Bombay High Court
Welspun Maxsteel Limited vs Union Of India on 8 July, 2011
Author: Girish Godbole
Bench: Mohit S. Shah, Girish Godbole
1 WP3748.11.doc
ast
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 3748 OF 2011
1. Welspun Maxsteel Limited, )
Public Company incorporated )
under the provisions of the )
Companies Act, 1956 and having )
its registered office at Welspun City, )
Village Versamedi, Taluka Anjaar, )
District Kutch, Gujarat and its )
Mumbai office at Welspun House,
ig )
7th Floor, Kamala Mill Compound, )
Senapati Bapat Marg, Lower Parel (W), )
Mumbai 400 013. )
)
2. Ispat Industries Limited, a public )
company incorporated under the )
provisions of the Companies Act, 1956 )
and having its registered office at Park )
Plaza, 71, Park Street, )
Kolkata - 700 016 and also having )
its Corporate Office at 7th Floor, )
Nirmal, Nariman Point, )
Mumbai - 400 001. ) .. Petitioners.
vs
1. Union of India, through the Secretary, )
Ministry of Petroleum and Natural Gas, )
Shastri Bhawan, New Delhi - 110 001. )
)
2. Reliance Industries Ltd., a company )
incorporated under the provisions of the )
Companies Act, 1956 and having its )
registered office at Maker Chambers IV, )
3rd Floor, 222, Nariman Point, )
Mumbai - 400 021. )
)
3. NIKO (NECO) Ltd., a company )
incorporated under the laws of )
::: Downloaded on - 09/06/2013 17:28:12 :::
2 WP3748.11.doc
Cayman Islands with its registered )
office at Century Yard, Cricket Square, )
Hutchins Drive, Georgetown, Grand )
Cayman BWI, and its Indian office at )
Dynasty Business Park, 308 - 309, )
A Wing, 58, Andheri- Kurla Road, )
Andheri East, Mumbai - 400 069. )
)
4. NTPC Limited (A Government of India )
Enterprises) a company incorporated )
under the Companies Act, 1956 having )
Its Registered office at NTPC Bhawan, )
SCOPE Complex, Lodi Road, )
New Delhi 110 003.
ig )
)
5. GMR Energy Limited, a Company )
incorporated under the provisions of )
the Companies Act, 1956 and having )
its registered address at Skip House, )
25/1, Musuem Road, Bangalore, )
Karnataka - 560 025. )
)
6. GMR Vemagiri Power Generation )
Limited, a Company incorporated )
under the provisions of the Companies )
Act, 1956 and having its registered )
Address at Skip House, 25/1 Museum )
Road, Bangalore, Karnataka 560 025. )
)
7. Konaseema Gas Limited. )
a Company incorporated under the )
Companies Act, 1956, having its offices )
at 6-2-913/914, 2nd floor, Progressive )
Towers, Khairatabad, )
Hyderabad- 500004 Andhra Pradesh )
)
8. Ratnagiri Gas & Power Pvt.Ltd. )
At & Post - Anjanwel, Tal : Guhagar, )
Dist. Ratnagiri, Maharashtra - 415 703. )
)
9. Lanco Kondapalli Power Limited, )
Lanco House, Plot No. 4, Software )
Units Layout, Hitec City, Madhapur, )
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Hyderabad - 500 081. )
)
10. Fertilizer Association of India )
a Company registered under section 26 )
of the Indian Companies Act 1913 )
(corresponding to section 25 of the )
Companies Act, 1956), and having its )
registered office at 10, Shahidjit Singh )
Marg, New Delhi 110 067. ) .. Respondents.
Mr. Janak Dwarkadas, Sr. Advocate, Mr. Sharan Jagtiani, Mr. Kunal
Vajani, Mr. Ankit Virmani, Mr. H. Vaswani, i/b. M/s. Wadia Ghandy
& Co. advocates for petitioners.
Mr. Kevin Setalwad a/w. Mr. Jay K. Bhatia, advocate for respondent
No.1(UOI).
Mr. Milind Sathe, Sr. Advocate i/b. M/s. A.S. Dayal & Associates,
advocates for respondent No. 2.
Mr. Luckyraj Indorkar a/w. Mr. Ranjit Shetty i/b. M/s. Hariyani &
Co. for respondent No.3.
Mr. V.R.Dhond a/w. Mr. S.V.Doijode and Ms. Priyanka C. Kothari
i/b. Doijode & Associates, advocate for Respondent No.4.
Mr. Zubin Behramkamdin a/w Ms. Anuradha Agnohotri and Mr. M.
P. Bharucha i/b. M/s. Bharucha & Partners for respondent Nos. 5
and 6.
Mr. Dhavan i/b. M/s. Bilawala & Co. advocates for respondent No.
7.
Mr. Pradeep Rajagopal i/b Ms. Rekha Rajagopal, advocate for
respondent No. 8.
Mr. J.J. Bhat, Sr. Advocate a/w Mr. Vatsal Shah i/b. Naik Naik &
Co., advocates for respondent No.9.
Mr. Bomi Patel a/w Ms. Prachi Raj Mhatre a/w Mr. Rajesh Dubey
i/b. M/s. Bodhanwala & Co. advocates for respondent No.10.
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CORAM: MOHIT S. SHAH, C. J. AND
GIRISH GODBOLE, J
Judgment Reserved on 22 June 2011
Judgment Pronounced on 8 July 2011
JUDGMENT (Per Girish Godbole, J)
Rule. Since pleadings are completed, by consent of parties, rule made returnable forthwith and the petition is taken up for final hearing and heard finally.
2. By the present writ petition filed under Article 226 of the Constitution of India, initially the petitioners had sought the following substantive reliefs vide prayers (a) and (b) :-
"a. issue a writ, order or direction in the nature of certiorari calling for the records pertaining to the directives issued by Respondent No. 1 to Respondent Nos. 2 and 3 vide letters dated March 30, 2011 and April 21, 2011 [hereinafter referred to as the "Impugned Directives"] and after examining the legality and validity thereof, be pleased to quash the impugned Directives;
b. issue a writ, order or direction in the nature of mandamus directing Respondent No. 1 to conduct an exhaustive investigation into the affairs of Respondent Nos. 2 and 3 in respect of the extraction of natural gas from the KG D6 fields and to issue appropriate directions to ensure that the maximum production levels from the KG D6 fields are attained;"
3. The impugned directives issued by the respondent No.1 Union of India through its Ministry of Petroleum and Natural Gas (hereinafter referred to as Ministry of P & NG) are contained in the letters dated 30th March, 2011 and 12th April, 2011 being Exh.A to the writ petition whereby the respondent No. 1 issued directives to ::: Downloaded on - 09/06/2013 17:28:12 ::: 5 WP3748.11.doc the respondent no. 2 Reliance Industries Limited and Respondent No.3 NIKO (NECO) Limited regarding supply of Compressed Natural Gas (CNG); thereby modifying the directions contained in the earlier letter of Ministry of P & NG dated 12th July, 2010.
The said letter dated 30th March, 2011 reads thus:
"No.L-12011/2/2011-GP -1 Government of India ig Ministry of Petroleum & Natural Gas Shastri Bhawan, New Delhi 30th March 2011 To,
(i) M/s Reliance Industries Ltd
(ii) M/s Niko (NECO) Ltd Subject: Cuts in supply of KG D6 gas Please refer Ministry's letter No.L-12013/3/2010-GP dated 12.07.2010, wherein it has been directed inter alia that "on the days that KG D6 production is not sufficient to cater to all the customers with firm allocations, pro rata cuts should be imposed on all firm customers".
2. Subsequently, there has been significant reduction in the production of natural gas from KG DA fields which has led to substantial cuts being imposed on customers. Reduction in supply of natural gas to fertilizer plants has subsidy implications. Reduced supply of natural gas to power plants affects to LPG and CGD entities (for domestic & transport) directly benefits large number of people across the country.
3. Hence, in modification of the direction mentioned in para 1 above, supply to fertilizers, LPG, power and CGD (domestic and transport) sectors apart from gas needed for operation of EWPL, should be entirely met up to the firm allocations. In case gas availability is insufficient to meet the firm demand of these four sectors, cuts may be applied in the following order: CGD (domestic and transport), power, LPG, fertilizers. In view of the reduction in KG D^ production, if there is a shortfall in meeting the firm demand of the remaining sectors, pro rata cuts should be imposed on the same.
::: Downloaded on - 09/06/2013 17:28:12 :::6 WP3748.11.doc Yours faithfully, Sd/-
(Manu Srivastava) Director (GP) Tel: 23381029 Copy to:
1. Secretary, Department of Fertilizers, Shastri Bhawan, New Delhi - w.r.t.a O.M. No. 12014/2009-FPP dated 19.1.2011
2. Secretary, Ministry of Power, Shram Shakti Bhavan, New Delhi."
4.
In response to the letter dated 11th April, 2011 sent by respondent No. 2 RIL to the Ministry of P & NG seeking certain clarifications and directions in respect of the aforesaid letter dated 30th March, 2011, the respondent No. 1 has sent another letter dated 21st April, 2011 addressed to the respondent Nos. 2 and 3 which reads thus:
"No.L-12011/2/2011-GP-1 Government of India Ministry of Petroleum & Natural Gas ...
Shastri Bhavan, New Delhi Date: 21st April, 2011 To,
(i) M/s Reliance Industries Ltd.
(ii) M/s Niko (NECO) Ltd.
Subject: Cuts in supply of KG D6 gas.
Sir, ::: Downloaded on - 09/06/2013 17:28:12 ::: 7 WP3748.11.doc Please refer your letter No. RIL/GAS MKTG/MoPNG/11/04 dated 11.4.2011 wherein it has been stated inter alia that the implications of implementation of disproportionate cuts need to be appropriately addressed.
2. Under the Government's Gas Utilization Policy, allocations for KG D6 fields had initially been made for core sectors and subsequently, taking into account expectation of higher production, allocations had been made for non-core sectors. As the gas production from KG D6 fields has decreased to around 50 mmscmd, it is only natural that the said production be supplied firstly to core sectors and Ministry's direction vide letter of even number dated 30.3.23011 has been issued in this context. The said direction has been issued in pursuance of Government's Gas Utilization Policy under the provisions of the PSC.
Hence, the said direction needs to be complied with.
3. The Hon'ble Supreme Court in its order dated 7.5.2010 in the RIL and RNRL case has held that the Government owns the gas till it reaches its ultimate consumer. Further, it has been held that the PSC shall override any other contractual obligation between the contractor and any other party.
