1 WP3748.11.doc ast IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 3748 OF 2011 1. Welspun Maxsteel Limited, ) Public Company incorporated ) under the provisions of the ) Companies Act, 1956 and having ) its registered office at Welspun City, ) Village Versamedi, Taluka Anjaar, ) District Kutch, Gujarat and its ) Mumbai office at Welspun House, ) 7th Floor, Kamala Mill Compound, ) Senapati Bapat Marg, Lower Parel (W), ) Mumbai 400 013. ) ) 2. Ispat Industries Limited, a public ) company incorporated under the ) provisions of the Companies Act, 1956 ) and having its registered office at Park ) Plaza, 71, Park Street, ) Kolkata – 700 016 and also having ) its Corporate Office at 7th Floor, ) Nirmal, Nariman Point, ) Mumbai – 400 001. ) .. Petitioners. vs 1. Union of India, through the Secretary, ) Ministry of Petroleum and Natural Gas, ) Shastri Bhawan, New Delhi – 110 001. ) ) 2. Reliance Industries Ltd., a company ) incorporated under the provisions of the ) Companies Act, 1956 and having its ) registered office at Maker Chambers IV, ) 3rd Floor, 222, Nariman Point, ) Mumbai - 400 021. ) ) 3. NIKO (NECO) Ltd., a company ) incorporated under the laws of ) 2 WP3748.11.doc Cayman Islands with its registered ) office at Century Yard, Cricket Square, ) Hutchins Drive, Georgetown, Grand ) Cayman BWI, and its Indian office at ) Dynasty Business Park, 308 – 309, ) A Wing, 58, Andheri- Kurla Road, ) Andheri East, Mumbai – 400 069. ) ) 4. NTPC Limited (A Government of India ) Enterprises) a company incorporated ) under the Companies Act, 1956 having ) Its Registered office at NTPC Bhawan, ) SCOPE Complex, Lodi Road, ) New Delhi 110 003. ) ) 5. GMR Energy Limited, a Company ) incorporated under the provisions of ) the Companies Act, 1956 and having ) its registered address at Skip House, ) 25/1, Musuem Road, Bangalore, ) Karnataka – 560 025. ) ) 6. GMR Vemagiri Power Generation ) Limited, a Company incorporated ) under the provisions of the Companies ) Act, 1956 and having its registered ) Address at Skip House, 25/1 Museum ) Road, Bangalore, Karnataka 560 025. ) ) 7. Konaseema Gas Limited. ) a Company incorporated under the ) Companies Act, 1956, having its offices ) at 6-2-913/914, 2nd floor, Progressive ) Towers, Khairatabad, ) Hyderabad- 500004 Andhra Pradesh ) ) 8. Ratnagiri Gas & Power Pvt.Ltd. ) At & Post – Anjanwel, Tal : Guhagar, ) Dist. Ratnagiri, Maharashtra – 415 703. ) ) 9. Lanco Kondapalli Power Limited, ) Lanco House, Plot No. 4, Software ) Units Layout, Hitec City, Madhapur, ) 3 WP3748.11.doc Hyderabad – 500 081. ) ) 10. Fertilizer Association of India ) a Company registered under section 26 ) of the Indian Companies Act 1913 ) (corresponding to section 25 of the ) Companies Act, 1956), and having its ) registered office at 10, Shahidjit Singh ) Marg, New Delhi 110 067. ) .. Respondents. Mr. Janak Dwarkadas, Sr. Advocate, Mr. Sharan Jagtiani, Mr. Kunal Vajani, Mr. Ankit Virmani, Mr. H. Vaswani, i/b. M/s. Wadia Ghandy & Co. advocates for petitioners. Mr. Kevin Setalwad a/w. Mr. Jay K. Bhatia, advocate for respondent No.1(UOI). Mr. Milind Sathe, Sr. Advocate i/b. M/s. A.S. Dayal & Associates, advocates for respondent No. 2. Mr. Luckyraj Indorkar a/w. Mr. Ranjit Shetty i/b. M/s. Hariyani & Co. for respondent No.3. Mr. V.R.Dhond a/w. Mr. S.V.Doijode and Ms. Priyanka C. Kothari i/b. Doijode & Associates, advocate for Respondent No.4. Mr. Zubin Behramkamdin a/w Ms. Anuradha Agnohotri and Mr. M. P. Bharucha i/b. M/s. Bharucha & Partners for respondent Nos. 5 and 6. Mr. Dhavan i/b. M/s. Bilawala & Co. advocates for respondent No. 7. Mr. Pradeep Rajagopal i/b Ms. Rekha Rajagopal, advocate for respondent No. 8. Mr. J.J. Bhat, Sr. Advocate a/w Mr. Vatsal Shah i/b. Naik Naik & Co., advocates for respondent No.9. Mr. Bomi Patel a/w Ms. Prachi Raj Mhatre a/w Mr. Rajesh Dubey i/b. M/s. Bodhanwala & Co. advocates for respondent No.10. 