TaxTMI 
TaxTMI 
2013 (9) TMI 624
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.... Limited (BPCL) and Oil and Natural Gas Corporation Limited (ONGC). 4. On 31.7.1999, Petronet LNG Limited entered into Sale Purchase Agreement (SPA) with Ras Gas, Qatar for supply of 5 MMTPA of LNG for a period of 25 years. In August 2006, the SPA was amended to include additional quantity of 2.5 MMTPA of LNG. 5. In February 2004, the appellant signed Gas Sale Agreement (GSA) with the respondent for supply of re-gasified liquefied natural gas (RLNG) from out of LNG sourced by Petronet LNG Limited. The terms and conditions of supply were incorporated in GSA dated 7.2.2004, paragraphs 3.1, 3.2, 11.3, 11.6, 15.1, 15.5, 15.6 and 20.9 of which read as under: "3.1 This Agreement shall come into force on the date it is signed and shall remain in force till 0600 Hours of 1.1.2019 (herein called "Basic Period") unless terminated earlier as per the provisions of the Agreement. 3.2 Either party may propose to extend the Agreement beyond the Basic Period by giving notice to the other Party one Year prior to expiry of this Agreement. This Agreement shall be amended accordingly prior to such extension for such period as the Parties may mutually agree, (herein called the "Extension Pe....
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.... have the right to reflect the same in the Invoice in accordance with Article 12. 20.9 Contract Review The Parties agree that the Contract Price applicable on and after 1st January 2009 shall be reviewed and agreed by the Parties. In case the Parties are unable to agree on the revised Contract Price, the Agreement may be terminated by the either Party by giving a written notice to the other Party to this effect. In the event of assignment of LNG sale directly to Seller by Ras Gas (i.e. LNG supplier), then the Agreement shall be reviewed to be inline with the comfort provided to Seller in the assignment contract." (emphasis supplied) On the same day, the appellant and the respondent executed First Price Side Letter (FPSL) which was to form an integral part of the GSA. Paragraphs 11.1(a), 11.1(b), 11.3 and 11.6 of FPSL are extracted below: "11.1 (a) The elements of Contract Price payable by the Buyer to the Seller on account of delivery of Gas under this Agreement shall be as follows: Price elements are: Sr. No Elements of Price Rs./MMBTU 1. Foreign Currency Component (USD) 135.10+2.3 2. Indian Rupees Component 29.5 Cont....
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....ng and new consumers." 8. The respondent and other buyers of gas challenged the aforesaid policy decision in Special Civil Application No.18868/2007 and batch matters. All the petitions were dismissed by a Full Bench of the Gujarat High Court. The writ petitioners challenged the judgment of the High Court by filing special leave petitions which were converted into civil appeals and are pending adjudication. 9. On 2.12.2008, the appellant sent e-mail to the respondent along with draft RLNG contract for discussion indicating that the contract could be effective from 1.1.2009. Similar e-mails and draft agreements were sent by the appellant to 150 other buyers. Paragraphs 'F' and 'G' of the preface, the definition of 'Basic Term' and Article 11 of the draft agreement were as under: "F. The price under the Earlier GSA is valid until 31 December, 2008 and the Parties have agreed to terminate the Earlier GSA and enter into this Agreement to enable the Buyer to procure, from the Seller, Gas out of the Sellers share of LNG Quantity for use in its plant / premises located at Dahej, Gujarat; G. The Seller and the Buyer accordingly wish to enter into this Agreement to record the te....
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....to your email dated December 2, 2008 on the subject matter and noted the contents thereof. We have also gone through the changes suggested in the draft GSA attached along with the email. In this context, we would like to state that the existing GSA is valid till 0600 hours of 1.1.2019. The provision of the existing GSA does not contemplate change in the terms of the same except the Price of Gas with effect from January 1, 2009. According to Article 11.3 of the GSA, the Contract Price agreed between the Parties is valid up to December 31, 2008 and it can be reviewed only to the extent to which Ras Gas (Supplier of LNG) agrees for a different price. Apart from such change, which Ras Gas has agreed thereto, no price revision is allowed under the GSA. In view of the above, GSPC is not in a position to agree to the changes suggested in the draft of the existing GSA except the price of Gas which shall be in accordance with Article 11.3 of the GSA." 11. On 23.12.2008, the appellant sent proposed Price Side Letter to the respondent mentioning that the contract would be effective from 1.1.2009 to 1.1.2019. The respondent did not agree to the terms of the draft agreement as also the....
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....te of this Agreement. Accordingly, the Buyer agrees that if at any time, any element/constituent of the Price as set forth in this Price Side Letter requires any variance/change including because of or on account of, any change in Law (including any change in judicial/quasi-judicial interpretation or application of any Law, any directive from any Government Agency, changes in the policy of any Government Agency, pooling of LNG prices, decision of any court or change in Law), shall result in a corresponding change in the Price; and, the Seller shall by written notice inform the Buyer of such change and the Price shall accordingly stand revised to the extent, and with effect from such date as, stated in the Seller's notice. b) The Price shall stand revised from the date such change in Law is made effective or implemented by the relevant Government Agency. Further, the change in Price and the assessment adjustment shall be reflected in the subsequent Invoice. 11.4 Components of Price The Price payable by the Buyer to the Seller for supply of RLNG shall consist of (1) Contract Price; (2) Connectivity Charges and (2) Taxes and Duties Charges as detailed below: (1) Contrac....
