LPA/16/2206 1/34 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD LETTERS PATENT APPEAL No. 1622 of 2006 In SPECIAL CIVIL APPLICATION No. 4887 of 2006 With LETTERS PATENT APPEAL No. 1012 of 2007 In MISC.CIVIL APPLICATION - FOR DIRECTION No. 270 of 2007 With CIVIL APPLICATION No. 13007 of 2007 In LETTERS PATENT APPEAL No. 1012 of 2007 With CIVIL APPLICATION No. 2203 of 2008 In LETTERS PATENT APPEAL No. 1012 of 2007 With CIVIL APPLICATION No. 14924 of 2006 In LETTERS PATENT APPEAL No. 1622 of 2006 For Approval and Signature: HONOURABLE THE CHIEF JUSTICE Y.R.MEENA HONOURABLE MR.JUSTICE J.C.UPADHYAYA ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ====================================== GAIL (INIDA) LTD & 1 - Appellant(s) Versus INDIAN PETROCHEMICALS CORPN LTD & 2 - Respondent(s) ====================================== LPA/16/2206 2/34 JUDGMENT Appearance : MR KB TRIVEDI, SR.ADVOCATE for M/S TRIVEDI & GUPTA for Appellant(s) : 1 - 2. MR KS NANAVATI, SR.ADVOCATE for NANAVATI ASSOCIATES for Respondent(s) : 1RULE SERVED for Respondent(s) : 2, RULE NOT RECD BACK for Respondent(s) : 3, ====================================== CORAM : HONOURABLE THE CHIEF JUSTICE Y.R.MEENA and HONOURABLE MR.JUSTICE J.C.UPADHYAYA Date : 17/06/2008 CAV COMMON JUDGMENT (Per : HONOURABLE MR.JUSTICE J.C.UPADHYAYA) 1. LPA No.1622/2006 is directed against the impugned order dated 19.09.2006 passed by the learned Single Judge in Special Civil Application No.4887/2006, and LPA No.1012/2007 is directed against the impugned order dated 11.04.2007 passed by the learned Single Judge in Misc.Civil Application – for direction No.270/2007 in Special Civil Application NO.4887/2006. In both these appeals, appellants herein are original respondents No.2 & 3 in Special Civil Application No.4887/2006, and the respondents No.2 & 3 herein are original petitioners, and respondent No.3 herein is original respondent No.1 in the aforesaid petition. 2. The respondents No.1 & 2 herein in both the appeals who are original petitioners in the petition (Indian Petrochemicals Corporation Ltd. –for convenience referred to as ‘IPCL’) filed the petition before the learned Single Judge under Article 226 of the Constitution of India, whereby they had challenged the action of the appellants herein, who were respondents No.2 & 3 in the petition (Gas Authority of India Ltd. for convenience referred to as LPA/16/2206 3/34 JUDGMENT ‘GAIL’) for incorporating clause in contract to pay transportation charges as the same is contrary to Government pricing orders dated 30.01.1987, 31.12.1991, 18.09.1997, 30.09.1997 and 20.06.2005. It is alleged by the IPCL that it is not liable to pay transportation charges or the price for supply of gas like HBJ (Hazira – Bijaipur – Jagdispur pipeline) consumers, who are using HBJ pipeline of the GAIL, since IPCL transports gas to its plant through its own pipeline from the ONGC Metering Station, and for getting the declaration that the clause for payment of transportation charges incorporated in the contract dated 09.11.2001 is unfair, unreasonable, unconscionable and opposed to the public policy, hence, violative of Article 14 of the Constitution of India as the contract was entered into with GAIL, who was monopolist and there was highly unequal bargaining power. The consequential relief was also prayed in the petition to direct the GAIL to refund the transportation charges paid pursuant to the same. 3. In the petition, the learned Single Judge held that the clause of term of contract, which compels IPCL to pay transportation charges is unfair, unreasonable, unconscionable, arbitrary and against the public policy and was quashed and set-aside. It was further held and declared that GAIL is not entitled to levy the transportation charges from the IPCL, much less under the heading and label of ‘loss of transportation charges’. Accordingly the petition was allowed by impugned judgment dated 19.09.2006. However, in the impugned judgment the learned Single Judge did not issue any direction regarding the refund of transportation charges paid pursuant to the contract, the IPCL filed Misc.Civil Application – for direction No.270/2007 in Special LPA/16/2206 4/34 JUDGMENT Civil Application No.4887/2006 for clarification /modification of the impugned judgment dated 19.09.2006 passed by the learned Single Judge in Special Civil Application No.4887/2006 and for getting direction upon GAIL for refund, mainly on the ground that disputed clause of contract between the IPCL and GAIL has been held as unfair, unreasonable, unconscionable, against the public policy and violative of Article 14 of the Constitution of India. The learned Single Judge by impugned order dated 11.04.2007 held that looking to the facts of the present case, refund order was required to be passed in Special Civil Application No.4887/2006, but the judgment is silent on the point of refund of transportation charges paid by the IPCL, the Misc.Civil Application was allowed, and the GAIL was directed to refund transportation charges paid by IPCL within a period of six weeks from the date of order and the Rule was made absolute accordingly. 