4 WP3748.11.doc CORAM: MOHIT S. SHAH, C. J. AND GIRISH GODBOLE, J Judgment Reserved on 22 June 2011 Judgment Pronounced on 8 July 2011 JUDGMENT (Per Girish Godbole, J) Rule. Since pleadings are completed, by consent of parties, rule made returnable forthwith and the petition is taken up for final hearing and heard finally. 2. By the present writ petition filed under Article 226 of the Constitution of India, initially the petitioners had sought the following substantive reliefs vide prayers (a) and (b) :- “a. issue a writ, order or direction in the nature of certiorari calling for the records pertaining to the directives issued by Respondent No. 1 to Respondent Nos. 2 and 3 vide letters dated March 30, 2011 and April 21, 2011 [hereinafter referred to as the “Impugned Directives”] and after examining the legality and validity thereof, be pleased to quash the impugned Directives; b. issue a writ, order or direction in the nature of mandamus directing Respondent No. 1 to conduct an exhaustive investigation into the affairs of Respondent Nos. 2 and 3 in respect of the extraction of natural gas from the KG D6 fields and to issue appropriate directions to ensure that the maximum production levels from the KG D6 fields are attained;” 3. The impugned directives issued by the respondent No.1 Union of India through its Ministry of Petroleum and Natural Gas (hereinafter referred to as Ministry of P & NG) are contained in the letters dated 30th March, 2011 and 12th April, 2011 being Exh.A to the writ petition whereby the respondent No. 1 issued directives to 5 WP3748.11.doc the respondent no. 2 Reliance Industries Limited and Respondent No.3 NIKO (NECO) Limited regarding supply of Compressed Natural Gas (CNG); thereby modifying the directions contained in the earlier letter of Ministry of P & NG dated 12th July, 2010. The said letter dated 30th March, 2011 reads thus: “No.L-12011/2/2011-GP -1 Government of India Ministry of Petroleum & Natural Gas Shastri Bhawan, New Delhi 30th March 2011 To, (i) M/s Reliance Industries Ltd (ii) M/s Niko (NECO) Ltd Subject: Cuts in supply of KG D6 gas Please refer Ministry's letter No.L-12013/3/2010-GP dated 12.07.2010, wherein it has been directed inter alia that “on the days that KG D6 production is not sufficient to cater to all the customers with firm allocations, pro rata cuts should be imposed on all firm customers”. 2. Subsequently, there has been significant reduction in the production of natural gas from KG DA fields which has led to substantial cuts being imposed on customers. Reduction in supply of natural gas to fertilizer plants has subsidy implications. Reduced supply of natural gas to power plants affects to LPG and CGD entities (for domestic & transport) directly benefits large number of people across the country. 3. Hence, in modification of the direction mentioned in para 1 above, supply to fertilizers, LPG, power and CGD (domestic and transport) sectors apart from gas needed for operation of EWPL, should be entirely met up to the firm allocations. In case gas availability is insufficient to meet the firm demand of these four sectors, cuts may be applied in the following order: CGD (domestic and transport), power, LPG, fertilizers. In view of the reduction in KG D^ production, if there is a shortfall in meeting the firm demand of the remaining sectors, pro rata cuts should be imposed on the same. 6 WP3748.11.doc Yours faithfully, Sd/- (Manu Srivastava) Director (GP) Tel: 23381029 Copy to: 1. Secretary, Department of Fertilizers, Shastri Bhawan, New Delhi - w.r.t.a O.M. No. 12014/2009-FPP dated 19.1.2011 2. Secretary, Ministry of Power, Shram Shakti Bhavan, New Delhi.” 