Yours faithfully, Sd/-
(Manu Srivastava) Director (GP) Tel.: 23381029 Copy to:
1. Secretary, Department of Fertilizers,) w.r.t. MoPNG's Shastri Bhawan, New Delhi. ) letter of even
2. Secretary, Ministry of Power, ) number dated 30th Shram Shakti Bhawan, New Delhi. ) March, 2011.
3. Secretary, Ministry of Steel, Uhoyag Bhawan, New Delhi.
4. Secretary Deptt of Chemical & Petrochemical, Shastri Bhawan, New Delhi.
Copy also forwarded to:- As per list enclosed."
5. In view of the aforesaid directives of the respondent No. 1, the respondent No. 2 in turn addressed letter dated 4th May, 2011 to the petitioners in respect of Gas Sales and Purchase Agreement ::: Downloaded on - 09/06/2013 17:28:12 ::: 8 WP3748.11.doc (GSPA, for short) being Exh. CC to the Petition, informing the petitioners that with effect from 06.00 hours on 9th May, 2011 the available quantities of gas will be apportioned in accordance with the directions of the Government contained in letters dated 30th March, 2011 and 21st April, 2011.
6. Present petition was thereafter filed on 6th May, 2011 and was moved for urgent reliefs before the Division Bench of this Court.
The Division Bench expressed prima facie view that a meeting needs to be arranged between the petitioners and the respondent no.
1 to sort out the question of allocation of gas to core sectors and other industries. By subsequent order dated 9th May, 2011 passed in the writ petition it was directed as under:
"CORAM- MRS.MRIDULA BHATKAR AND R.G.KETKAR,JJ DATE - 9th MAY, 2011 P.C. Pursuant to the order dated 6th May, 2011, especially the directions given in paragraph 5 of the said order, the parties are before us.
2. The petitioners agree to go before respondent no.1 who is going to hear the grievance of the petitioners and will take the decision.
3. Learned counsel for respondent no.1 states that on 11th May, 2011 the Jt. Secretary or Additional Secretary, Ministry of Petroleum and Natural Gas will hear the petitioners and other respondents. Respondent no.1 after hearing them on 11th May, 2011 will take the decision in this matter on or before 18th May 2011. Respondent no.1 undertakes to communicate the said decision to the petitioners on or before 19th May, 2011.
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4. This arrangement is made without prejudice to the rights and contentions of the parties.
5. Learned counsel for respondent no.1 submits that other industries are also affected due to the change in allocation of natural gas and, therefore, they shall hear the other aggrieved parties also on 11th May, 2011.
By consent list this petition on 23rd May, 2011."
7. Accordingly the Joint Secretary to Ministry of P & NG of respondent no.1 granted hearing to the petitioners and other industries/affected parties on 11th May, 2011 and the list of various parties who participated in the said hearing indicates that apart from the petitioners and Essar Steel Limited which is also a sponge iron manufacturer similarly situated as the petitioners; the respondent Nos. 2 to 10 herein and GAIL (India) Limited also attended hearing.
Apart from the oral hearing, the petitioner No.1 also filed written submissions/arguments before the Joint Secretary to the Government of India who had heard the parties.
8. On 18th May, 2011, Shri. Apurva Chandra, Joint Secretary to the Government of India, Ministry of P & NG passed a detailed order after considering the contentions of all the parties and the decisions of the Empowered Group of Ministers (EGOM) dated 28th May, 2008 and other subsequent decisions. The Joint Secretary overruled objections of the petitioners and it was held that on ::: Downloaded on - 09/06/2013 17:28:12 ::: 10 WP3748.11.doc account of the shortfall of CNG production in Krishna-Godavari Basin Gas Field No. D6 namely, KG D6 production, the directives contained in the letter dated 30th March, 2011 and 21st April, 2011 were issued in larger public interest. Final conclusion drawn by the Joint Secretary and the operative order can be culled out from the said order, which reads thus:
"6.9 Ministry's directions is in furtherance of EGOM's decisions and has been issued to ensure higher supply to those customers who were given high priority by the EGOM in its allocation decisions. In view of the recent shortfall in KG D6 production, the Contractor has been directed vide Ministry's letter dated 30th March 2011 & subsequently dated 21st April 2011, to supply KG D6 gas in full to fertilizers, LPG, power and CGD (domestic and transport) sectors, apart from gas needed for pipeline operation in larger public interest. If there is a shortfall in meeting the firm demand of the remaining sectors pro rata cuts should be imposed on them. It is also made clear that if production from KG D6 fields increases, then the supply to various non-core customers would also increase. So the supply is fully dependent on production.
7. In view of the above facts and the fact that production from KG D6 fields is presently below expectation, the supply of non core sector on whom cut has been imposed cannot be restored at the cost of the core sector."
9. After the petitioners were served with the aforesaid order dated 18th May, 2011, on an oral application seeking leave to amend the writ petition and challenge the aforesaid order dated 18th May, 2011; by our order dated 9th June, 2011 the petitioners were granted such leave and accordingly, the petitioners have amended the writ petition and have challenged the order dated 18th May, 2011 vide prayer clause (ba) which reads thus:
ba. a writ, order or direction from this Hon'ble Court in the nature of ::: Downloaded on - 09/06/2013 17:28:12 ::: 11 WP3748.11.doc certiorari calling for the records pertaining to the impugned Order dated 18th May 2011 passed by Respondent No.1 annexed hereto as Exhibit A-1, pursuant to the hearing held by Respondent No. 1 on 11th May, 2011 and after examining the validity thereof setting aside the impugned order.
10. Various power producers using CNG had filed Civil Application Nos. 1097/11, 1102/11, 1139/11, 1141/11 and 1243/11 for impleadment/intervention and by our order dated 9th June, 2011, the said civil applications were allowed and the said power producers have been impleaded as respondent Nos. 4 to 9.
Similarly, the Civil Application No.1244 of 2011 filed by Fertilizer Association of India for being impleaded as party respondent has also been allowed by us by a separate order passed on 22nd June, 2011 and the said Association has been added as 10th respondent.
We are informed that Essar Steel Limited has filed a petition in Delhi High Court and the same is pending.
11. Briefly stated the case of the petitioners as pleaded in the petition is as under:
(a) Both the petitioners are public limited companies and are running sponge iron plants using CNG as feed stock. The petitioner No. 1 runs its plant at Salav, Maharashtra employing about 1,050 people, the petitioner No. 2 is an integrated steel manufacturer and has two manufacturing units of sponge iron plants, one at Dolvi in ::: Downloaded on - 09/06/2013 17:28:12 :::
12 WP3748.11.doc Raigad District and other at Kalmeshwar near Nagpur and employs about 6000 people. Both petitioners contribute substantial amount to the State and Central Government exchequers in form of taxes.
(b) Respondent Nos. 2 and 3 have entered into a PSC dated 12th April, 2000 with respondent No. 1 for extraction of natural gas from KG D6 fields and subsequently entered into Joint Operating Agreement dated 4th October, 2002. The petitioners were being supplied CNG by GAIL and had been allocated 0.90 million standard cubic meters per day (mmscmd, for short) for petitioner No. 1 and 1.35 mmscmd for petitioner No. 2. Subsequently, on account of reduction in the supply of CNG, the supply of petitioner Nos. 1 and 2 was reduced to 0.240 mmscmd and 0.75 mmscmd respectively. On 25/6/2008 the respondent No.1 issued a press note containing the decisions taken by the EGOMs in its meeting dated 28/5/2008. (A detailed reference to the said EGOM minutes and the minutes of the subsequent meetings of EGOMs dated 23/10/2008, 8/1/2009 and 27/10/2009 and the relevant press notes would be made in greater detail at a later stage.) In the press note dated 25/6/2008, guidelines for supply of CNG and order of priority was prescribed and the contractors had marketing freedom in respect of supply of CNG to consumers subject to priorities in the guidelines.
The said guidelines were applicable for 5 years. By another press ::: Downloaded on - 09/06/2013 17:28:12 ::: 13 WP3748.11.doc note issued on the basis of the EGOMs meeting dated 23/10/2008 titled as "Decision Regarding Pricing and Commercial Utilization of Natural Gas Under New Exploration Licencing Policy", various decisions were announced. By clause 10 of the said press note it was provided as under :
"10. It has been decided to give priority to the existing natural gas based sponge iron/steel plants after the sectors prioritized earlier. However, the supply would be made from the production beyond the first 40 mmscmd to be produced from RIL's KG-D6 field.
By subsequent EGOMs meeting held on 8/1/2009 certain further decisions were taken by the EGOMs. According to the petitioners while confirming the prioritization of the core sectors as decided in its earlier meeting, a decision was taken to give priority for supply of CNG to priority sectors only from the first 40 mmscmd of gas produced from RIL KG D6 field.
(c) The Ministry of Steel thereafter assessed the gas requirements of sponge iron / steel plants and issued an office memorandum dated 12th May, 2009 (Exh. D) by which the requirement of CNG for petitioner Nos. 1 and 2 was estimated to be 0.4 mmscmd and 0.59 mmscmd respectively. The Ministry of P & NG thereafter issued letter dated 12th June, 2009 to the respondent Nos. 2 and 3 and the petitioner No. 1 was allotted 0.36 mmscmd, the petitioner No. 2 was allotted 0.53 mmscmd and Essar Steel was allotted 2.86 mmscmd. The petitioners were thereafter directed to ::: Downloaded on - 09/06/2013 17:28:12 :::
14 WP3748.11.doc enter into GSPAs with respondent Nos. 2 and 3 and accordingly, the respondent Nos. 2 and 3 entered into Gas Sale and Purchase Agreements (GSPAs) dated 24/6/2009 and 22/6/2009 with the petitioner Nos. 1 and 2 respectively. The respondent No.1 thereafter issued another press note dated 16th November, 2009 and policy decision taken by the EGOMs in its meeting dated 27th October, 2009 regarding commercial utilization of gas produced under NELP were published. Along with the said press note a chart showing the allocations to various sectors was also published and the steel sector was given a firm allocation of 4.19 mmscmd.
(d) The respondent No. 1 thereafter issued a letter dt. 19th November, 2009, Exh. J to the petition, to the respondent Nos. 2 and 3 contractors and a firm allocation of KG D6 gas was made to the petitioners and M/s. Essar Steel. Based on the above letter, the GSPAs executed between the petitioners and respondent Nos. 2 and 3 were suitably amended. The petitioner No. 1 thereafter made representation to the Ministry of Steel for increasing the allocation, whereupon the Ministry of Steel issued Office Memorandum dated 16/1/2010 suggesting that an additional 0.13 mmscmd should be allotted to the petitioners. The petitioner No.1 thereafter made representations for increase in supply of gas, but there was no response from the Ministry of P & NG. As a result of which, ::: Downloaded on - 09/06/2013 17:28:12 ::: 15 WP3748.11.doc according to the petitioners, the petitioner No. 1 was forced to procure expensive gas on spot basis, which is popularly known as RLNG (Regasified Liquefied Natural Gas). The petitioner No. 1 also installed oxygen injection system in its plant. Respondent No. 1 thereafter issued letter dated 12/7/2010 to respondent Nos. 2 and 3 directing them to impose pro rata cuts on all firm customers on the days that KG D6 production is not sufficient to cater to all the customers. The respondent No. 1 thereafter sent a proposal to the Petitioner No. 1 by its letter dated 29th October, 2010 for replacing the supply from KG D6 field by supply from ONGC and the petitioner No. 1 gave a favourable response to the said proposal.
