ONGC's gas pricing based on furnace oil thermal equivalence upheld, coal-based pricing arguments rejected

SC upheld ONGC's gas price fixation based on thermal equivalence of furnace oil, rejecting petitioners' argument for coal-based pricing. Court found no irrationality in ONGC's pricing methodology and ruled that differential pricing between public and private sector undertakings is not discriminatory. ONGC was held not to be a public utility undertaking with obligation to supply gas to public at large. Price consultation with customers was deemed unnecessary. Appeals allowed, with ONGC permitted to recover outstanding charges.

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Issues Involved:
1. Whether ONGC is a public utility undertaking.
2. Basis for fixation of gas prices by ONGC.
3. ONGC's obligation to supply gas post-expiry of contracts.
4. Validity of ONGC's minimum off-take guarantee clause.

Summary:

1. Whether ONGC is a Public Utility Undertaking:
The High Court held that ONGC is a public utility undertaking with a duty to supply gas to anyone requiring it, subject to availability. However, the Supreme Court disagreed, stating that ONGC has not held itself out or been obliged by law to provide gas supply to the public in general. The Court noted that ONGC's primary activity is exploration and prospecting for petroleum, and it supplies gas to certain selected contractees, not to the public at large.

2. Basis for Fixation of Gas Prices by ONGC:
The High Court ruled that ONGC, being a State instrumentality, must act reasonably in price fixation, suggesting methods like cost plus basis. The Supreme Court, however, held that ONGC is not bound to adopt only the cost plus basis but can use other recognized methods like the thermal equivalence basis. The Court emphasized that ONGC's price fixation based on the thermal equivalence of alternative fuels is a recognized and rational method, especially given the capital-intensive nature of oil exploration and the need for ONGC to build up a surplus for future requirements.

3. ONGC's Obligation to Supply Gas Post-Expiry of Contracts:
The High Court directed ONGC to continue supplying gas to the respondents at an interim price until a reasonable price is fixed. The Supreme Court found this direction inappropriate, stating that ONGC is not obliged to continue supply without a contract and that the prices demanded by ONGC are neither unreasonable nor capricious. The Court upheld ONGC's right to fix prices and supply gas based on contracts.

4. Validity of ONGC's Minimum Off-Take Guarantee Clause:
The High Court upheld ONGC's minimum off-take guarantee clause of 90%. The Supreme Court agreed with this conclusion, referencing the rationale provided in the decision of Amalgamated Electricity Co. Ltd. v. Jalgaon Borough Municipality.

Conclusion:
The Supreme Court allowed the appeals, upholding the prices charged by ONGC for the supply of gas to various respondents. The Court made no order regarding costs and stated that ONGC is at liberty to recover outstanding charges from the respondents. The judgment clarified that ONGC's price fixation based on the thermal equivalence of alternative fuels is reasonable and that ONGC is not a public utility undertaking obliged to supply gas to the public at large.

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