4. In response to the letter dated 11th April, 2011 sent by respondent No. 2 RIL to the Ministry of P & NG seeking certain clarifications and directions in respect of the aforesaid letter dated 30th March, 2011, the respondent No. 1 has sent another letter dated 21st April, 2011 addressed to the respondent Nos. 2 and 3 which reads thus: “No.L-12011/2/2011-GP-1 Government of India Ministry of Petroleum & Natural Gas ... Shastri Bhavan, New Delhi Date: 21st April, 2011 To, (i) M/s Reliance Industries Ltd. (ii) M/s Niko (NECO) Ltd. Subject: Cuts in supply of KG D6 gas. Sir, 7 WP3748.11.doc Please refer your letter No. RIL/GAS MKTG/MoPNG/11/04 dated 11.4.2011 wherein it has been stated inter alia that the implications of implementation of disproportionate cuts need to be appropriately addressed. 2. Under the Government's Gas Utilization Policy, allocations for KG D6 fields had initially been made for core sectors and subsequently, taking into account expectation of higher production, allocations had been made for non-core sectors. As the gas production from KG D6 fields has decreased to around 50 mmscmd, it is only natural that the said production be supplied firstly to core sectors and Ministry's direction vide letter of even number dated 30.3.23011 has been issued in this context. The said direction has been issued in pursuance of Government's Gas Utilization Policy under the provisions of the PSC. Hence, the said direction needs to be complied with. 3. The Hon'ble Supreme Court in its order dated 7.5.2010 in the RIL and RNRL case has held that the Government owns the gas till it reaches its ultimate consumer. Further, it has been held that the PSC shall override any other contractual obligation between the contractor and any other party. Yours faithfully, Sd/- (Manu Srivastava) Director (GP) Tel.: 23381029 Copy to: 1. Secretary, Department of Fertilizers,) w.r.t. MoPNG’s Shastri Bhawan, New Delhi. ) letter of even 2. Secretary, Ministry of Power, ) number dated 30th Shram Shakti Bhawan, New Delhi. ) March, 2011. 3. Secretary, Ministry of Steel, Uhoyag Bhawan, New Delhi. 4. Secretary Deptt of Chemical & Petrochemical, Shastri Bhawan, New Delhi. Copy also forwarded to:- As per list enclosed.” 5. In view of the aforesaid directives of the respondent No. 1, the respondent No. 2 in turn addressed letter dated 4th May, 2011 to the petitioners in respect of Gas Sales and Purchase Agreement 8 WP3748.11.doc (GSPA, for short) being Exh. CC to the Petition, informing the petitioners that with effect from 06.00 hours on 9th May, 2011 the available quantities of gas will be apportioned in accordance with the directions of the Government contained in letters dated 30th March, 2011 and 21st April, 2011. 6. Present petition was thereafter filed on 6th May, 2011 and was moved for urgent reliefs before the Division Bench of this Court. The Division Bench expressed prima facie view that a meeting needs to be arranged between the petitioners and the respondent no. 1 to sort out the question of allocation of gas to core sectors and other industries. By subsequent order dated 9th May, 2011 passed in the writ petition it was directed as under: “CORAM- MRS.MRIDULA BHATKAR AND R.G.KETKAR,JJ DATE - 9th MAY, 2011 P.C. Pursuant to the order dated 6th May, 2011, especially the directions given in paragraph 5 of the said order, the parties are before us. 2. The petitioners agree to go before respondent no.1 who is going to hear the grievance of the petitioners and will take the decision. 3. Learned counsel for respondent no.1 states that on 11th May, 2011 the Jt. Secretary or Additional Secretary, Ministry of Petroleum and Natural Gas will hear the petitioners and other respondents. Respondent no.1 after hearing them on 11th May, 2011 will take the decision in this matter on or before 18th May 2011. Respondent no.1 undertakes to communicate the said decision to the petitioners on or before 19th May, 2011. 9 WP3748.11.doc 4. This arrangement is made without prejudice to the rights and contentions of the parties. 5. Learned counsel for respondent no.1 submits that other industries are also affected due to the change in allocation of natural gas and, therefore, they shall hear the other aggrieved parties also on 11th May, 2011. By consent list this petition on 23rd May, 2011.” 