequity or impracticability in construing the contract as divisible into different periods such as days and hours for proportionate reimbursement or deduction of wages which is normally done in practice
232G H 233A 24
The contract of employment Standing Orders or the service rules provide for disciplinary proceedings for the lapse on the part of a particular individual or individuals when the misconduct is disputed
As things stand today they do not provide a remedy for mass misconduct which is admit ted or cannot be disputed
Hence to drive the management to hold disciplinary proceedings even in such cases is neither necessary nor proper
The service conditions are not expect ed to visualise and provide for all situations
When they are silent on unexpected eventualities the management should be deemed to have the requisite power to deal with them consistent with law and the other service conditions and to the extent it is reasonably necessary to do so
The pro rata deduction of wages is not an unreasonable exercise of power on such occasions
Whether on such occasions the wages are deductable at all and to what extent will howev er depend on the facts of each case
Although the employees may strike only for some hours but there is no work for the rest of the day as in the present case the employer may be justified in deducting salary for the whole day
On the other hand the employees may put in work after the strike hours and the employer may accept it or acquiense in it
In that case the employer may not be entitled to deduct wages at all or be entitled to deduct only for the hours of strike
If statutes such as the or the State enactments like the Shops and Establishments Act apply the employer may be justified in deducting wages under their provisions
Even if they do not apply nothing prevents the employer from taking guidance from the legisla tive wisdom contained in it to adopt measures on the lines outlined therein when the contract of employment is silent on the subject
233B F VT Khanzode  Ors
vs Reserve Bank of India  Anr   Paluru Ramkrishnaiah  Ors etc
vs Union of India  Anr
  and Senior Superin tendent of Post Office  Ors
vs lzhar Hussain   relied on
Buckingham and Carnatic Co Ltd vs Workers of the Buckingham and Carnatic Co Ltd   V Ganesan vs The State Bank of India  Ors  State Bank of India Canara Bank Central Bank etc
 Ors
vs Ganesan Jambunathan Venkatara 218 man BV Kamath VK Krishnamurthy etc
 Ors
  Sukumar Bandyopadhyyay  Ors
vs State of West Bengal  Ors 1976 IX LIC 1689 Algemene Bank Nederland NV vs Central Government Labour Court Calcutta  Ors 1978 II LLJ 117 V Ramachandran vs Indian Bank 1979 I LLJ 122 Dharam Singh Rajput  Ors
vs Bank of India Bombay  Ors
  R Rajamanickam for himself and on behalf of other Award Staff vs Indian Bank 1981 II LLJ 367 RN Shenoy  Anr etc
vs Central Bank of India  Ors
 1984 XVII LIC 1493 Prakash Chandra Johari vs Indian Overseas Bank  Anr 1986 II LLJ 496 Workmen of Ms Firestone Tyre  Rubber Co of India P Ltd vs Firestone Tyre  Rubber Co   Krishnatosh Das Gupta vs Union of India  Ors  Sant Ram Sharma vs State of Rajasthan  Anr   Roshan Lal Tandon vs Union of India   Secretary of State for Employment vs Associated Society of Locomotive Engineers and Firemen and Ors
No 2  Miles vs Wakefield Metropolitan District Council 1989 I LLJ 335 and Cutter vs Pwell 1795 6 TR 320 referred to
There cannot be two opinions that go slow is a serious misconduct being a covert and a more damaging breach of the contract of employment
It is an insidious method of undermining discipline and at the same time a crude device to defy the norms of work
It has been roundly condemned as an industrial action and has not been recognised as a legit imate weapon of the workmen to redress their grievances
In fact the model standing orders as well as the certified standing orders of most of the industrial establishments define it as a misconduct and provide for disciplinary action for it
Hence once it is proved
those guilty of it have to face the consequences which may include deduction of wages and even dismissal from service
237G H 238A 32
The proof of go slow particularly when it is disputed involves investigation into various aspects such as the nature of the process of production the stages of production and their relative importance the role of the workers engaged at each stage of production the pre produc tion activities and the facilities for production and the activities of the workmen connected therewith and their effect on production the factors hearing on the average production etc
The go slow further may be indulged in by an individual workman or only some workmen either in one sec tion or different sections or in one shift or both shifts affecting the output in varying degrees and to different extent depending upon the nature of product and the produc tive process
Even where it is admitted go slow may in some case present 219 difficulties in determining the actual or approximate loss for it may have repercussions on production after the go slow ceases which may be difficult to estimate
The deduc tion of wages for go slow may therefore present difficul ties which may not be easily resoluble
When therefore wages are sought to be deducted for breach of contract on account of go slow the quantum of deduction may become a bone of contention in most of the cases inevitably leading to an industrial dispute to he adjudicated by an independent machinery statutory or otherwise as the parties may resort to
The simplistic method of deducting uniform percentage of wages from the wages of all workmen calculated on the basis of the percentage fail in production compared to the normal or average production may not always be equitable
It is therefore necessary that in all cases where the factum of go slow andor the extent of the loss of production on account of it is disputed there should he a proper inquiry on charges which furnish particulars of the go slow and the loss of production on that account
The rules of natural justice require it and whether they have been followed or not will depend on the facts of each case
238B G 33
In the instant case there is a finding recorded by the Industrial Court that there was a go slow resorted to by the workmen resulting in loss of production during the said period
Since the said finding is not challenged it is not possible to interfere with it in this appeal
Though the appellant is justified in deducting wages for the said period in the facts and circumstances of the case it is directed that it will not deduct more than 5 per cent of the wages of the workmen for the month of July 1984 when they indulged in go slow tactics
239D F Ms Bharat Sugar Mills Ltd vs Shri Jai Singh  Ors  TS Kelwala  Ors
vs Bank of India  Ors and Apar Pvt Ltd vs
SR Samant  Ors 1980 II LLJ 344 referred to