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Oil Prices Rising Internationally Due To Ukraine Situation; Gradual Passing Of Prices To Consumers Not Arbitrary : Companies To Kerala High Court

Hannah M Varghese
8 April 2022 3:30 PM GMT
Oil Prices Rising Internationally Due To Ukraine Situation; Gradual Passing Of Prices To Consumers Not Arbitrary : Companies To Kerala High Court
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The state-owned oil marketing companies told the Kerala High Court on Friday that oil prices are increasing due to the Ukraine war and that the companies are gradually passing on the prices to the consumers, which cannot be termed arbitrary.The submission was made in response to a p[lea by the Kerala State Road Transport Corporation (KSRTC) challenging the decision of State-owned Oil...

The state-owned oil marketing companies told the Kerala High Court on Friday that oil prices are increasing due to the Ukraine war and that the companies are gradually passing on the prices to the consumers, which cannot be termed arbitrary.

The submission was made in response to a p[lea by the Kerala State Road Transport Corporation (KSRTC) challenging the decision of State-owned Oil Marketing Companies to increase the price of diesel sold to the Corporation, which is allegedly much higher than the market price.

"Oil prices are rising internationally since the Ukraine situation started worsening. If the oil companies are gradually passing on the increase to customers, it cannot be said to be an arbitrary price hike", Senior Advocate Parag Tripathi, appearing for the oil companies, submitted.

Senior Advocate Dushyant Dave appeared for KSRTC and argued that till 2018, public sector companies were given subsidies. Later on, the National Policy was formulated as per which bulk consumers were to be given oil at the market rate. This rationale was upheld by the Supreme Court as well.

The Senior Counsel submitted that this decision of the Oil companies violated the said Policy apart from violating public interest.

"The situation now has undergone a complete reversal. Instead of getting subsidies, now we are paying more than private bus owners in the State. This is discriminatory, violative of Article 14 and causes grave prejudice to the public."

The petitioner also made it clear that they were not challenging the price fixation, but the arbitrary manner in which it was being fixed for bulk purchasers citing that the oil companies are bound by the contract which stipulated that the price can not go over the retail market price. It was also pointed out that the companies were in a monopolistic position and should refrain from behaving in such manner.

"Why should state-owned companies act against the public interest? Why should Kerala's consumers suffer?"

Regarding the reliance placed by the respondents on their arbitration clause, the Senior Counsel referred to the Supreme Court decision in Unitech Ltd v. Telangana State Industrial Infrastructure Corporation where it was held that the presence of an arbitration clause within a contract between a state instrumentality and a private party is not an absolute bar to availing remedies under Article 226 of the Constitution. Therefore, it was submitted that the Court was a safeguard against the arbitrary exercise of power.

KSRTC further argued that it is under serious debt while emphasising that it discharges public duty. This is a classic case where Article 14 is being violated, it was argued.

It was also pointed out that there was no denial in the counter submitted by the respondents that they were charging KSRTC more than private bus services.

"The damage to the public interest is 85-90 lakhs a day! Therefore, I beseech your lordship to grant interim relief. I respectfully submit that your lordship may admit the petition, grant interim relief and protect us," the petitioner's counsel submitted.

Although the petitioner urged for an interim relief, Justice N. Nagaresh declined to grant one citing that an interim relief cannot be granted at this stage since the Court was yet to conclude hearing the matter.

Senior Advocate Parag Tripathi appeared for the oil companies and argued that this was not a case that calls for granting interim relief. He contended that since the petitioners themselves admit that they are not procuring oil at a higher rate, there is no prejudice caused to them.

"The Centre does not fix the price. My friend has been wrongly instructed. They have not suffered any loss. The Supreme Court decision the petitioner relied on was rendered when the oil price was being regulated by the government. But the market was later deregulated and now it remains unregulated," he asserted. 

It was also pointed out that ever since the price of HSD went over the retail rate, KSRTC buses have been getting diesel from retail pumps instead of consumer pumps. Therefore, no prejudice is not caused to KSRTC. 

Regarding the issue of petitioner's debts, the oil companies indicated that KSRTC owes 123 Crores to Indian Oil even before the diesel process went up.

"Such a petitioner who is defaulting in dues may not be permitted to challenge pricing. Article 14 does not apply. Oil prices are rising internationally since the Ukraine situation started worsening. If the oil companies are gradually passing on the increase to customers, it cannot be said to be an arbitrary price hike."

The Court had to wind up the hearing by 3 pm since there was a reference organised at the Chief Justice's Court for the farewell of two Judges who were due to retire in May. 

The matter will be taken up next on Wednesday at 1:45 pm. 

The Court had earlier refused to grant interim relief on the plea moved by Kerala State Road Transport Corporation (KSRTC) challenging the decision of State-owned Oil Marketing Companies to increase the price of diesel sold to the Corporation, which is allegedly much higher than the market price. The Oil Marketing Companies were directed to file a statement explaining the present pricing mechanism by the next posting date. 

KSRTC earlier submitted that this price hike was merely a marketing strategy devoid of any logic. The Counsel further argued that if an interim stay was not granted, the Corporation would have to shut down since it was already running on massive losses. When this was refused, he urged that a direction be issued to the effect that the present price may not be further increased.

The primary grievance of KSRTC is that the decision of the Oil Marketing Companies to increase the price of diesel sold in bulk only to the Corporation is discriminatory, arbitrary and violative of Article 14 of the Constitution of India.

"Supply of HSD (High-Speed Diesel) to the KSRTC alien at a higher price than available in the retail outlets for others would amount to discrimination and thus violative of Article 14 of the Constitution. The increase in the price of HSD to the KSRTC will force them to cancel the schedules to manage the cost of services," the plea reads.

The petition had argued that KSRTC required around 300-400 litres of diesel on a daily basis. Petroleum corporations offer exclusive storage and handling facilities to bulk customers like the petitioner, which are commonly called consumer pumps. Being a bulk consumer, KSRTC has 72 such consumer pumps across the State.

Although the State was in charge of fuel prices in the beginning, it was entirely deregulated in 2002 with petroleum corporations being empowered to fix the prices. According to the petitioner, this led to the oil companies fixing the tariff on unreasonable grounds.

Meanwhile, in 2013, the subsidy granted to KSRTC was withdrawn, and a non-subsidized market-determined price was fixed for the corporation. It was pointed out that the diesel available at consumer pumps was sold at lesser prices than at the retail outlets initially. However, this gap started gradually decreasing in January 2022.

The complication arose when the price of diesel at the consumer pumps unexpectedly skyrocketed in February 2022 from Rs. 88 to Rs. 121. Aggravating the situation, it was noticed that this price was Rs. 21 higher than the price of diesel sold at the retail outlets. This implies that private bus operators who are competitors of the petitioner operating with the same fare tariff fixed by the State were getting diesel at lesser prices.

It has also been pointed out that the Petroleum and Natural Gas Regulatory Board Act, 2006 was introduced to prevent the exploitation of consumers in the deregulated scenario, no action has been taken by the Centre yet to bring all petroleum products under the Act despite several recommendations.

Notably, the petitioner had approached the Apex Court in March 2022 with a similar plea. However, while orally criticising the State's policy, the Supreme Court had granted KSRTC liberty to approach the High Court.

Case Title: Kerala State Road Transport Corporation v. Union of India & Ors.

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