From January, 2011 onwards, on account of substantial reduction in the supply of CNG, the petitioner No. 2 addressed several letters.
Ultimately, the respondent No.1 issued the impugned directives contained in the letter dated 30th March, 2011 modifying the earlier directions contained in the letter dated 12/7/2010. Representations dated 31st March, 2011 and dated 7th April, 2011 were made by the Sponge Iron Manufacturers' Association against the said cuts.
However impugned letter dated 21st April, 2011 was issued by the respondent No.1 directing the respondent Nos. 2 and 3 to implement the directives.
(e) That the order dated 18th May, 2011, violates the guidelines ::: Downloaded on - 09/06/2013 17:28:12 ::: 16 WP3748.11.doc fixed by the EGOM to the effect that the priority is given to the core sector only for the first 40 mmscmd out put from KG D6 field and in respect of production in excess of 40 mmscmd the priority should be given to the gas based steel plants and the impugned decision of the Ministry of P & NG is contrary to the decision of EGOMs. That the impugned order dated 18th May, 2011 is manifestly arbitrary. No cogent reasons have been given. It is untenable being based on completely extraneous and irrelevant grounds. That the reasons for giving priority to core sectors vis-a-vis non core sectors are not only unreasonable and illegal but are not even reasons which have accrued subsequent to the EGOMs decisions. It is therefore, pleaded that the respondent No. 1 is virtually sitting in appeal over the decisions of the EGOMs and the impugned order suffers from non application of mind.
12. An Affidavit In Reply has been filed by Shri K.K.Sharma, Under Secretary to the Government of India in the Ministry of P & NG giving particulars of the various decisions taken by EGOM regarding GSPA and the Production Sharing Contract (PSC). An objection regarding maintainability of the writ petition has also been raised by relying upon the provisions of clause 26 (b) (ii) of the GSPA executed between the petitioners and the respondent Nos. 2 ::: Downloaded on - 09/06/2013 17:28:12 ::: 17 WP3748.11.doc and 3 and it is contended that since the said agreement contains an arbitration clause, the writ petition is not maintainable on account of existence of an alternate remedy. Charts showing gradual decrease in the production of CNG from KG-D6 field from December, 2010 till 30th May, 2011 and the particulars of distribution are annexed to the said affidavit as Annexure R-1 to R-6 (to which reference would be made at a later stage). Reliance has been placed on the Judgment of the Hon'ble Supreme Court of India delivered on 7th May, 2010 in the case of Reliance Natural Resources Limited v/s.
Reliance Industries Limited [(2010) 7 SCC 1]1 in support of the submissions that (a) CNG vests in the Government of India and its utilization and distribution has to be done keeping in view the best interest of the country and public at large. (b) Till the gas reaches its last consumer it is owned by the Government of India and the PSC over rides any other contractual obligations between the contractor and any other party. (c) The CNG vests in the Government as a matter of trust and the regulations and distribution through allotments and allocations has to be done in national interest and hence in case of reduced availability, the gas has to be supplied to core sectors, fertilizer, power, Liquefied Petroleum Gas (LPG) and City Gas Distribution i.e. CGD (domestic & transport)
1. Reliance Natural Resources Limited v/s. Reliance Industries Limited [(2010) 7 SCC 1] ::: Downloaded on - 09/06/2013 17:28:12 ::: 18 WP3748.11.doc where output prices are controlled. (d) No consumer has any accrued or vested right to get a particular quantity of gas and the allocation made is in accordance with the Government's GUP. (e) Condition precedent for supply to steel sectors would arise only after earlier priority sectors would get sufficient quantity.
At this juncture it is necessary to note specific stand of the respondent No. 1 in respect of allocation of 3.75 mmscmd of gas to the steel sectors by communication dated 12/6/2009. In this regard relevant averments in the affidavit in reply are to be found in paras-10, 11 and 25 part, which read thus:
"10. On review of the matter, it was found that there was surplus gas available from City Gas Distribution (CGD) Projects to the extent of 3.75 mmscmd, which could be allocated to a non-core priority sector and, consequently, the EgoM in its meeting held on 09/04/2009 decided that the Ministry of Petroleum and Natural Gas is authorised to the decision regarding the supply of unutilized quantity of natural gas from CGD sector And priority was to be accorded to gas-based steel plants.
11. In pursuance of the said meeting held on 09/04/2009, the Ministry of Petroleum & Natural Gas by its communication dated 12/06/2009 (p- 50 of the petition) made allocation to the steel plants, as detailed in the said communication, requesting the operator to supply quantity of gas as mentioned in the said communication.
25. When the gas production was envisaged to be 40 mmscmd, allotments were made only to fertilizers, LPG, power and CGD (domestic & transport) sectors. It is not correct to say that steel sector was allocated gas within the first 40 mmscmd. In fact, CGD sector (transport & domestic) was not in a position to offtake the entire 5 mmscmd allocated to it by the EgoM, as CGD entities are merely aggregators of demand of CNG-based vehicles & households using Piped Natural Gas (PNG), both of which convert slowly, and, hence, it takes a long time to build up the demand of CGD sector. It is 3.75 mmscmd of unutilized gas by the CGD sector which was transferred to the steel sector."::: Downloaded on - 09/06/2013 17:28:12 :::
19 WP3748.11.doc Along with the affidavit of respondent No.1, 6 charts showing availability of gas from the KG D-6 field, allocation to various sectors including core and non-core sectors, supply to various sectors and the percentage reduction in supply from December, 2010 to May, 2011 have been annexed as Annexure R-1 to R-6 and it would be useful to reproduce the contents of the said charts.
Annex. R-1
ig Dec-10
Allocation* Average supply % reduction in
Name of the sector (mmscmd) (mmscmd) supply
Fertilizers 15.35 14.05 8.47%
Power 29 25.88 10.76%
CGD 0.65 0.6 7.69%
LPG 2.59 2.3 11.20%
Total Core Sector 47.59 42.83 10.00%
Petrochemical 1.92 1.86 3.12%
Refineries 3.46 3.33 3.76%
Steel 4.19 3.41 18.62%
Total Non Core Sector 9.57 8.6 10.14%
Total 54.16 51.43 10.02%
*Allocations pertain only to GSPAs signed by the Contractor. In addition to the above, 0.85 mmscmd has been supplied for pipeline operation.
Annex. R-2
Jan-11
Allocation* Average supply % reduction in
Name of the sector (mmscmd) (mmscmd) supply
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20 WP3748.11.doc
Fertilizers 15.35 13.66 11.01%
Power 29 25.35 12.59%
CGD 0.65 0.59 9.23%
LPG 2.59 2.35 9.27%
Total Core Sector 47.59 41.95 11.85%
Petrochemical 1.92 1.81 5.73%
Refineries 3.46 3.22 6.94%
Steel 4.19 3.66 12.65%
Total Non Core Sector 9.57 8.69 9.20%
Total
ig 57.16 50.64
*Allocations pertain only to GSPAs signed by the Contractor.
11.41% In addition to the above, 0.88 mmscmd has been supplied for pipeline operation.
Annex. R-3
Feb-11
Allocation* Average supply % reduction in
Name of the sector (mmscmd) (mmscmd) supply
Fertilizers 15.35 13.64 11.14%
Power 29 24.56 15.31%
CGD 0.65 0.59 9.23%
LPG 2.59 2.36 8.88%
Total Core Sector 47.59 41.15 13.53%
Petrochemical 1.92 1.81 5.73%
Refineries 3.46 3.03 12.43%
Steel 4.19 3.81 9.07%
Total Non Core Sector 9.57 8.65 9.61%
Total 57.16 49.8 12.88%
*Allocations pertain only to GSPAs signed by the Contractor. In addition to the above, 0.97 mmscmd has been supplied for pipeline operation.
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21 WP3748.11.doc
Annex-R-4
Mar-11
Allocation* Average supply % reduction in
Name of the sector (mmscmd) (mmscmd) supply
Fertilizers 15.35 12.7 17.26%
Power 29 24.74 14.69%
CGD 0.65 0.56 13.85%
LPG 2.59 2.26 12.74%
Total Core Sector 47.59 40.26 15.40%
Petrochemical ig 1.92 1.67 13.02%
Refineries 3.46 3.02 12.72%
Steel 4.19 3.64 13.13%
Total Non Core Sector 9.57 8.33 12.96%
Total 54.16 48.59 14.99%
*Allocations pertain only to GSPAs signed by the Contractor.
In addition to the above, 0.88 mmscmd has been supplied for pipeline operation.
Annex. R-5
Apr-11
Allocation* Average supply % reduction in
Name of the sector (mmscmd) (mmscmd) supply
Fertilizers 15.35 12.19 20.59%
Power 29 25.34 12.62%
CGD 0.65 0.57 12.31%
LPG 2.59 2.25 13.13%
Total Core Sector 47.59 40.35 15.21%
Petrochemical 1.92 1.66 13.54%
Refineries 3.46 2.95 14.74%
Steel 4.19 3.64 13.13%
Total Non Core Sector 9.57 8.25 13.79%
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22 WP3748.11.doc
Total 54.16 48.6 14.98%
*Allocations pertain only to GSPAs signed by the Contractor. In addition to the above, 0.75 mmscmd has been supplied for pipeline operation.
Annex. R-6
9th May-2011 to 30th May-11
Allocation* Average supply % reduction in
Name of the sector (mmscmd) (mmscmd) supply
Fertilizers 15.35 13.77 10.29%
Power 29 26.87 7.34%
CGD ig 0.65 0.61 6.15%
LPG 2.59 2.55 1.54%
Total Core Sector 47.59 43.8 7.96%
Petrochemical 1.92 0.67 65.10%
Refineries 3.46 1.21 65.03%
Steel 4.19 3.35 64.92%
Total Non Core Sector 9.57 3.35 64.99%
Total 54.16 47.15 17.51%
*Allocations pertain only to GSPAs signed by the Contractor. In addition to the above, 0.91 mmscmd has been supplied for pipeline operation."
