Case: Essar Steel Ltd Vs. Union Of India

India purchases natural gas from Gulf countries. Since gas in large quantities cannot be feasibly transported by pipelines across countries, before such gas is transported, it is liquefied and thereafter shipped to India. This liquefied gas is known as Liquefied Natural Gas (hereinafter referred to as "LNG"). Once this liquefied gas reaches India, it is converted into gas again. This is known as Regasified Liquefied Natural Gas (hereinafter referred to as "RLNG").In the instant case, Ras Laffin Natural Gas Company Limited, Qatar (hereinafter referred to as "RasGas") sold LNG to Petronet LNG Limited (hereinafter referred to as "Petronet"), an Indian company, which was set up as a Joint venture between the Government of India and the key players in the LNG market like Oil and Natural Gas Corporation (hereinafter referred to as "ONGC"), Indian Oil Corporation Limited (hereinafter referred to as "IOCL") and Bharat Petroleum Corporation Limited (hereinafter referred to as "BPCL"). This was done under a Sale Purchase Agreement entered in July, 1999 for a period of 25 years.3. Petronet sold the resultant LNG to companies like BPCL, IOCL and GAIL. They in turn, sold it to customers like Essar Steel, which is the appellant in Civil Appeal No. 4610 of 2009.4. In the immediate context of the present appeals, Essar Steel signed contracts with IOCL, BPCL and GSPCL for purchase of RLNG at a fixed price. The price was fixed upto the date 31.12.2008. The Gas Supply Agreements were for the supply of 5 million metric tonnes per annum (MMTPA) at a fixed price of US $ 2.9412 per million metric british thermal unit (MMBTU).5. On 06.03.2007, the Central Government issued the impugned policy directive to Petronet in the followingThe question of prices to be charged for RLNG from different customers has been under consideration of the Government. After considering existing practices and to avoid loading high cost of additional RLNG being made available to the prospective customers, it has been decided, after examination of all aspects, in public interest, that the gas prices being charged on supply of RLNG procured under long term contracts should be on a non discriminatory basis and uniform pooled prices should be charged for all the existing and new customers.2. You are advised accordingly and requested to give effect to the sameletter was authenticated by the Under Secretary to the Government of India.6. In pursuant to the above communication dated 06.03.2007, letters dated 19.03.2007 and 12.04.2007 were sent from IOCL, BPCL and GAIL to Essar Steel, informing it that in view of the policy decision of the Government to pool RLNG prices, the price of gas under the contract would be revised and increased from Rs. 135 per MMBTU to Rs. 207.02 MMBTU.7. Aggrieved, the appellant filed Writ Petition No. 5098 of 2007 before the High Court of Delhi, challenging the impugned policy decision and the consequent action of IOCL, BPCL, GAIL and GSPCL in unilaterally increasing the price of RLNG w.e.f. 01.08.2007, is in contravention of the gas supply contracts which clearly stipulate the fixed price of US $ 2.93 per MMBTU of RLNG. Certain other appellants had also filed Writ Petitions before the High Court of Gujarat urging various legal grounds questioning the legality of the impugned policy decisions and the communications received by them. In pursuant to which, the High Court passed an interim order granting stay of the operation of the impugned policy decision. A Transfer Petition No. 513 of 2007 was filed before this Court seeking for transfer of Writ Petition No. 5098 of 2007 from the High Court of Delhi to the Gujarat High Court. Vide order dated 22.08.2007, this Court vacated the stay operating on the impugned policy decision and transferred the Writ Petition No. 5098 of 2007 from Delhi High Court to Gujarat High Court and directed the Division Bench of the Gujarat High Court to hear the batch of Writ Petitions. The judges of the Division Bench could not concur on the opinion and vide order dated 28.09.2007, referred the matter to a third judge. Vide order dated 12.10.2007, the single judge opined not to grant any interim relief in favour of the appellants in their writ petitions. The Chief Justice of the Gujarat High Court rejected the prayer of the appellants for stay of the operation of the impugned policy vide order dated 17.10.2007. The appellants challenged the correctness of the said order before this Court by way of filing SLP (C) Nos. 21397-99 of 2007. This Court vide its