TaxTMI 
TaxTMI 
2013 (9) TMI 624
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....orporation 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 Period"). 11.3 The above Contract Price are valid ....
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.... 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 Contract Price 166.90 Foreign Currency component is calculated considering the Exchange rate of 1 US$ = Rs.46....
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....lication 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 terms and conditions on which; (i) the Seller shall sell and deliver at the Delivery Point, and the Buyer shall purchase, Gas out of the ....
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....ached 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 Draft Price Side Letter and returned the corrected draft agreement indicating that during the period from 1.1.2009 to 30.9.2009 the foreign currency component shall....
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....cluding 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) Contract Price The Contract Price payable by the Buyer to the Seller under the Agreement shall consist of the following elements/components: A. Foreign Currency Component; and B. INR Component. E....
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....ters 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 provisions of Article 11 as incorporated into the GSA by the Price Side Letter would remain valid till 31.12.2013. Further, the Article also stipulates that GSPCL and GAIL shall mutually discuss and finalize, no later than December 31, 2011, a fresh agreement on the provisions for Price of Gas to be applicable with effect from 01.01.2014.....
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.....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) GAIL (India) Limited (A Government of India Undertaking) Ahmedabad Zonal Office Dated: 28.12.2011 Ref: GAIL/AZO/MKTG/RLNG/2011/GSPCL To Sh. Ravindra Agarwal General Manager (Commercial) Gujarat State Petroleum Corporation Ltd. (GSPCL) GSPC Bhavan, B/h Udyog Bhavan, Sector -11, Gandhinagar- 382010 Gujarat Subject: Gas Price with effect from 01.01.2014. Dear Sir, This has reference to our meeting on 23.12.2011 on the Price of Gas to....
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....CL-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 provides for the termination of the GSPCL-GAIL GSA in the event the GSPA between PLL and GAIL is terminated). We have already indicated that we are agreeable to the continuation of the existing gas price framework as provided in the present Price Side Letter. The existing Price Side Letter is already meeting GAIL's requirement of aligning the price of RLNG with the price of LNG being sourced. We would like to point out that in seeking to renegotiate the Price of gas under the GSPCL-GAIL GSA, other agreed provisions of the GSA such as sourci....
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....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 that letter read as under: "4. You may recall the background in which the GSA dated 07.02.2004 has been executed. The GSA was executed between GAIL and GSPC pursuant to a long term gas supply contract entered into between Petronet LNG Limited (PLL) and Ras Gas. The GSA has been executed by GAIL as Gas marketer of PLL. You may please note that the provisions of the GSA dated 07.02.2004 and the provisions of the subsequent Side Letter dated 31.12.2008 provide for price of RLNG which is split into two components. One is the Foreign Currency Component and the second is the....
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....uld 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 terms of the MOPNG directive dated 06.03.2007, and all such GSAs are valid till April 2028. There is no provision in any of these GSAs for reopening the price before the term ends in April 2028 unless there is a change in law or policy. It may be recalled that at the time of review for the gas price to be valid w.e.f. 01.01.2009, GAIL had offered to sign a GSA with GSPCL to be valid till April 2028 based on the uniform pooled price in terms of MoP&NG directive dated 06.03.2007 as had been done by GAIL with all its other downstream customers. However, GSPCL did not accept the GSA ....
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....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 the agreement but was against the arbitrary action of the appellant in fixing the price of gas. The respondent referred to letter dated 6.3.2007 of the Government of India, the Second Price Side Letter, the correspondence exchanged between the parties in 2011, 2012 and January, 2013 and pleaded that the action of the appellant seeking to terminate the GSA is violative of Articles 14, 19(1)(g) and 301-A of the Constitution. The respondent further pleaded that the price of gas should be based on the pooled price mechanism prescribed by the Ministry of Petroleum and Natural Gas. 19. In the c....
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.... 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, the Division Bench finally quashed communications dated 4.5.2012 and 14.1.2013 and directed the appellant to engage itself with the respondent to arrive at the price of gas to be effective from 1.1.2014. 23. Shri R.F. Nariman, learned senior counsel for the appellant referred to the pleadings of the parties and the documents produced by them including letter dated 6.3.2007 sent by the Ministry of Petroleum and Natural Gas, Government of India and e-mails dated 2.12.2008 and argued that the High Court committed serious error by entertaining the Special Civil Application ignoring that the parties had u....
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.... 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 the Constitution. 25. We have considered the respective arguments. At the outset, we may mention that vide e-mail dated 2.12.2008, 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. This is evident from the averments contained in paragraphs 4.9 and 4.10 of the counter affidavit filed on behalf of the appellant before the High Court, which remained uncontroverted. A reading of the draft RLNG contract and Price Side ....