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TMI Blog1983 (7) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... st of the oil fields situated in Gujarat, gas is received along with crude oil, but in Cambay area, gas is received unaccompanied by crude oil. This combustible gas is known as Associated Gas, when it is received along with crude, and it is known as natural gas, pure and simple, when from the wells only gas is received. For the purposes of this petition, we shall refer to this gas supplied by the O.N.G.C. as gas. After the various industries situated in the Gujarat State Region started receiving gas, a question arose amongst the O.N.G.C. and the State of Gujarat aspousing the cause of various industrial units in Gujarat, as to the fair price at which such gas should be made available to the consumers in Gujarat. After some negotiations, the question of fair and reasonable price of gas was referred to the sole arbitration of Dr. V.K.R.V. Rao at the instance of the Union Government and the State Government. The said expert economist Dr. Rao had given his award on 23-9-1967, determining the price of natural gas to be supplied to the consumers in Gujarat at ₹ 50/- per 1000 cubic metres ex-well head, to which royalty, sales-tax, depreciation and the transport charges were permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were working out the said price. The petitioners' grievance in this regard is that the O.N.G.C. which upto 31-12-75 was supplying the details of the break-up, including the well-head price, had stopped that practice and being virtually a monopolistic agency in the supply of gas, had acted in a high-handed manner. The petitioners of the first petition, therefore, ultimately approached this Court in March 1979 with the following prayers: (a) That this Hon'ble Court be pleased to issue a writ of or in the nature of mandamus as any other appropriate writ, direction and/or order under Article 226 of the Constitution of India directing the respondents to supply the break-up and the data on the basis of which the price structure is arrived at by it for supply of associated gas to the petitioners and the gas consuming industries of Gujarat and to fix the price after giving reasonable opportunity to the concerned industries or their representative association i.e. the 1st petitioner herein, to discuss and negotiate the fixation of fair and reasonable and just price for such supply of gas to the industries and to fix the minimum guarantee quantity at 75% of the contract quantity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a Division Bench of this Court. We make this position clear, lest at some subsequent stage a question may be raised that the hearing of these petitions by the Division Bench robbed them of the right of appeal, one way or the other, in the form of the Letters Patent Appeals. 6. The submissions advanced before us on behalf of the petitioners of these petitions can be broadly summed up as follow: (a) The O.N.G.C. being a 'State' and a 'public utility' is not at liberty to charge any fantastic price at its caprice, but is bound by law or at any rate by the Constitutional mandate to act reasonably and should not behave like a private entrepreneur ; (b) It is not open to the O.N.G.C. to practise discrimination in the matter of supply of an essential commodity like gas between consumers and consumers, as is being done by the O.N.G.C. in respect of the supply of gas; (c) The O.N.G.C. as the executive limb of the Union of India is at any rate bound to act reasonably even in the matter of fixation of price, particularly so, when it has got the monopoly of dealing with the gas in the State of Gujarat; (d) On being called upon by a rule nisi of this Court, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bare the data on the basis of which it was fixing its prices from time to time. It was also denied that the O.N.G.C. was in any way unreasonable in enhancing the minimum guarantee at 90%. Thus, the petitioner's grievances and grounds were denied in toto by the O.N.G.C. 8. Before we embark on the actual points canvassed before us, we would like to make certain factual and legal position clear. It was conceded before us at the time of the hearing, though it was disputed tit the stage of filing the returns, that the O.N.G.C. for the purpose of the Constitution is a 'State'. It was also not seriously disputed before us that in the Region of the State of Gujarat, no other agency, either private or public, is operating in the field of oil exploration. It was also not disputed before us that the O.N.G.C. and the parties had entered into various contracts set out in the petitions from time to time almost at the closing of the period of the contract so as to make the rate available as per the say of the O.N.G.C. It was also not disputed that there was an Arbitration Award of Dr. V.K.R.V. Rao, but it was emphasised before us at the time of the hearing that the principles gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of natural gas and refinery gases is one of the functions of this Commission. It is to be noted with pertinence that natural gas, whenever available, cannot be stored. It has got to be consumed or burnt away. It is a side product of the exploration of oil resources. The Parliament was conscious of this character of gas and, therefore, it cast a duty on the Commission to make provisions for disposal of the gas. It cannot do to say that disposal of gas is one of the discretionary functions of the O.N.G.C. or that it is a provision, which is enabling in