order dated 26.02.2008 directed the High Court of Gujarat to list the Writ Petitions for final hearing before a Three Judge bench. Vide impugned judgment and order dated 16.05.2008, by a majority of 2:1, the High Court upheld the impugned policy decision dated 06.03.2007 and dismissed the Writ Petition filed by the appellant. The majority judgment opined asof India, by Empowered Group of Ministers with advise of experts and Secretaries of various departments of Union of India, has taken the decision of pooling of price of Regasified Liquefied Natural Gas, on non-discriminatory basis and thereby has put under one denomination, consumers of long term contracts and future consumers. Parties to the contract cannot bind Union of India (third party) by terms of contract...Policy of Union of India is not bound by contractual terms of two private parties, on the contrary, contractual terms will be subject to policy decision by Union of India......As a cumulative effect of the aforesaid facts, reasons and judicial pronouncement, the impugned decision taken by the Union of India dated 06.03.2007, is a policy decision for pooling price of Regasified Liquefied Natural Gas. Union of India is competent to take this policy decision and the same is neither arbitrary, nor it is unjust, nor violative of fundamental rights, nor violative of constitutional rights nor the same is violative of statutory rights of the petitioners and the petitioners have failed to establish that they have borne the burden of increase in price of Regasified Liquefied Natural Gas without passing the same to their further consumers, hence, are not entitle to refund. For getting refund, the aforesaid aspect ought to be established by the petitioners, on the basis of evidence on record, either in the suit or in the arbitration. There is no substance in these petitions, and, therefore, all these petitions are herebythe present appeals.

Reasoning: though price fixing is a legislative function; the same can be delegated and can be fixed by way of executive orders as well. In the instant case, the policy decision dated 06.03.2007 has been taken after detailed communication between the then Minister of Petroleum and Natural Gas, as well as the then heads of IOCL, BPCL, ONGC, GAIL and Petronet. The impugned policy decision dated 06.03.2007 has also been duly authenticated by the Under Secretary to the Government of India, which is well within the powers conferred on the Under Secretary under the Business Transaction Rules,a strong contention urged by the learned senior counsel for the appellants that the policy is for the benefit of one entity (RGPPL), the appellants have not present any evidence to show that they have been discriminated against, as the policy has been applied for all players across the board, as far as long term contracts are concerned. Nothing has been brought on record to show that the said decision is arbitrary, mala fide, unreasonable or taken after non application of mind. On the contrary, the documents produced on record by the respondents, which is the back and forth of communication and minutes of meetings between Ministers in Qatar and India, as well Secretaries of the Government and the representatives of IOCL, BPCL, GAIL, ONGC and Petronet, would clearly show that the impugned decision dated 06.03.2007 was taken after due deliberation and exploring all other possible alternatives to reduce the price of RLNG, so as to make it viable for the new entrants in the market to buy it and run their projects in a feasible manner in the larger public interest. The consumers of RLNG though long term contracts are a class by themselves, for the purpose of Article 14 of the Constitution of India. The impugned policy decision dated 06.03.2007 was to apply to all the players within this class uniformly and across the board. Thus, the contention that the appellants have been discriminated against, or that the impugned policy decision was taken in an arbitrary manner cannot be accepted as the said contention is wholly untenable in law.Since the legality of the executive decision dated 06.03.2007 has been upheld, the question of refund of the amount of losses suffered by the appellants as a result of increase in the price of RLNG in their contract as urged on their behalf, does not arise for consideration at all by us.40. There being no evidence to suggest that the impugned policy direction is illegal, arbitrary, unreasonable or otherwise violative of Article 14 of the Constitution of India, we find no reason to interfere with the