Selective gas supply contracts may use a recognised commercial pricing basis; courts need not impose a cost-plus formula.

A State instrumentalitiy supplying gas through selective commercial contracts was not treated as owing a general public utility duty to supply gas to all applicants. For such industrial supply, price fixation was not confined to a cost-plus method; the undertaking could adopt a recognised and relevant commercial basis, including thermal equivalence of alternate fuel, so long as it was not arbitrary or capricious. The court could not compel continued supply at interim prices or prescribe a particular pricing formula. The Supreme Court upheld the price fixation and set aside the High Court's directions to the extent they required supply on judicially imposed terms.

---

---

Issues: (i) Whether the oil and gas undertaking was bound to be treated as a public utility undertaking with a duty to supply gas to the public at large. (ii) Whether the prices fixed for selective industrial supply of gas had to be determined only on a cost-plus basis, and whether the court could compel continued supply at interim prices or direct a particular method of price fixation.

Issue (i): Whether the oil and gas undertaking was bound to be treated as a public utility undertaking with a duty to supply gas to the public at large.

Analysis: The undertaking was a statutory corporation and therefore subject to constitutional limitations as a State instrumentality, but it had not been shown to have held itself out as being under a legal duty to supply gas generally to the public. Its activity remained one of selective supply under individual contracts, and the existing distribution pattern did not amount to a public utility regime imposing a duty to serve all who applied.

Conclusion: The undertaking was not to be treated as a public utility undertaking imposing a general duty to supply gas to all members of the public.

Issue (ii): Whether the prices fixed for selective industrial supply of gas had to be determined only on a cost-plus basis, and whether the court could compel continued supply at interim prices or direct a particular method of price fixation.

Analysis: Price fixation for the supply in question was examined in the setting of commercial contracts entered into with selected industrial consumers. The cost-plus basis was recognised as one permissible method, but it was not the only lawful method in all situations. Given the nature of the commodity, the limited supply, the capital-intensive character of the enterprise, and the fact that the consumers were industrial users who could otherwise source comparable fuel, the undertaking was entitled to adopt a recognised commercial formula such as thermal equivalence of alternate fuel, provided the basis was relevant and not whimsical or capricious. The court also could not require indefinite supply without contract or insist on a particular price-fixation mechanism merely because the prior interim arrangement had continued for some time.

Conclusion: The prices fixed on the thermal equivalence basis were not arbitrary or unreasonable, and the consumers could not insist on supply except on those terms.

Final Conclusion: The appeals succeeded, the price fixation adopted by the undertaking was upheld, and the directions of the High Court were set aside to that extent.

Ratio Decidendi: Where a State instrumentality supplies goods through selective commercial contracts rather than under a general statutory duty to serve the public, it may fix prices on any recognised and relevant commercial basis that is not arbitrary, and courts will not insist on a cost-plus formula or compel supply on judicially prescribed terms.

---