13. On behalf of respondent No. 4 NTPC an affidavit in reply has been filed by the Senior Manager of Respondent No. 4 for opposing the writ petition. An affidavit in reply has also been filed on behalf of the respondent No. 8 Ratnagiri Gas and Power Private Limited by the D.G.M. (Commercial). Contents of the affidavits filed on behalf of the NTPC and Ratnagiri Gas & Power Pvt. Ltd. need not be discussed in greater details since they support the impugned ::: Downloaded on - 09/06/2013 17:28:12 ::: 23 WP3748.11.doc orders and the stand taken by the respondent No. 1. They have pleaded that they have to sell the power at subsidized rates which are fixed by the regulatory authorities and any decrease in the supply of CNG would result in corresponding increase in cost of production and the subsidy burden on the State Governments would increase. Added respondent No.10 has however, indicated the figures of huge subsidy which is paid by the Government of India over a year to fertilizer manufacturers on account of the difference between the higher cost of production and substantial lower controlled sale price and its pointed out that if the supply of CNG to the said fertilizer unites, which also use CNG as feed stock is reduced any further; the units would be either be forced to partly shut down or would be forced to use costly alternative feed stock like naptha, oil etc. which would in turn result in to a substantial escalation in the quantum of subsidy which would be required to be given by the Government of India to such fertilizer manufacturers.
The other respondents have probably not chosen to file any affidavits since their defense is almost similar. No Rejoinder Affidavit has been filed by the petitioners.
14. On the backdrop of the aforesaid pleadings, we have heard the submissions of Mr. Janak Dwarkadas, learned senior counsel ::: Downloaded on - 09/06/2013 17:28:12 ::: 24 WP3748.11.doc for the petitioners and Mr. Kevic Setalwad, Special Counsel appearing on behalf of the respondent No. 1 at great length. We have also heard submissions of Dr. Milind Sathe, Sr. Advocate appearing on behalf of the respondent No. 2, which were adopted by Mr. Indorkar, learned counsel appearing for respondent No.3.
During the course of hearing Dr. Sathe has filed a compilation of 6 letters in respect of the controversy in the petition to which some reference would be made by us in due course. We have heard senior advocate Mr. J.J. Bhat, appearing on behalf of the respondent No. 9, which is a power producer; Mr. V.R. Dhond, learned counsel addressed on behalf of respondent No. 4 NTPC at some length. Mr. Pradeep Rajagopal, learned counsel appearing for respondent No.8 and the learned counsel appearing on behalf of the respondent Nos.
5, 6 and 7 have adopted the arguments advanced on behalf of the respondent No. 1 and 4. We have also heard Mr. Bomi Patel, learned counsel appearing on behalf of the added respondent No. 10 Fertilizer Association.
15. We would now note the submissions advanced by the learned counsel for the respective parties.
(A) The learned senior counsel Mr. Janak Dwarkadas advanced ::: Downloaded on - 09/06/2013 17:28:12 ::: 25 WP3748.11.doc following submissions:
(a) The policy laid down by EGOMs in its meeting dated 28th May, 2008 as further modified in the meeting dated 23/10/2008 is completely overhauled, mauled and given a complete go bye by the Ministry of P & NG which the Ministry is not at all authorized to do.
(b) That a completely new policy contrary to the decision of EGOMs has been framed and is being implemented with effect from 9/5/2011. This action of the Ministry of P & NG is completely without jurisdiction, without any authority of law, contrary to the policy fixed by the EGOMs and hence impugned directions are arbitrary, illegal, irrational and without authority of law. The Ministry of P & NG is confusing between the words "allocation"
and "priority". Clause 10 of the EGOMs decision dated 23/10/2008 clearly gives priority to the existing natural gas based sponge iron / steel plants after the sectors prioritized earlier (core sectors like fertilizers, independent power producers, CGD (domestic and transport) and LPG). Thus, the priority to the core sector was restricted to the supply of first 40 mmscmd to be produced from KG D6 fields and the moment the production exceeded beyond first 40 mmscmd, CNG based sponge iron plants like the petitioners were given immediate next priority in respect of production beyond the ::: Downloaded on - 09/06/2013 17:28:12 ::: 26 WP3748.11.doc first 40 mmscmd. The Ministry of P & NG was therefore not justified in overruling the said decision taken vide clause 10 of the EGOMs meeting dated 23/10/2008. Once a firm allocation of CNG was made to the petitioners and the other sponge iron manufacturer (M/s. Essar Steel) by the Ministry of P & NG the order dated 12th June, 2009 with direction that the respondent Nos. 2 and 3 shall execute GSPAs with the sponge iron steel manufacturers for the quantities indicated therein namely, which was further enhanced by the order of Ministry of P& NG dated 19th November, 2009 increasing the firm allocation to the steel sector; the GSPAs executed between the petitioners and the respondent Nos. 2 and 3 must be treated as binding on the respondent Nos. 1 to 3 and the respondent Nos. 1 to 3 are therefore, bound to supply the aforementioned quantities since the same are firm allocations. Once the sponge iron manufacturers are given firm allocation up to 4.19 mmscmd per day read with clause 10 of the EGOMs decision dated 23/10/2008, unless and until the production from KG D6 fields failed below 40 mmscmd there was absolutely no justification and question of imposing any cuts in the supply of CNG to the sponge iron manufacturers. The word "allocation" connotes firm allocation and as far as priority is concerned, for the first 40 mmscmd though the core sectors may get priority, no such priority can be given to ::: Downloaded on - 09/06/2013 17:28:12 ::: 27 WP3748.11.doc the core sectors in respect of the production beyond the first 40 mmscmd of CNG. The stand taken by the respondent No. 1 in the impugned orders is thus contrary to the decisions of the EGOMs.
The Ministry of P & NG is virtually trying to rewrite the Gas Utilization Policy. That the following contention raised in paragraph- 3.4 (page 21) of the affidavit in reply filed by the respondent No. 1 is completely erroneous, shows complete non-
application of mind and is contrary to the EGOMs decisions.
"Para 3.4 ..... Thus, it is evident that priorities are vertical and claim of a sector which is low in priority arises only if the allocation to the sector which is higher in priority is met. The priority given to the core sectors was never restricted to any quantity of gas nor was the same restricted to the first 40 mmscmd of gas produced from the KG D-6 field. The intention has always been that the core sectors should receive their full requirement and maximum possible allocation."
The Ministry of P&NG is having only the residual power and authority to reduce the supply of CNG to the steel sector only in so far as the first 40 mmscmd production is concerned and does not have any such power of reduction till production is in excess of 40 mmscmd. The provisions of clause 8 of EGOMs decision dated 23/10/2008 cannot override the clauses 7 and 10. CNG being a scarce natural resource, the Public Trust doctrine must be applied and the State cannot distribute the natural resources in an arbitrary manner leading to a situation where one sector of industries suffers ::: Downloaded on - 09/06/2013 17:28:12 ::: 28 WP3748.11.doc substantial financial loss and prejudice whereas the other sectors benefit at the cost of the sector whose supply is reduced. In fact, the Ministry of P & NG had itself issued directives contained in its letter dated 12/7/2010 and the following directions contained in paragraph-2 and 3 of the said letter dated 12th July, 2010 were just, proper, legal and in accordance with the decisions of the EGOMs.
"2. The issue raised in the letter has been examined in the Ministry. The considered view of the Ministry is that the decision taken by the Empowered Group of Ministers EgoM) are to be implemented in toto.
Hence, GSPAs have to be signed with all the customers, who have been allocated KG D-6 gas and are presently ready to take KG D-6 gas. GSPAs should be signed with all such customers expeditiously, as there has been considerable delay already.
3. In order to address the issue raised in the above mentioned letter, the following directors should be compiled with : -
a) KG D6 gas should be supplied to customers against their fallback quantitites only after all customers, who have executed GSPAs with the Contractor, are offered gas up to the level of their firm quantities.
b) On the days that KG D6 production is not sufficient to cater to all the customers with firm allocations, pro rata cuts should be imposed on all firm customers.
Sd/-
(Manu Srivastava) Director (GP)"
In accordance with the said directives dated 12/7/2010 in fact pro rata cuts were being imposed on all the customers from December, 2010, but without any justification and authority, the Ministry of P & NG suddenly issued the impugned letters dated 30th March, 2011 and 21st April, 2011. By referring to averments on pages 23, 24 and ::: Downloaded on - 09/06/2013 17:28:12 :::
29 WP3748.11.doc 33 of the petition, it was contended that on account of the cuts in supply of CNG, there will be huge additional financial burdens on the petitioners as they would be forced to meet their requirements by purchasing spot cargoes of RNLG at much higher rate and since the GSPAs contain an assurance, the respondents are estopped from reducing the supply. It is contended that the entire capital of the petitioners would be wiped out and they would be incurring losses.
(c) The impugned order dated 18th May, 2011 is completely erroneous, the author of the order has failed to consider relevant facts, the reasons given in the order are irrational and disclose a complete non-application of mind. The reasons given namely, the requirement of fertilizers in Kharif season and requirement of additional power due to intense heat calling for higher power production were factors which were always in existence being recurring events and must be deemed to have been taken into consideration by the EGOMs before arriving at the decision dated 23/10/2008 and hence, the Ministry of P & NG could not have passed the impugned order.
(B) Mr. Kevic Setalwad, learned counsel for the respondent No.1 advanced the following submissions.
(a) A careful perusal of decisions taken by the EGOMs on ::: Downloaded on - 09/06/2013 17:28:12 ::: 30 WP3748.11.doc 28/5/2008 as reflected in the clause 2, 3 and 4 of the press note dated 25/6/2008 clearly shows that the marketing priorities were fixed in the following order: (i) Urea Fertilizer Plants, (ii) Gas Based LPG plants, (iii) Gas Based Power Plants and (iv) City Gas Distribution (Household And Transport).
(b) That any additional gas was to be supplied to existing gas based power plants.
(c) Vide clause 2(d) of the Minutes of EGOMs dated 28/5/2008, it was decided that supply of CNG to the fertilizer sector to meet the demand which would be generated in future would be given highest priority and this was the governing clause of the policy.
(d) Decision to give priority to core sector as reflected from the EGOMs decision dated 23/10/2008 was not only for the first 40 mmscmd but the entire incremental production was to go to the priority/core sector. The entire incremental production of gas had to be essentially allocated to the priority sectors up to their firm requirements.
(e) Clause 2 of the EGOMs Minutes dated 23/10/2008 has to be read in its entirety and the same indicates that clause 10 of the press note will have to be interpreted to mean that priority to steel sector can be given only after the first 4 prioritized core sectors get ::: Downloaded on - 09/06/2013 17:28:12 ::: 31 WP3748.11.doc their entire allocation. Even the initial allocation of 3.75 mmscmd made on 12th June, 2009 was on account of the availability of unutilized CNG allocated to the CGD sector which is clear from EGOMs decision dated 27/10/2009. Referring to paragraph- 29 of the affidavit in reply, it is pointed out that there is no rejoinder/ denial. EGOMs decision dated 27/10/2009 incorporated in press note on 6th November, 2009 and the chart annexed thereto show that on the assumption that the total confirmed availability of the gas would 61.611 mmscmd; after making firm allocations of 31.165, 15.508, 0.83 and 3 mmscmd to power, fertilizer, CGD and LPG sectors; 4.19 mmscmd from the balance quantity was the firm allocation to the steel sector. The total firm allocation to the core sector was 50.503 mmscmd and hence only after meeting the said demand, question of making allocation to the steel sector would arise.