4. In the result, as stated above, being aggrieved and dissatisfied with the impugned judgment dated 19.09.2006, and impugned order dated 11.04.2007 passed by the learned Single Judge, GAIL preferred these Letters Patent Appeals. 5. The learned Sr.Counsel Mr.K.B.Trivedi for GAIL seriously challenging the legality and validity of the impugned judgment dated 19.06.2007 passed by the learned Single Judge, vehemently submitted that the learned Single Judge committed serious illegalities and erred in passing the impugned judgment and ultimately coming to the conclusion that the clause of term of contract which compels IPCL to pay transportation charges is unfair, unconscionable, arbitrary and against the public policy and erred in quashing and setting aside the clause of the term of LPA/16/2206 5/34 JUDGMENT contract, and further observing that the GAIL is not entitled to levy the transportation charges from the IPCL. That in fact the petition was not tenable at law, mainly for the reason that there is an arbitration clause in the contract agreement. There is clause No.13 in the contract regarding the arbitration. It was further submitted that the IPCL had entered into a contract with wide open eyes despite the Price Control Order, 1997 was in existence. The contract was entered into on 09.11.2001. The price control order is of the year 1997, despite this fact the IPCL had agreed to make the payment of additional charges like transportation charges, over and above the prices under the price control order. After taking benefit under the contract, the clause of contract cannot be challenged by the IPCL. It is also contended that the GAIL is charging the transportation charges not because the gas is being transported, but because of loss of transportation, in the sense that if the gas would have been supplied to the consumer along HBJ pipeline, GAIL would have earned transportation charges. It was further contended that in a contract, where the parties have chosen their rights and liabilities, the Court would not entertain the writ petition under Article 227 of the Constitution of India. The GAIL has installed huge pipeline known as HBJ pipeline, which is having a length of more than 2000 kms. For maintenance of this pipeline, transportation charges have been levied. So far as price is concerned, the cost of gas received by GAIL from ONGC is transferred to IPCL. Thus, the price at which the gas is received from ONGC by GAIL, at the same price the gas is supplied to the IPCL, retaining only the transportation charges. Therefore, as loss of transportation charges, GAIL is levying the amount equal to transportation charges from the IPCL, irrespective of the fact whether the gas is actually transported through HBJ pipeline or LPA/16/2206 6/34 JUDGMENT not. That the question of unequal bargaining power does not arise, both IPCL and GAIL at the relevant time i.e. on the date of contract (09.11.2001) were Central Government undertaking, and therefore, there was no question of unequal bargaining power. That therefore, clause 10.01 read with 4.04 of the contract cannot be labeled as unfair, arbitrary and unconscionable. That the IPCL can get natural gas from other sellers also. It can choose a seller. Therefore, there is no question of monopoly of GAIL, and therefore, the term of contract cannot be challenged under Article 226 of the Constitution of India. It was submitted that in the impugned judgment, the learned Single Judge placed much reliance upon the case of Essar Steel Ltd. reported in 2006(1) GLR 436. But, the terms and conditions of the contract entered into between GAIL and Essar Steel Ltd. are totally different than the terms and conditions of the contract between GAIL and IPCL. That therefore, the case of Essar Steel Ltd. and that of IPCL cannot be said to be similar and comparable. That the price control order published by the Central Government is not because of any statute or law, and therefore, there is nothing like price control order much less having binding effect to the GAIL. As a matter of fact there is nothing in price control order that GAIL cannot charge transportation charges, and therefore, the term of contract cannot be said to be against public policy. It was further submitted that the learned Single Judge did not properly appreciate the ratio laid down in the case of Central Inland Water Transport Corporation Ltd. & Ors. V/s. Brojonath Ganguly & Ors. reported in (1986)3 SCC 156 in arriving at the conclusion that the contract dated 09.11.2001 was not between equal parties, as GAIL was holding monopoly in the field of natural gas and IPCL had no option but to abide by whatever terms and conditions settled by GAIL in the LPA/16/2206 7/34 JUDGMENT terms of contract. As a matter of fact, considering Brojonath Ganguly’s case (supra) it clearly transpires that the contract involved in the said case was service contract between a gigantic Corporation on one hand and a poor labourer on other hand. In paragraph 101 of the said Ruling, Hon’ble the Apex Court observed that “it is not possible for us to equate employees with goods, which can be bought and sold. It is equally not possible to equate a contract of employment with a mercantile transaction between two businessmen and much less to do so when the contract of employment is between a powerful employer and a weak employee”. That therefore the learned Single Judge erred in applying ratio laid down in the aforesaid ruling in the present case. 6. Learned Sr.Counsel Mr.Trivedi for GAIL further submitted that in the impugned judgment, the learned Single Judge did not pass any order pertaining to the refund, but, after the impugned judgment was delivered, IPCL preferred Misc.Civil Application – for direction No.270/2007 seeking clarification/modification of judgment dated 19.09.2006 passed by the learned Single Judge. By impugned order dated 11.04.2007, the learned Single Judge allowed the said Misc.Civil Application, and GAIL was directed to refund transportation charges paid by the IPCL within a period of six weeks from the date of order. That as a matter of fact, once the impugned judgment was delivered by the learned Single Judge, the learned Single Judge had become functus officio. That the said Misc.Civil Application itself was not maintainable in the eyes of law. Either review application can be filed or Letters Patent Appeal can be preferred by the IPCL. The learned Sr.Counsel Mr.Trivedi for GAIL further submitted that even if the refund may be given, it LPA/16/2206 8/34 JUDGMENT ought to be ordered only for last 3 years, and not beyond the period of limitation. That though the grant of refund would amount to unjust enrichment, as the IPCL did not produce any evidences showing that the burden of transportation charges was never passed on to its consumers by the IPCL. Learned Sr.Counsel for GAIL has relied upon several judgments which are enumerated as under:- (i) (1986)3 SCC 156 (ii) (1986)6 SCC 250 (iii) (1994)6 SCC 524 (iv) (1999)3 SCC 500 (v) (2004)12 SCC 713 (vi) (2005)3 SCC 738 The above decisions of Hon’ble Apex Court have been cited in support of the arguments on behalf of the GAIL, that though the Writ Court has powers to order refund, but those powers are to be sparingly used by the Courts, and the order of refund cannot be automatically passed, while allowing the writ petition. That even the order under challenge is quashed and set-aside,c being violative of any fundamental rights, yet the order of refund cannot be a resultant consequence. The petitioner shall have to show that the final burden borne out by the petitioner was not passed on to its consumers, and in case there is unjust enrichment, the refund order cannot be passed, and if at all it is required to be passed, then so far as Civil Court is concerned, the order can be passed only confining to the period of 3 years before the institution of suit, and the Writ Court while passing order of refund, the period of limitation shall be taken into consideration. That the correction of mistakes or errors in judgments should be of the mistake or omission, which is accidental and non-intentional and does not go to the merits of the case. LPA/16/2206 9/34 JUDGMENT 7. The learned Sr.Counsel Shri Trivedi further relied upon the following judgments which are enumerated as under:- (i) (2003)10 SCC 261 (ii) (1996)6 SCC 22 (iii) (2004)9 SCC 786 (iv) (2001)10 SCC 513(v) (v) (1977)3 SCC 457 (vi) (1981)1 SCC 537 (vii) (1970)1 SCC 189 (viii) AIR 1980 SC 738 The above judgments are relied upon regarding the scope and powers of High Court pertaining to judicial review in contractual filed and especially when the dispute involves voluminous factual aspects and requires fact finding inquiry. That what would be the approach of High Court in the matter, wherein the terms of the contract, favourable to the petitioners are not disputed by the petitioner, but, only dis-advantageous terms in a contract are challenged by the petitioner; That what would be the approach of High Court in highly belated claim and the petition suffers from delay and latches, especially when alternative remedy was available to the petitioner. 