7. Accordingly the Joint Secretary to Ministry of P & NG of respondent no.1 granted hearing to the petitioners and other industries/affected parties on 11th May, 2011 and the list of various parties who participated in the said hearing indicates that apart from the petitioners and Essar Steel Limited which is also a sponge iron manufacturer similarly situated as the petitioners; the respondent Nos. 2 to 10 herein and GAIL (India) Limited also attended hearing. Apart from the oral hearing, the petitioner No.1 also filed written submissions/arguments before the Joint Secretary to the Government of India who had heard the parties. 8. On 18th May, 2011, Shri. Apurva Chandra, Joint Secretary to the Government of India, Ministry of P & NG passed a detailed order after considering the contentions of all the parties and the decisions of the Empowered Group of Ministers (EGOM) dated 28th May, 2008 and other subsequent decisions. The Joint Secretary overruled objections of the petitioners and it was held that on 10 WP3748.11.doc account of the shortfall of CNG production in Krishna-Godavari Basin Gas Field No. D6 namely, KG D6 production, the directives contained in the letter dated 30th March, 2011 and 21st April, 2011 were issued in larger public interest. Final conclusion drawn by the Joint Secretary and the operative order can be culled out from the said order, which reads thus: “6.9 Ministry's directions is in furtherance of EGOM's decisions and has been issued to ensure higher supply to those customers who were given high priority by the EGOM in its allocation decisions. In view of the recent shortfall in KG D6 production, the Contractor has been directed vide Ministry's letter dated 30th March 2011 & subsequently dated 21st April 2011, to supply KG D6 gas in full to fertilizers, LPG, power and CGD (domestic and transport) sectors, apart from gas needed for pipeline operation in larger public interest. If there is a shortfall in meeting the firm demand of the remaining sectors pro rata cuts should be imposed on them. It is also made clear that if production from KG D6 fields increases, then the supply to various non-core customers would also increase. So the supply is fully dependent on production. 7. In view of the above facts and the fact that production from KG D6 fields is presently below expectation, the supply of non core sector on whom cut has been imposed cannot be restored at the cost of the core sector.” 9. After the petitioners were served with the aforesaid order dated 18th May, 2011, on an oral application seeking leave to amend the writ petition and challenge the aforesaid order dated 18th May, 2011; by our order dated 9th June, 2011 the petitioners were granted such leave and accordingly, the petitioners have amended the writ petition and have challenged the order dated 18th May, 2011 vide prayer clause (ba) which reads thus: ba. a writ, order or direction from this Hon'ble Court in the nature of 11 WP3748.11.doc certiorari calling for the records pertaining to the impugned Order dated 18th May 2011 passed by Respondent No.1 annexed hereto as Exhibit A-1, pursuant to the hearing held by Respondent No. 1 on 11th May, 2011 and after examining the validity thereof setting aside the impugned order. 10. Various power producers using CNG had filed Civil Application Nos. 1097/11, 1102/11, 1139/11, 1141/11 and 1243/11 for impleadment/intervention and by our order dated 9th June, 2011, the said civil applications were allowed and the said power producers have been impleaded as respondent Nos. 4 to 9. Similarly, the Civil Application No.1244 of 2011 filed by Fertilizer Association of India for being impleaded as party respondent has also been allowed by us by a separate order passed on 22nd June, 2011 and the said Association has been added as 10th respondent. We are informed that Essar Steel Limited has filed a petition in Delhi High Court and the same is pending. 