(f) The charts for production, supply and distribution of CNG from December 2010 to May, 2011 clearly show the gradual fall in production and in fact even the reduced firm allocation of 47.59 mmscmd to the core sector based on GSPAs executed by the core sector consumers, which is their firm full requirement is not being fulfilled and there is also a reduction in the supply made to them. According to the GUP, since the core sector had to be given ::: Downloaded on - 09/06/2013 17:28:12 ::: 32 WP3748.11.doc preference; on account of substantial decrease in the production, the Ministry was justified in issuing the impugned directives which were issued in the larger public interest.
(g) The petitioners are operating their plants much prior to the KG D6 fields was found and came into operation. Merely because on account of increased supply from the said field for some time, cheaper CNG was allocated to them, they cannot claim any estoppel or equity. The core sector has to operate with fixed sale price and any reduction in gas supply to the core sector would have serious financial implications and results in huge financial losses to the Central Government and the State Government on account of enhanced burden of subsidy if the core sector is required to use costly alternate fuel. Some consumers from core sector will have to completely shut down the operations if supply of CNG is reduced.
(h) In view of the law laid down by the Hon'ble Supreme Court of India in the case of RNRL v.s RIL (supra) and particularly the observations in various paragraphs and the conclusions recorded in paragraph- 218 it was submitted that the decision of Ministry of P & NG was legal, valid and in consonance with the law laid down by the Apex Court. Referring to various paragraphs of the order dt.
18.5.2011 it was submitted that the order is just, reasonable and all relevant factors are considered.
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(i) Reliance was also placed on the following judgments of the Hon'ble Supreme Court -
(i) Shrijee Sales Corporation and Anr. v/s Union of India and Ors. (1997) 3 SCC 3982 at page 402 to support the submission that estoppal cannot be pleaded against public interest.
(ii) Kasinka Traders and Anr. v/s Union of India (2007) 1 SCC 2743 at page 283 to support the submission that the doctrine of promissory estoppal cannot be pressed into aid to compel the Government or the public authority to carry out a representation or promise if it is contrary to law and while considering the applicability of the doctrine courts have to do equity.
(iii) M. P. Mathur & ors vs. D.T.C. & ors. (2006) 13 SCC 7064 at page 715 in support of the submission that promissory estoppel is based on equity and the Court has to strike a balance between individual rights and larger public interest.
(iv) State of West Bengal and ors. vs. Niranjan Singha (2001) 2 SCC 3265 at page 329 in support of the submission
2. Shrijee Sales Corporation and Anr. v/s Union of India and Ors. (1997) 3 SCC 398.
3. Kasinka Traders and Anr. v/s Union of India (2007) 1 SCC 274
4. M. P. Mathur & ors vs. D.T.C. & ors. (2006) 13 SCC 706.
5. State of West Bengal and ors. vs. Niranjan Singha (2001) 2 SCC 326 ::: Downloaded on - 09/06/2013 17:28:12 ::: 34 WP3748.11.doc that the doctrine of "legitimate expectation" by itself does not give rise to an enforceable right and is subject to public interest.
(C) Dr. Milind Sathe, learned Senior Advocate appearing on behalf of the respondent No. 2 RIL which is a contractor, made the following submissions.
(a) The PSC shall override any other contract including GSPAs executed between the petitioners and respondent Nos. 2 and
3.
(b) The impugned letters dated 30th March, 2011 and 21st April, 2011 have to be read in proper context. By earlier letter dated 18th June, 2010, the respondent No. 2 had sought advice which was replied by letter dated 12th July, 2010 but in view of the change in circumstances revised directives were issued and in view of the law laid down by the Apex Court the respondent Nos. 2 and 3 were bound to comply with the directives of the Ministry of P & NG.
(c) Heavy reliance was placed on the various observations in the judgment of RNRL vs. RIL (supra).
(D) Counsel appearing for the respondent No. 3 adopted the submissions of Dr. Sathe.
::: Downloaded on - 09/06/2013 17:28:12 :::35 WP3748.11.doc (E) Mr. J. J. Bhat, learned Senior Counsel appearing for the respondent No. 9 advanced following submissions:
(a) There is nothing in the policy laying down that any surplus gas over and above 40 mmscmd has to be distributed pro rata to the core sector and non- core sector consumers.
(b) Relying on clause 2 (b) (vi) and 2 (c) (v) of the EGOMs minutes dt. 28.5.2008, it was submitted that any additional gas available was to be supplied to existing gas based power plants as their requirement was more.
(c) Relying on the EGOMs minutes dated 23/10/2008 it was submitted that steel sector was to start getting some gas only after the first 40 mmscmd and there is no mandatory requirement to supply a specified quantity of gas to steel sector beyond availability of 40 mmscmd.
(d) The EGOMs Minutes dated 8/1/2009 clearly show that decisions regarding supply of gas to petrochemical refineries and steel sectors including steel units of RIL can only be taken when there is an increase in production beyond 40 mmscmd and hence, there was no firm allocation to these non core sectors which would have the result in reduction in allocation to the core sector.
(e) Clause (r) in press note dated 16/11/2009 reflecting ::: Downloaded on - 09/06/2013 17:28:12 :::
36 WP3748.11.doc decisions in the EGOMs meeting dated 27/10/2009 clearly states that the Ministry of P & NG was empowered to take decisions regarding supply of CNG depending upon availability of gas and factors like short offtake, delay and any other unforeseen circumstances; which is precisely what is done in public interest.
(f) The reasons given by the Government are valid.
(F) Advocate Mr. V. R. Dhond appearing for the respondent No. 4 NTPC argued that NTPC had been assured the supply of 4.4.
mmscmd and any reduction will result in reduction in power generation. When the core sectors are not getting their minimum in accordance with the priority fixed in the EGOMs dated 28/5/2008 and since the priority to the steel sector was after the core sector, the decisions of the respondent No.1 are just and reasonable and in national interest.
(G) Learned Counsel for the respondent No. 10 association submitted that the actual requirement of the fertilizer sector is 43.93 mmscmd as against which it was getting much less supply. The entire fertilizer industry was controlled and the prices of urea etc. are heavily subsidized and the annual subsidy burden is to the tune of 60 to 70 thousand crores. The fertilizer industry has been given a ::: Downloaded on - 09/06/2013 17:28:12 ::: 37 WP3748.11.doc priority which is also acknowledged by the Hon'ble Supreme Court and hence no interference is called for in a matter of financial policy having wide ranging financial implications.
(H) Learned Senior Counsel for the petitioners Mr. Janak Dwarkadas advanced following submissions in rejoinder.
(a) The dispute involved in the case of RNRL v/s RIL (Supra) is entirely different and in that context it is held that CNG being a natural resource and applying the public trust doctrine RIL cannot claim that it had a right to decide about the allocation.
(b) The submission of advocate for the respondent No.1 that clause 2 (b) of the EGOMs decision dated 28/5/2008 is the governing clause and the subsequent clauses are the subsidiary clauses is erroneous as sub clause (i) of the said clause merely deals with the rights of the contractors whereas paragraph 2 (b) (ii) thereof shows that there is no reservation in favour of any core sector consumers and the argument that each priority sector must be exhausted before considering the next category is erroneous and contrary to policy. Clause 2 (b) (iii) of EGOMs decision dated 28/5/2008 deals with a default by a consumer from the core sector.
Guidelines were to be applied for 5 years and hence Ministry of P & NG had no jurisdiction to make any change. The EGOMs decision ::: Downloaded on - 09/06/2013 17:28:12 ::: 38 WP3748.11.doc dated 23/10/2008 puts an overall cap on the supply to core sectors which is being wrongly interpreted. Workable GSPAs cannot depend on KG D6 for extra demand for power and the steel sector must get its entire allocation on 4.19 mmscmd, the moment supply crosses 40 mmscmd and the Ministry of P & NG sit his appeal over the EGOMs decision and curtail the supply to steel sector below 4.19 mmscmd on the ground of alleged economic benefit to the Government or to the general public. The chart relied upon by the advocate for respondent No.1 cannot therefore be considered.
(c) The orders dated 12/6/2009 and 19/11/2009 contain an assurance which could not have been changed and the impugned actions clearly amount to overruling of EGOMs decisions and the Ministry of P & NG has no power to frame policy and has tried to usurp the power of EGOMs. By relying upon the observations in paragraphs - 9 and 21 of the judgment in the case of Usha Breco Mazdoor Sangh v/s. Management of Usha Breco Ltd. and others (2008) 5 SCC 5546 it is contended that the authority has posed unto itself a wrong question which has obviously led to a wrong answer and this is contrary to the well known Anisminic principle laid down in Anisminic Ltd. Vs. Foreign Compensation
6.Usha Breco Mazdoor Sangh v/s. Management of Usha Breco Ltd. and others- (2008) 5 SCC 554 ::: Downloaded on - 09/06/2013 17:28:12 ::: 39 WP3748.11.doc Commission (1969) 2 AC 1477.
(d) Validity of the impugned order dated 18/5/2011 must be tested by reading the order alone and such an order cannot be supported or explained by an affidavit. Relying on the Judgment in the case Mohinder Singh Gill & Anr. v/s. Chief Election Commissioner (1978) 1 SCC 4058 at page 417, it is submitted that the reasons given in the affidavit in support of the order must be ignored.
16. At the outset, it is necessary to deal with the preliminary objection raised on behalf of the respondent No. 1 to the effect that on account of clause 26 (b) (ii) of the GSPA between the petitioners and the respondent Nos. 2 and 3 providing for resolution of disputes by arbitration, the writ petition should not be entertained. We are not inclined to uphold the said preliminary objection for the obvious reason that the respondent Nos. 2 and 3 who are contractors of respondent No. 1 are merely implementing the directives issued by the respondent No.1 and in respect of the challenge to such directives and the dispute arising there from, the real dispute is between the petitioners and respondent No. 1 and not between the petitioners and respondent Nos. 2 and 3. Apart from this, the
7. Anisminic Ltd. Vs. Foreign Compensation Commission (1969) 2 AC 147
8. Mohinder Singh Gill & Anr. v/s. Chief Election Commissioner (1978) 1 SCC 405 ::: Downloaded on - 09/06/2013 17:28:12 ::: 40 WP3748.11.doc petitioners are also challenging the subsequent order dated 18th May, 2011 which has been passed pursuant to the hearing conducted by the competent officer of the respondent No. 1. None of the challenges raised in the petition can thus be resolved in an arbitration proceeding between the petitioner and the respondent Nos. 2 and 3. In view of this, the aforesaid objection raised by the respondent No. 1 has no substance and we have therefore proceeded to decide the merits of the controversy.