8. That what are the circumstances, when certain ordinance, directives etc. can be labeled violative of Article 14 of the Constitution of India. 9. Therefore, the learned Sr.Counsel Mr.Trivedi for the GAIL submitted that both the L.P.A.’s be allowed and the impugned judgment and the impugned order passed by the learned Single Judge be set-aside. 10. The learned Sr.Counsel Mr.K.S.Nanavati for the IPCL during the LPA/16/2206 10/34 JUDGMENT course of his arguments fully supported the impugned judgment and order passed by the learned Single Judge. It was submitted that the contract was entered into between the IPCL and GAIL on 09.11.2001 for supply of natural gas. GAIL was enjoying a position like monopolist so far as supply of natural gas was concerned. On the basis of assurance to supply of gas given by the Central Government, IPCL installed plant at Gandhar by investing a huge capital of approximately of Rs.4500/- Crores. That one of the conditions for supply of gas was that IPCL shall lay down its own pipeline from Hazira to Gandhar, the distance being approximately 97 kms. That the IPCL to lay down its own pipeline incurred huge expense approximately Rs.354 Crores. That IPCL was compelled by the Central Government to lay down its own pipeline and on that condition only, the contract was entered into and the gas was supplied by GAIL to the IPCL. That the pipeline laid down by the IPCL was laid down with the only intention that Company can be saved from incurring expenses of transportation charges of gas. That while receiving the gas, IPCL does not use even a single inch of HBJ pipeline laid down by GAIL. That even this fact is also admitted by GAIL that IPCL is not using at all the HBJ pipeline, installed by GAIL. That before the contract, as well as after the contract, by several letters, IPCL ventilated its grievances about the transportation charges. Several meetings were convened to resolve the dispute, but all were in vain. That there was no option, but to fall prey to the unreasonable, arbitrary, unfair term of contract, and therefore, such terms were incorporated in the contract and reduced in writing as clause No.10.01 and 4.04. The GAIL is enjoying a monopoly so far as supply of natural gas is concerned. Very few are the other persons who are supplying gas even as on today. Thus, highly imbalanced bargaining power was there LPA/16/2206 11/34 JUDGMENT between the petitioners and GAIL, and huge amount of approximately Rs.4500/- Crores public money was at stake and pipeline for transportation of the gas was laid down by the IPCL at the cost of approximately Rs.354 Crores, there was no option with IPCL, but to sign the contract. 11. Learned Sr.Counsel Mr.Nanavati for the IPCL further submitted that so far as fixing of price is concerned, it is in the hands of the Central Government. The price of the gas is being fixed by a separate order by the Central Government from time to time. Initially, ONGC was selling gas at a price which was dependent upon the need of the purchaser i.e. on the basis of demand and supply of gas. Thus, price of gas was varying, with the need. To avoid fluctuation of price of gas, Central Government published price order, which was made applicable all over the country. How much quantity of gas is to be supplied and to whom, is also in the hands of the Central Government. Thus, the quantity of gas and recipient of the gas are decided by the Central Government. The transportation charges have also been fixed by the Central Government for particular class of purchasers. To avoid any price fluctuation Pricing Control Order has been published by Central Government so that the purchaser can get the gas, at equal rate. That clause 10.01 r/w. 4.04 which compels the payment of transportation charge, is not only unfair and unconscionable, but, it is also violative of the Price Control Order issued by the Central Government. The Price Control Order fixes the price of the gas for the whole of the country, likewise it also fixes the transportation charges. If the gas is supplied through the pipeline of the GAIL, there is a fixed transportation charge at Rs.1150/MCM, whereas if the network of pipeline of GAIL is not to be utilized and if the gas LPA/16/2206 12/34 JUDGMENT is to be taken by the purchaser, at landfall point, then actual cost of the transportation is to be charged by the GAIL. The difference in these two types of consumers who are not using HBJ pipeline, which are known as non-HBJ consumers/Ex-Hazira consumer/landfall consumer is this that they shall not have to pay those fixed transportation charges. That the IPCL falls in the category of non-HBJ consumer/Ex-Hazira consumer/landfall consumer, and therefore, it is not liable to pay transportation charges at Rs.1150/MCM. That the Price Control Order makes a clear distinction