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....ns stipulated in the Agreement, the provisions of this Price Side Letter shall prevail. (d) Capitalized terms used, but not defined, in this Price Side Letter, shall have the same meaning as given to them in the Agreement." (emphasis supplied) 13. After signing the Price Side Letter, the parties exchanged letters dated 1.10.2011, 21.12.2011, 26.12.2011, 28.12.2011 and 6.1.2012. For the sake of reference, these letters are reproduced below: "GSPC GUJARAT STATE PETROLEUM CORPORATION LTD. (A Govt. of Gujarat Undertaking) Regd- Office : GSPC Bhavan, Behind Udyog Bhavan, Sector-11, Gandhinagar-382 010, INDIA. Phone: +91-79-66701001 Fax :+91-79-23236375 E-mail : [email protected] GSPCL/COMM/2011/1021 1st October 2011 Shri A.K. Saksena Zonal General Manager GAIL (India) Limited 809, Sakar-ll, Opp. Town Hall, Near Ellisbridge Ahmedabad - 380006 Sub: Gas Price with effect from 01.01.2014 Ref: Gas Sales Agreement dated February 7, 2004 between GAIL and GSPCL ('GSA') read with the Price Side Letter dated 31.12.2008 ("Price Side Letter") Dear Sir, This is with reference to Article 11.6 of the above-referred GSA. As per the terms of the referred Article, the....
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.... Phone: +91-79-66701001 Fax :+91-79-23236375 E-mail : [email protected] GSPCL/COMM/2011 December 26, 2011 Shri A.K. Saksena Zonal General Manager GAIL (India) Limited 809, Sakar-ll, Opp. Town Hall, Near Ellisbridge Ahmedabad - 380006 Sub: Gas Price with effect from 01.01.2014 Ref: i. Gas Sales Agreement dated February 7, 2004 between GAIL and GSPCL ('GSA') read with the Price Side Letter dated 31.12.2008 ("Price Side Letter") ii. Letter from GSPC dated October 1, 2011 Dear Sir, Please refer to our earlier communication and your most recent letter dated 21st December, 2011 on the subject matter. In connection to the same and subsequent to our meetings at GAIL Ahmedabad Zonal Office and New Delhi office on December 14, 2011 and December 23, 2011 respectively, GSPC would like to resubmit and reiterate that with regards to Price of Gas under the GSA, the current arrangements which have been mutually agreed vide Price Side Letter, be extended and continued with effect from January 1, 2014 till the expiry of the GSA. The same is without prejudice to our rights under the GSA. Yours sincerely, Sd/- Ravindra Agrawal GM (Commercial....
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....ed October 1, 2011 iii. GAIL letter dated December 21, 2011 iv. Letter from GSPC dated December 26, 2011 v. GAIL letter dated December 28, 2011 Dear Sir, In relation to your above referred letter dated December 28, 2011, it should be noted that it is incorrect to state that GAIL has not received any specific proposal for revising the price from GSPCL. In fact GSPCL vide its letter dated 1.10.2011 had proposed the continuation of the existing framework stated in the Price Side Letter for the remainder of the Term of the GSPCL-GAIL GSA dated 7.2.2004 ("GSPCL-GAIL GSA"), which has been reiterated by GSPCL in the meeting held on 23.12.2011 as well as vide its letter dated 26.12.2011. Please note that the GSPCL-GAIL GSA is specifically for the delivery of RLNG sourced from the regasification of the LNG sourced from the identified LNG Supplier i.e. Ras Laffan LNG Limited and regasified at an identified LNG Terminal i.e. the Petronet LNG Limited Dahej Terminal. This is clear from the provisions of Recital A (which identifies Ras Laffan LNG Limited to be the LNG supplier), read with Clause 6.7 (which also identifies the LNG supplier to be Ras Gas) and Clause 19.1 (which prov....
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.... from 01.01.2014 was required to be finalized afresh no later than 31.12.2011. It may be recalled, that such clause for price review was included at the request of GSPCL. In the event, the market conditions would have been adverse, such clause provided GSPCL with an option to exit from the GSA. Further, with reference to your letters dated 06.01.2012 and 27.01.2012, GAIL reiterates that the offer and understanding of the basis on which future supply could have been envisaged was that the price should be a discoverable market price having regard to international prices of LNG. In fact the attempts to prescribe a method to achieve the same failed. In view of the fact that no agreement could be reached between GAIL and GSPCL by 31.12.2011 regarding the price of gas to be applicable with effect from 01.01.2014, the agreement shall stand terminated w.e.f. 01.01.2014 and the parties hereto shall stand relieved of their obligation under the Agreement." (emphasis supplied) 16. In its reply dated 3.7.2012, the respondent rejected the offer of the appellant for maintaining future supply at the market price and also accused it of acting in a mala fide manner. Paragraphs 4 and 5 of....