17. Before dealing with the rival contentions of the parties, it is necessary to give a brief background in respect of controversy regarding excavation of Natural Gas and the legal position governing excavation and supply of Compressed Natural Gas (CNG) which is admittedly a natural resource. Useful reference can be made to the Judgment of the Hon'ble Supreme Court of India in the case of Reliance Natural Resources Ltd. (Supra). Up to the year 1990, the natural gas was produced only by fields operated by the Government companies. Subsequently, the Government of India framed a policy known as New Exploration Licensing Policy (NELP) and private investors were invited to bid for exploration and production of oil and natural gas. Present controversy relates to supply of CNG from Krishna-Godavari Basin and the D6 field from ::: Downloaded on - 09/06/2013 17:28:12 ::: 41 WP3748.11.doc the said basin in respect of which the respondent No. 1 has appointed respondent No. 2 and 3 as its contractors. The respondent Nos. 2 and 3 have entered into a Production Sharing Contract (PSC) with the respondent No. 1 Union of India. The price at which the said natural resource namely CNG is to be supplied by the contractors appointed by the respondent No. 1 and the manner in which the said supply is to be effected was a subject matter of the controversy before this court in Company Application No. 1122 of 2006 in Company Petition No. 731 of 2005 and Appeal No. 844 of 2007. However, the said controversy has been set at rest by the aforesaid judgment of the Hon'ble Supreme Court of India in the case of Reliance Natural Resources Ltd. (Supra). The Hon'ble Supreme Court of India has referred to Articles No. 297, 39(b), 73 and other constitutional provisions. Articles 297 and 39(b) read as under:
"Art. 297. (1) All lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf, or the exclusive economic zone, of India shall vest in the Union and be held for the purposes of the Union.
(2) All other resources of the exclusive economic zone of India shall also vest in the Union and be held for the purposes of the Union.
(3) The limits of the territorial waters, the continental shelf, the exclusive economic zone and other maritime zones, of India shall be such as may be specified, from time to time, by or under any law made by Parliament."
"Art. 39 The State shall, in particular, direct its policy towards securing-
(a) ...::: Downloaded on - 09/06/2013 17:28:12 :::
42 WP3748.11.doc
(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;"
18. After considering various aspects of the NELP, PSC, GSPA and Gas Utilization Policy (GUP), the Hon'ble Supreme Court of India has held in paragraphs- 127 and 128 as under:
"D. Proper interpretation of the PSC
127. The objective of the PSC inter alia is to regulate the supply and distribution of gas. Keeping this objective in mind, Article 21 of the PSC must be interpreted to give the power to the Government to determine both the valuation and price of gas. It is not feasible to restrict the power of the Government in such matters of national importance, especially when the governing contract, the PSC also provides for it.
E. Role of the Government
128. In a constitutional democracy like ours, the national assets belong to the people. The Government holds such natural resources in trust. Legally, therefore, the Government owns such assets for the purposes of developing them in the interests of the people. In the present case, the Government owns the gas till it reaches its ultimate consumer. A mechanism is provided under the PSC between the Government and the contractor (RIL in the present case). The PSC shall override any other contractual obligation between the contractor and any other party."
It is thus conclusively held by the Hon'ble Supreme Court of India that CNG is a national resource owned by the Union of India and the Union of India shall have complete control over the pricing and distribution of the said Natural resource and the Production Sharing Contract (PSC) shall override any other contractual obligations between the contractor and any other party.
19. For an appropriate decision of the controversy involved in the ::: Downloaded on - 09/06/2013 17:28:12 ::: 43 WP3748.11.doc petition, it is necessary to consider the various decisions of EGOMs in detail in as much as the entire controversy in the petition revolves around interpretation of the said decisions in the light of the law laid down by the Hon'ble Supreme Court of India in the case of Reliance Natural Resources Ltd. (Supra) as also other decisions of the Hon'ble Supreme Court of India cited by the learned advocates for the appearing parties.
(a) "MINUTES OF THE MEETING OF THE EMPOWERED GROUP OF MINISTERS HELD ON 28TH MAY 2008 UNDER THE CHAIRMANSHIP; OF SHRI PRANAB MUKHERJEE HON'BLE MINISTER OF EXTERNAL AFFAIRS TO DISCUSS THE ISSUES RELATED TO COMMERCIAL UTILIZATION OF GAS UNDER NEW EXPLORATION LICENSING POLICY (NELP) The Empowered Group of Ministers (EGoM) met on 28.5.2008 to decide issues pertaining to commercial utilization of gas under the New Exploration Licensing Policy (NELP). The list of participants is at Annex.I.
2. The EGoM considered the "Concept paper on Gas Utilization Policy" circulated by MOP &NG. Secretary (P&NG) mentioned that the proposals have been formulated keeping in mind the fact that natural gas is an exhaustible resource and the need for promoting conservation in its use and maximizing value addition to the economy. After detailed discussions, EGoM took the following decisions :-
a) As a matter of general policy, natural gas produced/imported in the country should be stripped of its higher fractions, subject to availability, to ensure maximum value addition before supply to consumers.
b) The following guidelines for sale of natural gas by NELP contractors are approved :-
i) Contractors would sell gas from NELP to consumers in accordance with the marketing priorities determined by the Government. The sale would be on the basis of formula for determining the price as approved by the Government.
ii) Consumers belonging to any of the priority sectors ::: Downloaded on - 09/06/2013 17:28:12 ::: 44 WP3748.11.doc should be in a position to actually consume gas as and when it becomes available. So the marketing priority does not entail any 'reservation' of gas. It implies that in case consumers in a particular sector, which is higher in priority, are not in a position to take gas when it becomes available, it would go to the sector which is next in order of priority.
Iii) In case of default by a consumer under a particular priority sector and further in the event of alternative consumers not being available in the same sector, the gas will be offered by Contractor to other consumers in the next order of priority.
iv) The priority for supply of gas from a particular source would be applicable only amongst those customers who are connected to existing and available pipeline network connected to the source. So if there is a marginal or small field that is not connected to a pipeline network, then the Contractor would be allowed to sell the gas to customers who are connected or can be connected to the field in a relatively short period (of say three to six months).
v) The priority would not impact the process of price discovery whenever it is undertaken, as all the customers would participate in the price discovery process (as already decided by the EGoM) and would be eligible for utilizing natural gas subject to priority.
vi) Since the supply situation is expected to increase substantially in the near future in view of increased availability from domestic sources and imported gas (LNG/ transnational pipelines), these guidelines would be applicable for the next 5 years after which they would be reviewed.
c) The production of natural gas from RIL's KG D6 field is expected to commence from September 2008 and will initially be about 25 mmscmd. It is further expected that the production would gradually increase to 40 mmscmd by March 2009. The EGoM decided that this gas should be supplied in the following order of priority.
i) Existing gas based urea plants, which are now getting as below their full requirement, would be supplied gas so as to enable full capacity utilization.
ii) A maximum quantity of 3 mmscmd would be supplied to existing gas based LPG plants.
iii) Up to 18 mmscmd natural gas, being the partial requirement of gas based power plants lying idle/ under utilized and likely to be commissioned during 2008-09, and liquid fuel plants, which are now running on liquid fuel and could switch over to natural gas, would be supplied to power plants. The list of units is at ::: Downloaded on - 09/06/2013 17:28:12 ::: 45 WP3748.11.doc Annex-II.
iv) A maximum quantity of 5 mmscmd would be made available to City Gas Distribution projects for supply of Piped Natural Gas (PNG) to households and Compressed Natural Gas (CNG) in transport sector.
v) Any additional gas available, beyond categories (i) to
(iv) above would be supplied to existing gas-based power plants, as their requirement is more than 18 mmscmd.
The marketing freedom given to Contractors under NELP would be subject to the above order of priority and the guidelines framed in this regard.
d) The demand emanating beyond 2008-09 from de-bottlenecking of and expansion of fertilizer plants, conversion of naphtha based and fuel oil-based fertilizer plants, and revival of closed fertilizer plants would be given the highest priority at that stage and will be met from production in subsequent years.
e) It was directed that MoP&NG will facilitate/take necessary steps for expeditious construction of pipelines by agencies concerned for connecting the priority consumers to sources of natural gas.
f) It was decided that MoP&NG would resolve issues, if any, in the implementation of the above decisions.
3. The meeting ended with thanks to the Chair."
On the basis of the aforesaid decisions press note dated 25/6/2008 (Exh. B to the petition) was issued. (Note : Charts annexed to the minutes of the EGOMs meeting and the list of participants are not reproduced.)
(b) EGOMs minutes of meeting dated 23/10/2008 are as under :
"MINUTES OF THE MEETING OF THE EMPOWERED GROUP OF MINISTERS HELD ON 23RD OCTOBER 2008, UNDER THE CHAIRPERSONSHIP OF SHRI PRANAB MUKHERJEE, ::: Downloaded on - 09/06/2013 17:28:12 ::: 46 WP3748.11.doc HON'BLE MINSTER OF EXTERNAL AFFAIRS TO DISCUSS ISSUES RELATED TO PRICING AND COMMERCIAL UTILISATION OF GAS UNDER NEW EXPLORATION LICENSING POLICY (NELP) The Empowered Group of Ministers (EGoM) met on 23.10.2008 to decide issues pertaining to pricing and commercial utilizaton of gas under the New Exploration Licensing Policy (NELP). The list of participants is at Annex I.
2. The EGoM considered the agenda note circulated by MOP&NG. It was noted that supply of gas to all customers would be made as per the approved decisions of EGoM in its meeting on pricing held on 12.9.2007 as mentioned in para 1(1) of the Agenda Note. After detailed discussions, EGoM took the following decisions:-
A-1 Keeping in view the long standing shortage of natural gas in the country, leading to under utilized/stranded assets, the EGOM in its meeting held on 28.05.2008 had given directions about the priority sectors to which 40 mmscmd of natural gas expected to be produced form RIL's KG D6 field by March 2009 would be supplied. EGoM took note of the recommendations of the CoS in respect of natural gas requirement for Ratnagiri Power Project Limited (RGPPL). While confirming the prioritization of sectors made on 28.05.2008. EGoM modified the decision of 28.05.2008 by according priority to RGPPL along with fertilizer units and directed that RGPPL be supplied 1.4 mmscmd during January to March 2009 and 2.7 mmscmd during April to September 2009, subject to commencement of production, within the overall allocation of power sector (18 mmscmd) decided earlier. Further, 8.5 mmscmd would be supplied to RGPPL after September 2009 from the production from RIL's KG-D^ field.
A-2 The decisions taken in the EGoM meeting held on 28.05.2008 regarding supply of natural gas to priority sectors, along with the modification decided in this meeting as noted in para A.1 above, be made applicable to the first 40 mmscmd of gas produced from RIL's KG-D6 field, irrespective of the date on which this production is attained.