11. Briefly stated the case of the petitioners as pleaded in the petition is as under: (a) Both the petitioners are public limited companies and are running sponge iron plants using CNG as feed stock. The petitioner No. 1 runs its plant at Salav, Maharashtra employing about 1,050 people, the petitioner No. 2 is an integrated steel manufacturer and has two manufacturing units of sponge iron plants, one at Dolvi in 12 WP3748.11.doc Raigad District and other at Kalmeshwar near Nagpur and employs about 6000 people. Both petitioners contribute substantial amount to the State and Central Government exchequers in form of taxes. (b) Respondent Nos. 2 and 3 have entered into a PSC dated 12th April, 2000 with respondent No. 1 for extraction of natural gas from KG D6 fields and subsequently entered into Joint Operating Agreement dated 4th October, 2002. The petitioners were being supplied CNG by GAIL and had been allocated 0.90 million standard cubic meters per day (mmscmd, for short) for petitioner No. 1 and 1.35 mmscmd for petitioner No. 2. Subsequently, on account of reduction in the supply of CNG, the supply of petitioner Nos. 1 and 2 was reduced to 0.240 mmscmd and 0.75 mmscmd respectively. On 25/6/2008 the respondent No.1 issued a press note containing the decisions taken by the EGOMs in its meeting dated 28/5/2008. (A detailed reference to the said EGOM minutes and the minutes of the subsequent meetings of EGOMs dated 23/10/2008, 8/1/2009 and 27/10/2009 and the relevant press notes would be made in greater detail at a later stage.) In the press note dated 25/6/2008, guidelines for supply of CNG and order of priority was prescribed and the contractors had marketing freedom in respect of supply of CNG to consumers subject to priorities in the guidelines. The said guidelines were applicable for 5 years. By another press 13 WP3748.11.doc note issued on the basis of the EGOMs meeting dated 23/10/2008 titled as “Decision Regarding Pricing and Commercial Utilization of Natural Gas Under New Exploration Licencing Policy”, various decisions were announced. By clause 10 of the said press note it was provided as under : “10. It has been decided to give priority to the existing natural gas based sponge iron/steel plants after the sectors prioritized earlier. However, the supply would be made from the production beyond the first 40 mmscmd to be produced from RIL's KG-D6 field. By subsequent EGOMs meeting held on 8/1/2009 certain further decisions were taken by the EGOMs. According to the petitioners while confirming the prioritization of the core sectors as decided in its earlier meeting, a decision was taken to give priority for supply of CNG to priority sectors only from the first 40 mmscmd of gas produced from RIL KG D6 field. (c) The Ministry of Steel thereafter assessed the gas requirements of sponge iron / steel plants and issued an office memorandum dated 12th May, 2009 (Exh. D) by which the requirement of CNG for petitioner Nos. 1 and 2 was estimated to be 0.4 mmscmd and 0.59 mmscmd respectively. The Ministry of P & NG thereafter issued letter dated 12th June, 2009 to the respondent Nos. 2 and 3 and the petitioner No. 1 was allotted 0.36 mmscmd, the petitioner No. 2 was allotted 0.53 mmscmd and Essar Steel was allotted 2.86 mmscmd. The petitioners were thereafter directed to 14 WP3748.11.doc enter into GSPAs with respondent Nos. 2 and 3 and accordingly, the respondent Nos. 2 and 3 entered into Gas Sale and Purchase Agreements (GSPAs) dated 24/6/2009 and 22/6/2009 with the petitioner Nos. 1 and 2 respectively. The respondent No.1 thereafter issued another press note dated 16th November, 2009 and policy decision taken by the EGOMs in its meeting dated 27th October, 2009 regarding commercial utilization of gas produced under NELP were published. Along with the said press note a chart showing the allocations to various sectors was also published and the steel sector was given a firm allocation of 4.19 mmscmd. (d) The respondent No. 1 thereafter issued