Gail (India) Ltd vs Gujarat State Petroleum Corpn. Ltd

3. The Government of India constituted Petronet LNG Limited (PLL) for marketing liquefied natural gas (LNG) imported from Qatar and other countries. The Petronet LNG Limited consists of GAIL (India) Limited (the appellant), Indian Oil Corporation Limited (IOC), Bharat Petroleum Corporation Limited (BPCL) and Oil and Natural Gas Corporation Limited (ONGC).

4. On 31.7.1999, Petronet LNG Limited entered into Sale Purchase Agreement (SPA) with Ras Gas, Qatar for supply of 5 MMTPA of LNG for a period of 25 years. In August 2006, the SPA was amended to include additional quantity of 2.5 MMTPA of LNG.

20.9 Contract Review The Parties agree that the Contract Price applicable on and after 1st January 2009 shall be reviewed and agreed by the Parties. In case the Parties are unable to agree on the revised Contract Price, the Agreement may be terminated by the either Party by giving a written notice to the other Party to this effect.

In the event of assignment of LNG sale directly to Seller by Ras Gas (i.e. LNG supplier), then the Agreement shall be reviewed to be inline with the comfort provided to Seller in the assignment contract.” (emphasis supplied) On the same day, the appellant and the respondent executed First Price Side Letter (FPSL) which was to form an integral part of the GSA. Paragraphs 11.1(a), 11.1(b), 11.3 and 11.6 of FPSL are extracted below:

11.3 The above prices are valid up to 31st December, 2008 and shall be reviewed only and to the extent to which Ras Gas (Supplier of LNG) agrees for a different price.

6. The appellant also sent letter dated 7.2.2004 to the respondent confirming the terms agreed between the parties including the following:

7. After about three years, the Government of India, Ministry of Petroleum and Natural Gas sent communication dated 6.3.2007 to the Managing Director and CEO, Petronet LNG Limited with copies to Chairman, IOC; C&MD, GAIL; and C&MD, BPCL incorporating therein the policy decision on pooling of RLNG prices. The relevant portion of that letter is reproduced below:

9. On 2.12.2008, the appellant sent e-mail to the respondent along with draft RLNG contract for discussion indicating that the contract could be effective from 1.1.2009. Similar e-mails and draft agreements were sent by the appellant to 150 other buyers. Paragraphs ‘F’ and ‘G’ of the preface, the definition of ‘Basic Term’ and Article 11 of the draft agreement were as under:

10. The respondent sent reply e-mail on the same day, i.e., 2.12.2008, the relevant portions whereof are extracted below:

12. In the backdrop of disagreement between them on the terms of draft contract, the appellant and the respondent agreed to sign fresh Price Side Letter which became part of the GSA. Paragraphs 11.2, 11.3, 11.4(1)A(g), 11.6 and 11.7 of Price Side Letter dated 31.12.2008 read as under:

11.4 Components of Price The Price payable by the Buyer to the Seller for supply of RLNG shall consist of (1) Contract Price; (2) Connectivity Charges and (2) Taxes and Duties Charges as detailed below:

Accordingly, the Buyer agrees that if at any time, any element/constituent of the Price as set forth in the Price Side Letter requires any variance/change including because or on account of, any change in Law (including any change in judicial/quasi-judicial interpretation or application of any Law), any directive from any Government Agency, changes in the policy of any Government Agency, pooling of LNG prices, decision of any court, and the same shall result in a corresponding change in the Price; and, the Seller shall by written notice inform the Buyer of such change and the Price shall accordingly stand revised to the extent, and with effect from such date as, stated in the Seller's notice, and shall be payable by the Buyer. The change in Price and the necessary adjustment shall be reflected in the subsequent Invoice.”

You are requested to let us know if the above is acceptable. In case of any clarifications, GSPCL is willing to meet and discuss the same with GAIL officials at a mutually convenient date and time.

It is therefore requested to revert on above at the earliest for finalizing the price that would be applicable for the supply from 01.01.2014 onwards.

In view of the fact that no agreement could be reached between GAIL and GSPCL by 31.12.2011 regarding the price of gas to be applicable with effect from 01.01.2014, the agreement shall stand terminated w.e.f. 01.01.2014 and the parties hereto shall stand relieved of their obligation under the Agreement.” (emphasis supplied)

In the aforesaid background it is stated that it was for GAIL to act in a fair and reasonable manner and make genuine efforts to agree on the price of RLNG payable from 01.01.2014. The date 31.12.2011 stipulated in the Article 11.6 of the Side Letter dated 31.12.2008 is with intent to facilitate an early agreement on price mechanism between the parties and a mandatory inflexible adherence thereto is not intended by the parties. .

30. In the result, the appeal is allowed, the impugned order is set aside and the Special Civil Application filed by the respondent is dismissed.

SEPTEMBER 17, 2013.