B. As regards the reference forwarded by MOP in respect of requirement of natural gas for the captive power plant of M/s ESSAR Power Limited with capacity of 530 MW, it was decided that the list of all such existing natural gas based captive power plants be compiled and presented before the next EGoM meeting for decision.
C. EGoM considered the proposal put forth by MOPNG regarding the supply of 18 mmscmd earmarked for the power sector to various power plants and noted that after RGPPL, priority should be given to the Andhra Pradesh power plants. EGoM directed that MOP&NG would have discussions with MOP to arrive at a mutually acceptable decision and decide supply of natural gas to various power plants. In ::: Downloaded on - 09/06/2013 17:28:12 ::: 47 WP3748.11.doc case of any difficulty in arriving at a decision, the issue should be brought before the EgoM.
D. Regarding the supply of natural gas to Dadri Power Project, the views expressed by the Law Minister were noted and the decision was deferred.
E. Regarding the NTPC - RIL sale price, views expressed by Law Minster were noted. It was decided that the verdict of the court should be awaited.
F. MOP&NG would ensure that a workable GSPA is evolved for sale of gas to be produced under NELP to consumers across the country.
G. MOP&NG would take decisions regarding supply of natural gas to consumers by the Operator, in accordance with the decisions of the EGoM and taking into account Court orders, after consultations with the concerned Ministries and other stake holders with which the Operator would comply.
H. MOP&NG would take decisions regarding supply of natural gas to sectors/individual customers consequent to gas being available on account of short offtake, delay and any other unforeseen circumstances.
I. Minister of Chemicals & Fertilizers and Steel raised the issue that Fertilizer Companies need to have GSPAS for supply of gas so as to enable them to achieve financial closure for their plans of optimum capacity utilization, expansion, de-bottlenecking and conversion to natural gas. EGoM decided that MOP&NG would facilitate finalization of GSPAs by Fertilizer Companies for supply of gas.
J. Minister of Chemicals & Fertilizers and Steel raised the demand for supply of natural gas to existing natural gas-based sponge iron/steel plants, as they were operating at lower levels of capacity utilization. It was decided to give priority to the existing natural gas based steel- sponge iron/steel plants after the sectors decided in the EGoM meeting held on 28.05.2008. However, the supply would be made from the production beyond the first 40 mmscmd produced from RIL's KG-D6 field.
K. The EGoM meeting held on 28.05.2008 had inter alia decided to supply 3 mmscmd for existing natural gas LPG plants. Secretary, Mop asked for the diversion of this gas to power sector. EGoM decided that MOP& NG would undertake a study of cost benefit analysis of sup-ply of 3 mmscmd natural gas to LPG plants and present the findings to EGoM for a decision.
3. The meeting ended with thanks to the Chair."
(Note: list of members present in the meeting is not being reproduced.) ::: Downloaded on - 09/06/2013 17:28:12 ::: 48 WP3748.11.doc On the basis of the aforesaid EGOM meeting, press note at Exh.
to the petition was issued. The said press note reads thus:
"MINISTRY OF PETROLEUM AND NATURAL GAS DECISIONS REGARDING PRICING AND COMMERCIAL UTILIZATION OF NATURAL GAS UNDER NEW EXPLORATION LICENSING POLICY The supply of natural gas would be made at a selling price of US$4.2/mmbtu (for crude price greater or equal to US $ 60/barrel) for all customers across all sectors, as decided in the Empowered Group of Ministers(EGoM) meeting held on 12.9.2007.
ig This excludes transportation cost, taxes etc.
2. Keeping in view the long standing shortage of natural gas in the country, leading to under-utilized/stranded assets, the EgoM in its meeting held on 28.5.2008 decided about the priority sectors to which 40 mmscmd natural gas expected to be produced from RIL's KG D6 field by March 2009 would be supplied; the details are mentioned in Ministry's press note dated 25.6.2008. While confirming the overall prioritization of sectors, Government has accorded priority to Ratnagiri Power Project Limited (RGPPL) along with fertilizer units. It has been decided that RGPPL be supplied 1.4 mmscmd during January to March 2009 and 2.7 mmscmd during April to September 2009, subject to commencement of production, within the overall allocation of power sector (18 mmscmd) decided earlier. Further, 8.5 mmscmd would be supplied to RGPPL after September 2009 from the production from RIL's KG D6 field.
3. The decisions taken by the Government regarding supply of natural gas to priority sectors, along with the modification decided in this meeting as noted in para 2 above, would be made applicable to the first 40 mmscmd of gas produced from RIL's KG D-6 field, irrespective of the date on which this production is attained.
4. With regard to supply of 18 mmscmd earmarked for the power sector to various power plants, it has been decided that after RGPPL, priority should be given to the power plants in Andhra Pradesh. MOP&NG would discuss with Ministry of Power to arrive at a mutually acceptable decision and decide supply of natural gas to various power plants.
5. Regarding the NTPC-RIL sale price, it has been decided that the verdict of the court should be awaited.
6. MoP&NG would ensure that a workable Gas Sale Purchase ::: Downloaded on - 09/06/2013 17:28:12 :::
49 WP3748.11.doc Agreement(GSPA ) is evolved for sale of gas to be produced under NELP to consumers across the country.
7. MOP&NG would take decisions regarding supply of natural gas to consumers by the Operator, in accordance with the decisions of the Government and taking into account Court orders, after consultations with the concerned Ministries and other stakeholders, with which the Operator would comply.
8. MoP&NG would take decisions regarding supply of natural gas to sectors/individual customers consequent to gas being available on account of short offtake, delay and any other unforeseen circumstances.
9. It has also been decided that MOP&NG would facilitate finalization of GSPAs by Fertilizer Companies for supply of gas.
10. It has been decided to give priority to the existing natural gas-
based sponge iron/steel plants after the sectors prioritized earlier. However, the supply would be made from the production beyond the first 40 mmscmd to be produced from RIL KG-D6 field.
11. It has been earlier decided to supply 3 mmscmd for existing natural gas based LPG plants. It has been decided that MOP&NG would undertake a study of the cost benefit analysis of supply of 3 mmscmd natural gas to LPG plants."
****
(c) EGOMs meeting dated 8/1/2009 took following decisions:
"MINUTES OF THE MEETING OF THE EMPOWERED GROUP OF MINISTERS HELD ON 8.1.2009 UNDER THE CHAIRMANSHIP OF SHRI PRANAB MUKHERJEE HON'BLE MINISTER OF EXTERNAL AFFAIRS TO DISCUSS THE ISSUES RELATED TO COMMERCIAL UTILIZATION OF GAS UNDER NEW EXPLORATION LICENSING POLICY (NELP) I. The Empowered Group of Ministers (EGoM) met on 8.1.2009 to further discuss and decide issues pertaining to commercial utilization of gas under the New Exploration Licensing Policy (NELP). The list of participants is at Annex 1. The EGoM considered the agenda note and took the following decisions:
1. Production Profile: The EGoM took note of the production profile of KG-D6, whereby the production is expected to reach the plateau of around 80 mmscmd by 2012 and start dwindling from 2017 onwards till 2020, and concluded that decisions regarding commercial utilization of gas to be produced from KG-D6 field have to be taken in light of the same.
2. Request of CM, AP regarding higher supply of gas to power ::: Downloaded on - 09/06/2013 17:28:12 ::: 50 WP3748.11.doc and fertilizers projects in AP: As regards the Nagarjuna Fertilizer Project, it was noted that in the EGoM meeting held on 28.5.2008 it has been decided that the existing shortfall of gas based urea plants including Nagarjuna Fertilizer Project would be met on the highest priority from the production from KG-D6. As regards the power plants, EGoM directed that MoP&NG would have discussions with MOP, as per decision taken in the EGoM meeting held on 23.10.2008 and decide regarding supply of 18 mmscmd natural gas among the power plants, which are connected to KG-D6 field including power plants in Andhra Pradesh and captive power plants.
3. Supply of gas to meet the shortfall of existing gas-based urea plants: It was noted that the Bombay High Court has restrained RIL form creating any third party interests or rights in respect of natural gas to be produced from KG-D6 block and/or entering into any contracts and/or supply to any third party the said natural gas. The EGoM decided that the Government should make all attempts to ensure early vacation of the interim injunction so that supply of gas to the priority sectors of economy could commence.
4. Conversion of fuel oil and naphtha based plants to natural gas, expansion/de-bottlenecking of existing gas based plants and revival of closed fertilizer plants: It was noted that, in order to enable these projects to attain financial closure and based on the request of DoF, GAIL has sent a term-sheet to Fertilizers Companies proposing to make supplies from any of the available sources, viz., RIL's KG-D6 field, other NELP fields and RLNG. It was mentioned that earlier a few projects including power projects, have achieved financial closure and completion based on assurance of supply of gas from GAIL. The EGoM decided that GAIL and Fertilizer Companies should finalize the term-
sheets early, so that the projects for conversion/expansion/de- bottlenecking/revival are taken up for implementation. MoP&NG and DoF should hold discussions in case of any difficulty in arriving at a decision.
5. Existing demand from Petrochemicals,m Refinery and Steel sectors including for downstream units of RIL: While acknowledging the concern for fulfillment of the existing requirement in these sectors the EGoM took note of the requirement and decided that decisions regarding supply of gas to these sectors can only be taken when there is an increase in the production from KG-D6 beyond 40 mmscmd, which is expected to take place in 2010. Supply of natural gas to the present demand in Petrochemicals, Refinery and Steel sectors can be considered at that stage.
6. Supply of natural gas to various upcoming/proposed power plants, including inter alia Dadri Power Project: After taking into account the production profile and the existing demand for natural gas in various sectors it was decided, without prejudice to the court case between RNRL and RIL in the Bombay High Court, that it is not possible to consider supply of natural gas from KG-D6 production to ::: Downloaded on - 09/06/2013 17:28:13 ::: 51 WP3748.11.doc greenfield power projects at this stage. Equitable and transparent criteria for decisions regarding supply of gas for greenfield power projects would need to be established, as and when gas supply increases.
7. Requirement of natural gas for the operation of EWPL: The EGoM allowed the actual requirement of natural gas for the operation of Kakinada-Hyderabad-Uran-Ahmedabad pipeline, called East-West Pipeline (EWPL) constructed by Reliance Gas Transportation Infrastructure Limited (RGTIL), as the pipeline is critical to evacuation of natural gas from KG-D6 field to the remaining parts of the country. The actual requirement of natural gas for the said purpose would be worked out by MoP&NG.