a letter dt. 19th November, 2009, Exh. J to the petition, to the respondent Nos. 2 and 3 contractors and a firm allocation of KG D6 gas was made to the petitioners and M/s. Essar Steel. Based on the above letter, the GSPAs executed between the petitioners and respondent Nos. 2 and 3 were suitably amended. The petitioner No. 1 thereafter made representation to the Ministry of Steel for increasing the allocation, whereupon the Ministry of Steel issued Office Memorandum dated 16/1/2010 suggesting that an additional 0.13 mmscmd should be allotted to the petitioners. The petitioner No.1 thereafter made representations for increase in supply of gas, but there was no response from the Ministry of P & NG. As a result of which, 15 WP3748.11.doc according to the petitioners, the petitioner No. 1 was forced to procure expensive gas on spot basis, which is popularly known as RLNG (Regasified Liquefied Natural Gas). The petitioner No. 1 also installed oxygen injection system in its plant. Respondent No. 1 thereafter issued letter dated 12/7/2010 to respondent Nos. 2 and 3 directing them to impose pro rata cuts on all firm customers on the days that KG D6 production is not sufficient to cater to all the customers. The respondent No. 1 thereafter sent a proposal to the Petitioner No. 1 by its letter dated 29th October, 2010 for replacing the supply from KG D6 field by supply from ONGC and the petitioner No. 1 gave a favourable response to the said proposal. From January, 2011 onwards, on account of substantial reduction in the supply of CNG, the petitioner No. 2 addressed several letters. Ultimately, the respondent No.1 issued the impugned directives contained in the letter dated 30th March, 2011 modifying the earlier directions contained in the letter dated 12/7/2010. Representations dated 31st March, 2011 and dated 7th April, 2011 were made by the Sponge Iron Manufacturers’ Association against the said cuts. However impugned letter dated 21st April, 2011 was issued by the respondent No.1 directing the respondent Nos. 2 and 3 to implement the directives. (e) That the order dated 18th May, 2011, violates the guidelines 16 WP3748.11.doc fixed by the EGOM to the effect that the priority is given to the core sector only for the first 40 mmscmd out put from KG D6 field and in respect of production in excess of 40 mmscmd the priority should be given to the gas based steel plants and the impugned decision of the Ministry of P & NG is contrary to the decision of EGOMs. That the impugned order dated 18th May, 2011 is manifestly arbitrary. No cogent reasons have been given. It is untenable being based on completely extraneous and irrelevant grounds. That the reasons for giving priority to core sectors vis-a-vis non core sectors are not only unreasonable and illegal but are not even reasons which have accrued subsequent to the EGOMs decisions. It is therefore, pleaded that the respondent No. 1 is virtually sitting in appeal over the decisions of the EGOMs and the impugned order suffers from non application of mind. 12. An Affidavit In Reply has been filed by Shri K.K.Sharma, Under Secretary to the Government of India in the Ministry of P & NG giving particulars of the various decisions taken by EGOM regarding GSPA and the Production Sharing Contract (PSC). An objection regarding maintainability of the writ petition has also been raised by relying upon the provisions of clause 26 (b) (ii) of the GSPA executed between the petitioners and the respondent Nos. 2 17 WP3748.11.doc and 3 and it is contended that since the said agreement contains an arbitration clause, the writ petition is not maintainable on account of existence of an alternate remedy. Charts showing gradual decrease in the production of CNG from KG-D6 field from December, 2010 till 30th May, 2011 and the particulars of distribution are annexed to the said affidavit as Annexure R-1 to R-6 (to which reference would be made at a later stage). Reliance has been placed