character. Whenever any power is conferred on a public body or Corporation, there is inherent in it, and coupled with it, a duty to act according to law. No public agency can get away from its functions by arrogating to itself a spacious argument that a particular function, which it can unkertake, is only its discretionary function and that it is free to carry out that function or not to carry out the same in its absolute despotic discretion. We reiterate that every public power ordinarily would be inextricably interwoven with a public duty. It was not fortunately argued before us that the O.N.G.C. like a private entrepreneur, could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d portion of it, as contradistinguished from holding himself out as serving or ready to serve only particular individuals.... The public or private character of the enterprise does not depend, however on the number of persons by whom it is used, but on whether or not it is open to the use and service of all members of the public who may require it, to the extent of its capacity. 11. In American Jurisprudence, 2nd Edition Vol. 64, also, practically the similar exposition is there. We, however, would like to refer to its page 551 in particular. There it is observed; In respect of the public service or use of public utilities, the word public does not mean the whole public nor does it mean all the people in ascertain area or political subdivision. Rather, It means individuals in general without restriction or selection, to the extent that the capacity of the utility may admit of such service or use. Accordingly, the use and enjoyment of the utility service may be local and limited in the territory served, and the fact that the service is limited to a particular district or a part of a town does not prevent the Organisation or business from being a public utility. 12. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to be laid was that the undertaking must be open to one and all, as it is in the case of supply of electricity or transport facilities. We do not think that catering to the needs of one and all without reference to the limits of resources to serve is an essential element of a public utility. 14. The next argument was that monopolistic or otherwise character of the O.N.G.C. should be a determinative factor along with other factors and as the O.N.G.C. could not be termed to be a monopoly because of the provisions of Article 19(6) of the Constitution of India, it could not be termed as a public utility. This argument has little scope in the present consideration. All that Article 19(6) of the Constitution says is that when the State undertakes in the wider public interest the monopolistic operations, no one would be permitted to complain that his right to pursue any occupation is by that monopoly jeopardised. We do not say that the O.N.G.C. is a monopoly in that sense of the term. It is referred to as a monopoly only for the limited purpose of showing that it is asolitary agency producing gas and capable of disposing it to the needy citizens of the area round-about and the emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would answer various arguments that were advanced before us by the learned Advocate General for and on behalf of the O.N.G C. His Lordship firstly poses the questions that had arisen before the Supreme Court. He says What are the constitutional obligations on the State when it takes action in exercise of its statutory or executive power ? Is the State entitled to deal with its property in any manner it likes or award a contract to any person it chooses without any constitutional limitations upon it? What are the parameters of its statutory or executive power in the matter of awarding a contract or dealing with its property? His Lordship then stated that those questions fell in the sphere of both administrative law and constitutional law and they assumed special significance in a modern welfare State which was committed to egalitarian values and dedicated to the rule of law. After introducing the subject in this vivid manner. His Lordship ultimately in paragraphs II, 12 and 13 of the judgment has observed as follows : (Emphasis is supplied by us) 11. To-day the Government, in a welfare State is the regulator and dispenser of special services and provider of a large number of ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds but also by confining structuring and checking Government discretion in the matter of grant of such largess. The discretion of the Government has been held to be not unlimited in that the Government cannot give or withhold largess in its arbitrary discretion or at its sweet will.... 12. ...It was argued for the Govt. that no person has a right to enter into contractual relationship with the Government and the Govt., like any other private individual, has the absolute right to enter into contract with any one it pleases. But the Court speaking through the learned Chief Justice, responded that the Govt. is not like a private individual who can pick and choose the person with whom it will deal, but the Govt. is still a Government when it enters into contract or when it is administering largess and it cannot, without adequate reasons, exclude any person from dealing with it or take away largess arbitrarily. The learned Chief Justice said that when the Govt. is trading with the public, the democratic form of Govt. demands equality and absence of arbitrariness and discrimination in such transactions...The activities of the Government have a public element and, therefore, there sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had then come to be accepted by the Five Judges of the Supreme Court in the case of Ajay Hasia v. Khalid Mujib . It is, therefore, evident that the liability to act reasonably even in the matter of executive functions is innate because of the all pervading principle of fair play, which is tantamount to acting without practising discrimination. An act, either statutory or executive, can be said to be offending the guarantee of equality before law and, therefore, the rule of law. even if it is possible that without the guidelines of reasonableness such powers are likely to be abused. In other words, reasonableness is to be read necessarily into in order to avoid the risk of any statutory or executive action being thrown overboard on the ground that it offends the provisions of Article 14 of the Constitution of India. 19. The above discussion would show that apart from O.N.G.C.'s sale of gas. being a public utility calling for the requirement of supplying its gas at reasonable rates to all people, who seek the consumption, subject to the limits of the supplier's resources, the duty to charge only reasonable prices for the supply of public services or public properties to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of price. No doubt the judgment of the Supreme Court in the case of Premier Automobiles v. Union of India was referred to by Mr. Singhvi in the course of his submissions. In that case, the Supreme Court had taken upon itself the fixation of price, but it was with the concession of all the concerned parties. The Supreme Court has made this position clear in the latter decision in the case of Prag Ice and Oil Mills v. Union of India of the said judgment, it has been stated that that judgment was not to provide a precedent for anything similar to be done by the courts in other cases . Para 36 of that judgment also' makes it clear that unless by the terms of a particular statute or order, price fixation is made a quasi-judicial function for specified purposes or cases, it is really legislative in character in the type of control order which is now before us because it satisfies the tests of legislation . We would, therefore, agree with the learned Advocate General that this Court has neither legal authority nor the competence to embark upon the technical assignment of fixing the price of a commodity like gas because of a number of factors having their inter-play in that fixati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonableness of rates , it has been stated: in any event, the rate must be just and reasonable both as to the utility or investors on the one hand and as to the public or consumers on the other. Hence the rate must not be so low as to be confiscatory or so low as to be unjust or unreasonable, even though not confiscatory, or on the other hand so high as to be unjust or oppressive or as to exceed the value of the service to the consumers, not in the aggregate but as individuals. In other words, the reasonable rate lies somewhere between the lowest rate that is not confiscatory and the highest rate that is not excessive or extortionate.... Although they are by no means controlling the consumer's ability to pay and the value of the service are factors to be considered and a rate for particular service may be reasonable from the standpoint of the utility with respect to the cost of the service and yet be unreasonable from the standpoint of the consumer because in excess of the value of such service to him . The discussion is rounded off by observing that a reasonable rate is not a particular decimal, but is one that falls within the zone of reason, it is a field rather than a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the order of transfer as an abuse of power pointing out circumstances which prima facie and without anything more would make out the exercise of the power discriminatory qua him. it will be incumbent on the authority to explain the circumstances under which the order has been made. The court will, in that event, scrutinise these circumstances having particular regard to the object sought to be achieved by the enactment of Section 5 of the Act as set out in para 4 of the affidavit of Shri V. Gauri Shanker, Under Secretary, Central Board of Revenue, quoted above...and it is not satisfied that the order was made by the authorities in bona fide exercise of the power vested in them under Section 5 of the Act, it will certainly quash the same.... 25. To the same effect is the earlier view of the Supreme Court in the case of Saghir Ahmad v. State of U. P. it has been observed as follows: There is undoubtedly a presumption in favour of the constitutionality of a legislation. But when the enactment on the face of it is found to violate a fundamental right guaranteed under Article 19(1)(g) of the Constitution, it must be held to be invalid unless those who support the legislation can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g fields, but also amortisation of its expenditure in other areas also was required to be taken into account, over and above sale taxes, royalties and transport charges, which were required to be included in the sale price. Ultimately, he took into account the pit head price of gas in paragraph 7. He laid down the following basic formula: The cost of production at the well-head consists of the following items: 1. Depletion of the field; 2. Amortisation of expenditure incurred in other areas; 3. Depreciation of fixed assets in non-producing areas; 4. Operational cost, including depreciation charges on fixed