between two classes of consumers, one who are using HBJ pipeline and the rest who are not using the pipeline. That the only difference between the two type of consumers is payment of Rs.1150/MCM and actual transportation. This distinguishing line has been wiped out by introducing clause 10.01 r/w. 4.04 of the contract. That the thing which cannot be done directly can never be done indirectly. The learned Sr.Counsel Mr.Nanavati contended that in the similarly situated case of Essar Steel Limited (supra), who had also their own pipeline, transportation charges were imposed upon it by the GAIL. The writ petition was filed bearing Special Civil Appln.No.3348/2001, which has been decided on 11.10.2005 in favour of the Essar Steel Limited to the effect that the GAIL cannot charge the transportation charges for the gas supplied through the pipeline of the Essar Steel Limited. That the facts of this case may not be similar with the facts of the present case, but so far as usage of pipeline is concerned, they are the same. Learned Sr.Counsel has relied upon following judgments:- (i) (1986)3 SCC 156 (ii) (1995)5 SCC 482 (iii) (2003)1 SCC 591 (iv) (1998)6 SCC 507 LPA/16/2206 13/34 JUDGMENT (v) AIR 1959 SC 149 (vi) (2003)2 SCC 107 (vii) (1991)2 SCC 48 (viii) (1974)1 SCC 317 (ix) (1999)7 SCC 89 From the aforesaid judgments, it is intended to convey by the IPCL that there cannot be a waiver of fundamental rights. Clause 10.01 r/w. 4.04 in the contract is violative of Article 14 of the Constitution of India. The said clauses are unfair, arbitrary, unconscionable and against the public policy. The contract was entered into with the monopolist, when huge investment of Rs.4500/- Crores was at stake. There is no delay in filing the petition looking to the constant pursuing the matter with the GAIL, which is evident from exchange of letters. Even after the contract, several representations were made and several meetings were held with GAIL, and even after the judgment of Essar Steel Ltd. (supra), there was a meeting, but no fruitful result was arrived at. It is also contended by the learned Sr.Counsel for the IPCL that GAIL had on earlier occasion tried to violate the Price Control Policy of the Government by imposing marketing margin charges, which was curbed by the Central Government in the initial stages itself. This type of levy of marketing margin charges was not allowed by the Central Government as it was found de hors the price fixing policy. That thus, under the guise of transportation charges or marketing margin charges or with any label whatsoever any additional charges made leviable, is de hors the public policy and Price Fixing Order. 12. Learned Sr.Counsel Mr.K.S.Nanavati submitted that no illegality is committed by the learned Single Judge while further clarifying the impugned judgment dated 19.09.2006 by allowing Misc.Civil LPA/16/2206 14/34 JUDGMENT Application – for direction No.270/2007 and passing consequential order of refund. That in the main petition itself, one of the prayers was regarding the refund, and as observed by the learned Single Judge in the impugned order, it was unintentional error on the part of the learned Single Judge that though the term of contract has been held as unfair, unreasonable, unconscionable, against the public policy and violative of Article 14 of the Constitution of India, and though there was a prayer in the petition, and though there was an argument canvassed by counsel for the IPCL, he has not passed the order of refund. It is clearly further observed in the impugned order that the omission or mistake is not such that it requires further arguments for grant of refund. That consequently relying upon the judgments delivered by Hon’ble Apex Court, the said application was allowed and the order of refund was passed. Therefore, in the result it is submitted that both the L.P.A.’s be rejected. 13. Having heard the learned Sr.Counsels for both the sides, and looking to the facts and circumstances of the case, it is clear that GAIL is creation of the Union of India. The objective of GAIL is transportation, distribution, marketing and supply of natural gas. Articles of Association of GAIL makes it abundantly clear that GAIL is bound by any decision, directives, instructions etc. from time to time issued by the Union of India. Thus, considering clause 93 and 127 etc. of the Articles of Association of GAIL, it reveals that there is a direct control of Union of India upon GAIL. The GAIL is an instrumentality of Union of India, and if there is an unfair, unreasonable and unconscionable term in a contract, writ petition is tenable at law under Article 226 of the Constitution of India. In the impugned judgment, the learned Single Judge has further LPA/16/2206 15/34 JUDGMENT observed that