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....o be at lowest price (such lowest other price being the 'Price Cap'). In view of GAIL never having offered to GSPC a price lower than the price as determined under the Price Side Letter, it is GSPC's bona fide belief that the price offered to GSPC under the Price Side Letter is equal to or lower than the Price Cap. Therefore, we state that even if GSPC and GAIL were unable to arrive at a new price side letter, albeit on account of the failure and the unreasonable conduct of GAIL, GSPC and GAIL still have a continuing agreement as to Price Cap, and therefore the sale of RLNG could nevertheless be continued at such Price Cap." 17. The appellant responded to that communication by sending letter dated 24.1.2013 and refuted the allegations of malafides. The appellant also pointed out that the respondent had not accepted its proposal to sign a GSA based on uniform pooled price in terms of letter dated 6.3.2007 of the Government of India and agreed only to sign a Price Side Letter. The relevant portions of that letter are as under: "GAIL had signed fresh long term GSAs in December 2008 with all its downstream customers, except GSPCL, which are governed by the uniform pooled price in....
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....r continuation of the existing pricing mechanism and had suggested a mechanism based on prevalent market conditions. As such, there was no meeting of minds as on 31.12.2011 on the price of gas to be applicable with effect from 01.01.2014. It is a matter of record that GAIL, by its letter dated 28.12.2012 had reminded GSPCL that the price was required to be finalized "no later than 31.12.2011"; however, GSPCL did not choose to act with diligence. Hence, the allegations of GSPCL in the letter dated 03.07.2012 that GAIL had not acted in a fair and reasonable manner and had abused its so called dominant market position are incorrect." (emphasis supplied) 18. The respondent challenged communications dated 4.5.2012 and 24.1.2013 in Special Civil Application No. 2362/2013 filed before the Gujarat High Court and prayed that a direction be issued to the appellant to engage itself in a bona fide manner to arrive at the price of gas to be effective from 1.1.2014. In the affidavit filed on behalf of the respondent, it was averred that even though Article 15.5 of the GSA contains arbitration clause, the same was not being resorted to because its complaint did not relate to any breach of t....
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....he Division Bench then proceeded to observe: "This Court, as stated hereinabove, is of the opinion that on perusal of the relief sought for, the petitioner is approaching this Court, not for any damages for breach of contract nor for any specific performance of contract, but it is seeking a direction directing the respondent to engage itself in a bona fide manner with the petitioner to arrive at the price of gas to be effective from 01.01.2014. From the facts above, learned senior advocate appearing for the petitioner could convince this Court that the conduct of the respondent was not found to be befitting to 'State' or 'an instrumentality of State'. Otherwise there was no reason for the respondent not to respond to letter dated 01.10.2011 till 21.12.2011. Not only that, there was no reason for the respondent to all of a sudden change the criteria for fixing the price of gas from 'pooling price' to 'aligning future price of RLNG with market conditions prevalent'. This gives reason to draw a conclusion that the respondent was not acting in a manner which can be said to be free from arbitrariness and, therefore, the matter requires to be allowed." 22. On the aforesaid premise,....
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....ed. Learned senior counsel submitted that though the respondent had challenged the pooled price mechanism enshrined in letter dated 6.3.2007, the appellant cannot discriminate the respondent and charge more than the pooled price. Learned senior counsel submitted that the decision of the appellant to insist for determination of price through market mechanism was totally uncalled for, arbitrary and unjustified and the Division Bench of the High Court did not commit any error by directing it to enter into a fair negotiation with the respondent. Shri Andhyarujina relied upon the judgments in Dwarkadas Marfatia and sons v. Board of Trustees of the Port of Bombay (1989) 3 SCC 293, Mahabir Auto Stores and others v. Indian Oil Corporation and others (1990) 3 SCC 752, Kumari Shrilekha Vidyartha and others v. State of U. P. and others (1991) 1 SCC 212, ABL International Ltd. and another v. Export Credit Guarantee Corporation of India Ltd. and others (2004) 3 SCC 553 and Harbanslal Sahnia and another v. Indian Oil Corporation Ltd. and others (2003) 2 SCC 107 and argued that the arbitration clause contained in the GSA cannot operate as a bar to the entertaining of petition under Article 226 of....
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....ve 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. 28. In Arun Kumar Agrawal v. Union of India and others (2013) 7 SCC 1, this Court was called upon to consider the scope of judicial review of complex economic decision taken by the State or its instrumentalities. The Government of India, ONGC and Shell entered into a production sharing contract with a private enterprise for exploration and exploitation of crude oil and natural gas in respect of the Rajasthan Block. After due deliberation, the Government of India endors....