2013 (9) TMI 624 - SC - Companies Law

Fixation of Price of Gas Calculation of Price of Gas - Whether the Division Bench of the Gujarat High Court was justified in entertaining the writ petition filed by the respondent under Article 226 of the Constitution in the matter of Fixation of Price of the Gas supplied by the appellant and whether a mandamus could be issued requiring the appellant to engage itself with the respondent to arrive at the price of gas effective from 1.1.2014 Held that - The appellant had offered to sign fresh long term sale agreement with all the existing customers including the respondent for supply of RLNG upto April, 2028 at a uniform pooled price in terms of the policy decision of the Government of India - A reading of the draft RLNG contract and Price Side Letter sent by the appellant to the respondent also shows that the appellant had offered to supply gas to the respondent at the pooled price but the latter did not agree and insisted on negotiation for the contract price of RLNG to be effective from 1.10.2009. 150 existing buyers had signed long term agreements with the appellant without any provision for review of price during the currency of contract - However, the respondent did not accept the offer and did not sign long term sale agreement - Instead, it agreed to sign the second Price Side Letter which contained a provision for review of the price before expiry of 5 years term on 31.12.2013 - The respondent also insisted that RLNG price for the period from 1.4.2014 to 1.1.2019 should be mutually agreed between the parties - These terms were incorporated in the Price Side Letter sent by the respondent to the appellant vide e-mail dated 26.12.2008 - The Price Side Letter which was finally signed by the parties indicate that the price of gas had been mutually agreed between the parties - This was also mentioned in letters dated 1.10.2011 and 26.12.2011 sent by the respondent to the appellant - Therefore, the premise on which the High Court recorded the conclusion that the appellant had acted arbitrarily was non-existent and on this ground alone the order under challenge was liable to be set aside. The remedy of arbitration available to the respondent under paragraph 15.5 of the GSA was an effective alternative remedy and the High Court should not have entertained the petition filed under Article 226 of the Constitution of India - The contents of the GSA, the Price Side Letters and the correspondence exchanged between the appellant and the respondent give a clue of the complex nature of the price fixation mechanism - Therefore, the High Court should have relegated the respondent to the remedy of arbitration and the Arbitral Tribunal could have decided complicated dispute between the parties by availing the services of experts - Unfortunately, the High Court presumed that the negotiations held between the appellant and the respondent were not fair and that the respondent was entitled to the benefit of the policy decision taken by the Government of India despite the fact that it had not only challenged that decision but had also shown disinclination to accept the offer made by the appellant to supply gas at the pooled price and had insisted on mutually agreed price - Decided in favour of Appellant.

Summary

Issues Involved:
1. Justification of the Gujarat High Court's decision to entertain the writ petition under Article 226 of the Constitution.
2. Issuance of a mandamus requiring the appellant to engage with the respondent to determine the price of gas effective from January 1, 2014.

Detailed Analysis:

1. Justification of the Gujarat High Court's Decision to Entertain the Writ Petition under Article 226 of the Constitution:

The primary issue was whether the Gujarat High Court was justified in entertaining the writ petition filed by the respondent under Article 226 of the Constitution concerning the fixation of the gas price supplied by the appellant. The appellant argued that the matter was in the realm of a private contract and should be resolved through arbitration as stipulated in the Gas Sale Agreement (GSA). The respondent contended that the appellant's actions were arbitrary and violated public law principles, thus justifying judicial review.

The Supreme Court noted that the High Court observed the respondent was not seeking damages for breach of contract or specific performance but a direction for the appellant to engage in bona fide negotiations to determine the gas price effective from January 1, 2014. The High Court concluded that the appellant's conduct was arbitrary, particularly in changing the price determination criteria from 'pooling price' to 'aligning future price of RLNG with market conditions prevalent.'

However, the Supreme Court found that the High Court's premise was flawed as the appellant had offered to sign a long-term agreement with the respondent at a uniform pooled price, which the respondent declined. Instead, the respondent insisted on negotiating the contract price of RLNG to be effective from January 1, 2009. The Supreme Court held that the High Court should have relegated the respondent to arbitration, as provided in the GSA, to resolve the complex price fixation mechanism disputes.

2. Issuance of a Mandamus Requiring the Appellant to Engage with the Respondent:

The High Court had issued a mandamus directing the appellant to engage with the respondent to determine the gas price effective from January 1, 2014. The Supreme Court found this direction erroneous. The appellant had made an identical offer to all buyers, including the respondent, for supplying gas at the pooled price determined by the Central Government. The respondent declined this offer and insisted on a mutually agreed price.

The Supreme Court emphasized that the remedy of arbitration available under paragraph 15.5 of the GSA was an effective alternative remedy. The High Court should not have presumed the negotiations were unfair or that the respondent was entitled to the benefit of the Government of India's policy decision, especially since the respondent had challenged that decision and shown disinclination to accept the pooled price offer.

The Supreme Court cited the case of Arun Kumar Agrawal v. Union of India, highlighting that courts should not interfere with complex economic decisions taken by the State or its instrumentalities unless the decision is in clear violation of statutory provisions, perverse, or taken for extraneous considerations.

Conclusion:

The Supreme Court allowed the appeal, set aside the High Court's order, and dismissed the Special Civil Application filed by the respondent. The Court concluded that the High Court erred in entertaining the writ petition and issuing a mandamus, given the availability of an effective arbitration remedy and the flawed premise of arbitrariness in the appellant's actions.