Govt Notifications Imposing Restrictions On Usage In Contracts For Supply Of Gas Are Laws Under Article 12, Must Be Complied With: Delhi HC

The Delhi High Court, while dismissing a Section 34 petition, observed that the five contracts entered into between the parties were subject to the restrictions imposed by the Government. By providing the gas at a subsidised price, the Government has the authority to regulate the use of such gas. The bench of Justice Subramonium Prasad held that the Ministry of Petroleum and Natural Gas (“MoPNG”) had apprised the Petitioner of the Government's policy concerning the usage of APM gas. The learned Sole Arbitrator was correct in holding that the buyer of the gas would not be entitled to use the subsidised gas for any other purpose than the contemplated in the contract, i.e., production of fertilisers. Factual Matrix: The Gujarat State Fertilisers & Chemicals Ltd (“GSFCL”) entered into five different contracts with Gas Authority of India Limited (“GAIL”) concerning the sourcing of gas from various oil fields and supplying the same to GSFCL. The MoPNG issued a directive to GAIL and other agencies authorised for production, sale, and distribution of natural gas, stating that all available Administered Price Mechanism (“APM”) gas be supplied to power and fertiliser sector consumers. The MoPNG vide letter dated 10.07.2006 asked GAIL to procure details concerning the quantities of APM Gas used for the production of fertiliser unit for non-fertiliser purposes. Taking note of the Comptroller and Auditor General of India's (“CAG”) Report, the MoPNG took the view that the Respondent could not devise a mechanism to ascertain the usage of APM Gas by fertiliser units. Therefore, MoPNG issued a directive on 02.07.2014, directing the Respondent to procure a quarterly return duly certified by the Fertiliser Industry Coordination Committee (“FICC”) for all future gas supplies. Failing to produce the FICC certificate, GAIL was authorised to charge non-AMP gas rates for the entire gas supplied. A dispute arose between the parties pursuant to this direction issued by the MoPNG. GAIL issued two demand notes dated 15.01.2015 to GSFCL. The same were challenged before the Gujarat High Court, and a stay order was passed. On different dates, GAIL issued claim letters to GSFCL. In 2018, GAIL issued a claim letter raising a claim of ₹35.95 crore, pursuant to FICC Certificates. The same was challenged u/s 9 of the A&C Act before the Delhi High Court. Disposing of the said petition, Hon'ble Mr. Justice K.S.P. Radhakrishnan was appointed to adjudicate the dispute. The learned Sole Arbitration rejected the GSFCL's contention that the APM gas could be utilised for unrestricted industrial application, i.e. for non-urea purposes. The Arbitrator further allowed the claims of GAIL. Aggrieved by the impugned Arbitral Award dated 29.07.2023, GSFCL filed this Section 34 petition before the Delhi High Court. Submissions: The counsel for the Petitioner made the following submissions: Two out of the five contracts dated 05.07.2008 do not have any clause restricting or prohibiting the usage of the gas for a particular purpose. The letters issued by the MoPNG dated 02.07.2014 and 16.12.2015 to GAIL resulted in a variation of the contract.MoPNG's letter dated 16.12.2015 pertains to the diversion of gas and does not relate to price fixation. GAIL had to issue invoices based on the FICC Certificate, which was not done by GAIL. Therefore, the provisional bills are not as per MoPNG's directives. For the period up to and beyond March 2017, the FICC hasn't issued any monthly certificates to the Petitioner. In light of the absence of the said certificates, GAIL has raised provisional claims. Furthermore, FICC and MoPNG, being the Central Government Agencies, were duty-bound to coordinate with each other in accordance with the mechanism prescribed by the MoPNG itself. The counsel for GAIL made the following submissions: The impugned Arbitral Award is neither perverse nor in violation of the fundamental policy of the land, nor is the said Award crippled with any patent illegality. The sole Arbitrator has considered every material and argument, and after taking everything into consideration, the Arbitrator has come to the conclusion. The pricing of gas in all contracts was subject to the Government orders. ¶ 6 of the Statement of Claim, the Petitioner has agreed that the pricing of the gas was subject to a Government pricing order, and MoPNG, being the administrator of the pricing of natural gas, determined the price for a particular period for the quantity of gas supplied to the Petitioner. The price and usage of APM Gas are the government's prerogatives in terms of its policies. Furthermore, Article 16.1 contained in the Contracts dated 05.07.2008 states that the usage of gas has to be approved by the Government of India. Furthermore, Clause 17.1 specified that the rights and obligations of each party are subject to and governed by all the applicable ...

Govt Notifications Imposing Restrictions On Usage In Contracts For Supply Of Gas Are Laws Under Article 12, Must Be Complied With: Delhi HC

Mohd Talha Hasan

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