Case: Oil &amp; Natural Gas Commission &amp; Another Vs. Association of Natural Gas Consuming Industries of Gujarat &amp; Others

for fixation of price. (vi)The High Court in its judgment has observed : "if the O. N. G. C. 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. V. K. R. V. Rao in his award. Nor did they put forward any other reasonable criteria for price fixation. All throughout they harped on the thermal equivalence and furnace oil equivalence and the prices in U. S. A. 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 unreasonableness on their part and we would say that Mr. Singhvi was justified in complaining that the return filed by the O. N. G. C. 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 equivalence basis and this has not been controverted or found against. It was the 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 figures 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 now 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 rational norms". We do not also see any justification for providing 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 requirement of a prior consultation with the present respondents or with prospective customers. In such cases of price fixation, as in the case of price fixations by Government the only remedy of aggrieved consumers can perhaps be to have some sort of post-decisional reconsideration by the ONGC after hearing the view points of those affected. But this question does not arise now in the view we have taken of the ONGCs obligations in this regard. We should also like to add that, now that the prices have been fixed, by the Government since 30-1-1987 and gas has already been supplied to the respondents till then on the basis of interim prices, the implementation 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 hearing both parties. In fact, Sri B. 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 reasonable. We also suggested to the respondents, keeping the price fixed by the order dated 30-3-1987 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. 14. 35 crores is outstanding for the period from December, 198 2/08/1989 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 short falls 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 beat 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 30-1-87 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. ( 41 ) THIS concludes a discussion of all the points urged before us. For the reasons detailed above,

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]( 22 ) WE do not think that ONGC satisfies the primary conditions enunciated above for being a public utility undertaking 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. 14 (l) (e) 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 Governments 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 envisaged as a future expansion to be initiated with Central Governments approval. Perhaps a stage in the developmental activities of the ONGC will soon come when such an obligation 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 shall now touch upon( 23 ) THE main activity of the ONGC is that of exploration and prospecting for petroleum and petroleum products. So far 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 utilisation 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 S. 23 of the Act any programme of sale of natural gas to the public generally or even to some categories of public consumers. There is. no doubt that the expansion 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 individual contracts and it is in regard to these consumers alone that the question of price has been raised before us( 24 ) 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 continuance of the present system followed by the ONGC of supplying gas to select customers on the basis of contracts- entered into with them. They only want the price to be regulated 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 domestic supply; at its sweet will and pleasure. It would then be opea 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 respondents, merely because they had entered into temporary contracts 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 persons 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 undertakingWe do not think that any of these observations is in conflict with what we have said. Pure profit motive, unjustifiable 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 profits sake but for the purpose of fulfilling, better and more extensively, the obligation of the services expected of it, it cannot be said that the public enterprise acted beyond its authority. The observations in the first case which were referred to us merely emphasised the fact that the Electricity Board is not an ordinary trading corporation and that as a public, utility undertaking its emphasis should be on service and not profit. 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, :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. ( 37 ) WE are not called upon here, in the view we take, to decide whether the cost plus basis or the thermal equivalence 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 operation. As we said earlier, and 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 contracts. Whether this is any longer justified and whether there should riot 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 manufacturers choice, but yet where such manufacturer being a State instrumentality, has to conform to Articles 14 and 19 of the Constitution.