equipment; 5. Interest on loan capital: 6. Return of equity capital. For determining the sale price, addition will have to be made for royalty payable to the State Government, sales tax payable to the State Government, other local taxes if any and transportation costs to the consumer fence if delivery is to be given there. Then finally the award portion is to be found in Section 8 of that report and in final analysis, he fixed ₹ 50/-per 1000 cubic metres of gas as its well-head price, to which 10% royalty, sales tax and costs of transport were to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner. It cannot do to say that those who enter into three or more years' contract would stand to gain. If the gain is within reasonable limits, it can be appreciated, but the O.N.G.C. which tried to paint unsuccessfully before us a picture of the allegedly reasonable jumps in the structure of prices year-after -year, could not have been oblivious of the fact that contracting for such long periods would be highly detrimental to the interests of the O.N.G.C. The fact that such contracts were entered into, despite knowledge of the different direction in which the winds were allegedly blowing, would prima facie indicate that the persons in-charge of the affairs of the O.N.G.C. treat this commodity under their monopolistic control as a subject matter of their choice-dealing. We are, therefore, more than satisfied that the petitioners have been successful in showing prima facie that the O.N.G.C, which is an organ of the Union of India for all practical purposes and was under the charge of the Minister of the Central Government the Central Government always crying from the top of the roof that price line must be kept at the reasonable level so that dearness is not rampant had been acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lence and, therefore, the petitioners are being benefit enormously on account of non-fixation of price of gas equivalent to furnace oil in terms of thermal equivalence or non-fixation of gas price as compared to USA, as was done by Dr. Rao infixing the price of gas. I reiterate that Dr. Rao has fixed the high price of gas in India as compared to USA price of gas, which has now increased to more than 32 times the price prevailing when Dr. Rao fixed the price of gas in India. 30. From the above extracts from the affidavit-in-reply filed in June 1981, it is crystal clear that instead of adopting the reasonable course of fixation of gas price on the basis of well-head value plus all other relevant factors, including reasonable profit, it has been harped time and again that because the coal and furnace oil would cost very high to the petitioners if they were required to switch over to them, they should not make any grievance about the high prices demanded by the O.N.G.C. We fail to understand how the price of coal and furnace oil can be made the sole or substantial basis for the purpose of fixing the gas price. Had any private entrepreneur acted in this fashion, we would have perhaps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of gas at the relevant rate is shown to be arbitrary and unreasonable and to that extent the price complained of by the petitioners will be required to be set aside. 33. One point canvassed by the petitioners remains to be stated for its being rejected. They had made grievance that instead of 75% as the minimum contracted quantity, it was raised to 9O0/o irrespective of the consumption. The O.N.G.C. has proved that looking to the nature of the commodity, which is required to be flared up if not consumed, this escalation was necessary and justifiable. We accept that argument and, therefore, that part of the prayer put forward by the petitioners will be required to be rejected. 34. One more argument also is there. The petitioners wanted to compare the price of gas in Gujarat with comparatively low price of gas charged by this very O.N.G.C. in Assam. The affidavit-in-reply shows that Assam is a comparatively less developed State, the demand for gas there is far less than the quantity available for sale and that if associated gas is not sold at concessional rate, it will be required to be burnt away. Because of this peculiar situation in Assam the prices in Assam cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by; If the last of the above three courses is adopted by the O.N.G.C. for deciding the price structure afresh, it would be in their interest to give hearing to the persons likely to be affected so that the possibility of a new round of litigation is avoided. We reiterate that as far as the. petitioners are concerned, they are amenable to any of the three modes which the O.N.G.C. may choose to adopt. 37. We accordingly set aside the prices demanded by the O.N.G.C. from these petitioners in this group of petitions, leaving it open to the O.N.G.C. to deal with the question of price fixation in any one of the three modes suggested by us. The petitions are accordingly partly allowed.. Rule is accordingly made absolute in all these petitions with costs. 38. The Civil Applications, in view of the final decision, do not survive and stand disposed of and till the new price fixation is had, the price charged last from these petitioners under the respective contracts with them shall continue to operate between the parties, subject to adjustments in future after prices are fixed as stated above. Before we part with these matters, we would put on record our deep appreciation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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