8. Cost-benefit study regarding supply of 3 mmscmd natural gas for extraction of LPG: EGoM examined the cost-benefit study undertaken regarding supply of 3 mmscmd natural gas for extraction of LPG. The EGoM confirmed its earlier decision taken in the meeting held on 28.5.2008 regarding supply of 3 mmscmd for existing natural gas-based LPG plants, out of the initial 40 mmscmd production from KG-D6.
9. Import of LNG: EGoM directed that attempts be made to increase the import of Liquefied Natural Gas (LNG) so as to meet the existing shortfall in availability of natural gas, as also to address the increase in demand of natural gas in the summer months.
10. Use of naphtha by fertilizers plants: In view of the softening of the prices of naphtha the EGoM directed that DoF should examine the viability of some of its fertilizers plants using naphtha rather than natural gas.
11. Next meeting of EGoM: The Chairperson, EGoM directed that the next meeting of EGoM should be held once the production from KG- D6 commences, so that there can be better appreciation of the situation.
II. The meeting ended with thanks to the Chair."
(d) Next EGOM dated 27/10/2009 also took various decisions which are extracted in the press note of the Ministry of P&NG dated 16/11/2009 which reads thus:
"Press Information Bureau Government of India Ministry of Petroleum & Natural Gas 16-November-2009 18:6IST ___________________________________________________ ::: Downloaded on - 09/06/2013 17:28:13 ::: 52 WP3748.11.doc Press Note-: EGoM decision regarding commercial utilization of gas produced under NELP . The Empowered Group of Ministers (EGoM) met on 27th October, 2009 to decide on issues pertaining to commercial utilization of gas produced under NELP.
The following decisions were taken:
(a) In view of the present actual requirement of RGPPL, it was decided that 5.67 mmscmd from KG D-6 should be supplied on firm basis to RGPPL. The additional requirement of RGPPL arising at a later stage could be considered subsequently.
(b) Gas from KG D-6 should be supplied on firm basis to all the existing gas-based power plants connected to KG D-6 (excluding RGPPL and NTPC's plants in Kawas and Gandhar) so as to enable the plants within Andhra Pradesh to operate at 75% and those outside Andhra Pradesh to operate at 70% PLF.
(c) EGoM decided that 2.71 mmscmd of APM/PMT gas should be diverted form NTPC's plants in the Northern part of the country to its Kawas and Gandhar power plants, and an additional quantity of 2.71 mmscmd KG D-6 gas should be supplied on firm basis to NTPC's plants in Northern part of the country.
(d) KG D-6 gas should be supplied on firm basis to power plants to be commissioned in 2009-10, viz., Lanco Kondapalli Extn. (366 MW)-
Andhra Pradesh Tanir Bavi (220 MW) (now GMR Energy Kakinada) - Andhra Pradesh, Rathila 108MW - Delhi, Bawana 250 MW - Delhi & Utran CCPP 374 MW - Gujarat, so as to enable the plants within Andhra Pradesh to operate at 75% PLF and those outside Andhra Pradesh to operate at 70% PLF.
(e) Government of Andhra Pradesh had requested for allotment of 1.05 mmscmd KG D-6 gas to four gas-based power projects in the State, viz., M/s Sriba Industriesd Ltd., Chigurukota (30MW), M/s RVK Energy Pvt Ltd., Nandigama (32.7MW), M/s Silkroad Sugar Pvt.Ltd, Vakalapudi (35 MW) and M/s LVS Power Ltd Pendurthi (55 MW). It was decided that Ministry of Power (MoP) should examine the request and make recommendations and thereafter MopNG should decide on firm allocation of KG D-6 gas for these power plants for their operation at 75 % PLF.
(f) All existing gas-based power plants and those to be commissioned this year could draw gas on fallback basis, up to a maximum of 12 mmscmd, to further increase their PLF.
(g) As regards request of Department of Fertilizers (DoF) for replacement of RLNG contracted by Urea Companies with ::: Downloaded on - 09/06/2013 17:28:13 ::: 53 WP3748.11.doc comparatively cheaper KG D-6 gas, it was decided that Offtakers, viz., GAIL, IOC and BPCL, and Urea Companies should jointly explore the possibility of supplying the said RLNG to customers in other sectors on the same conditions. In case such customers are identified and the Offtakers can execute the necessary GSPAs with them, then the urea plants could be allowed to terminate their RLNG contracts and the urea plants could be allotted KG D-6 gas.
(h) The only existing gas-based plant producing subsidized fertilizers other than urea is Deepak Fertilizers, which should be supplied 0.178 mmscmd KG D-6 gas on firm basis.
(i) It was decided that 0.44 mmscmd KG D-6 gas should be supplied on firm basis to meet the shortfall of existing gas-based steel plants, viz., M/s Essar Steel (Hazira), M/s Ispat Industries (Dolvi) and M/s Vikram Ispat (Salav).
(k) It was decided that 1.918 mmscmd KG D-6 gas should be supplied on firm basis to petrochemicals plants to meet their feedstock requirement, i.e., 1.168 mmscmd to Reliance Industries Ltd., Gandhar, Gujarat and 0.75 mmscmd to Reliance Industries Ltd., Nagothane, Maharashtra. As gas produced from KG D-6 is lean and petrochemicals cannot be extracted from this gas, GAIL & other transporters would undertake a swapping arrangement, whereby rich & semi-rich gas available with them would be supplied to petrochemicals plants and lean gas from KG D6 field will be supplied to other existing customers as a makeup for the shrinkage in rich gas by the petrochemicals plants.
(l) Firm allocation of 5 mmscmd and fallback allocation up to to 6 mmscmd was made to partially meet the requirement of refinery sector. The requirement of various units in the sector would be met on a pro rate basis, subject to economic viability and the units being in a position to use the prorated quantity. In case a unit is unable to utilize the gas, it should be prorated among other units which can use it.
(m) Allotment of 10 mmscmd on fallback basis was made to Captive Power Plants, Details of Captive Power Plants and gas supply to these would be decided by MoP&NG in consultation with MoP within a period of one month.
(n) Allocation of 2 mmscmd KG D-6 gas on fallback basis was made to City Gas Distribution (CGD) entities for supply to their industrial and commercial customers, whose total consumption of natural gas (including KG D-6 gas) does not exceed 50,000 scmd. The said quantity would be allotted amongst CGD entities by MoPNG. Price of natural gas sold to industrial and commercial customers by a particular CGD entity should be on the basis of the delivered price of KG D-6 gas to the said entity.
(o) Amongst all fallback customers, the requirement of power sector would be firstly met and, thereafter, all the remaining customers should ::: Downloaded on - 09/06/2013 17:28:13 ::: 54 WP3748.11.doc be supplied gas on pro rata basis.
(p) As regards demand of natural gas for conversion of Naptha- based & fuel oil-based fertilizer plants, for expansion and revamp of fertilizer plants and revival of closed fertilizers plants, it was decided that they would be supplied natural gas as and when they are ready to utilize the gas. Further, it was decided that trunk natural gas pipelines, which are needed to connect Naphtha-based, fuel oil-based and closed fertilizers plants to sources of gas would be constructed expeditiously and MoPNG would involve DoF in reviewing the progress of the same.
(q) MOP&NG would take decisions on the basis of orders of EGoM with which the Contractor would comply. Consultations and when necessary would be held with the concerned Ministries and other stakeholders.
(r) MoPNG would take decisions regarding supply of natural gas to sectors/individual customers consequent to gas available on account of short offtake, delay and any other unforeseen circumstances.
(s) The requirement of natural gas for plants to be completed beyond 2009-10 would be reviewed from time to time by the EGoM for making firm allotments to such new plants from the fallback quantity available.
II. The above decisions regarding allocations to various priority sectors are summarized as follows :
S.NO. Sector Firm Fallback
allotments allotments
Existing Assets
1. Power (including plants to be 12.29 12.00
commissioned in 2009-10) - beyond (+0.875)
18 mmscmd earmarked earlier
2. Non-Urea Subsidized Fertilizers 0.178 -
3. Steel (only for feedstock) 0.44 -
4. Petrochemicals (only for for 1.918 -
feedstock)
5. Refineries 5.0 6.00
6. CGD projects (for industrial & - 2.00
commercial sectors)
7. Captive power plants - 10.00
::: Downloaded on - 09/06/2013 17:28:13 :::
55 WP3748.11.doc
Total 19.826 30.00
(+0.875)*
Power plants of AP at 75% PLF subject to verification by MoP.
III. Taking into account the earlier allocations made by the EgoM, the total sector-wise allocations are as follows :-
S.N Sector Firm Fallback Grand Total
O. allocations allocations
1. Power 31.165 12 43.165
2. Fertilizers 15.508 - 15.508
3. CGD ig 0.83 2 2.83
4. Steel 4.19 - 4.19
5. Refineries 5 6 11
6. Petrochemicals 1.918 - 1.918
7. LPG 3 - 3
8. Captive power - 10.00 10
Total 61.811 30.00 91.611
M/o Petroleum & Natural Gas, Government of India New Delhi : November 16, 2009."
CONSIDERATION OF SUBMISSIONS
20. In view of the provisions of Article 297 of the Constitution of India and the Directive principles contained in Article 39 (b) of the Constitution of India, the ownership of CNG available from any source and similar economic resources vests in the Union of India and distribution thereof has to be done in such a manner which will best sub-serve the common good. The legal status of the Gas Sale ::: Downloaded on - 09/06/2013 17:28:13 ::: 56 WP3748.11.doc And Master Agreement (GSMA), GSPA, and PSC between the Union Government and contractors like respondent nos. 2 and 3 and the parameters of the Gas Utilization Policy have been exhaustively considered and the law in that regard has been laid down in the judgment of the Apex Court in the case of R.N.R.L. vs R.I.L. (supra). We can gainfully refer to the observations in paragraphs 78, 117, 122, 127, 128, 218, 250 and 267 in the said Judgment. The submission of the learned Advocate for the petitioners that once a firm allocation of CNG was made and they were directed to enter into GSPAs with the contractors, then the supply could not have been curtained will have to be rejected in view of the aforesaid judgment and more particularly observations in paragraphs 78 and 128 of the judgment which we quote:
"78. To put it clearly both in terms of the gas utilisation policy and the Production Sharing Contract, the Government in the capacity as the executive of the Union can regulate and distribute the manner of sale of natural gas through allotments and allocation which would subserve the best interests of the country.
128. In a constitutional democracy like ours, the national assets belong to the people. The Government holds such natural resources in trust.
Legally therefore the Government owns such assets for the purposes of developing them in the interests of the people. In the present case, the Government owns the gas till it reaches its ultimate consumer. A mechanism is provided under the PSC between the Government and the contractor (RIL, in the present case). The PSC shall override any other contractual obligation between the contractor and any other party." (emphasis supplied by us)
21. The second submission of the learned counsel for the ::: Downloaded on - 09/06/2013 17:28:13 ::: 57 WP3748.11.doc petitioners to the effect that the policy laid down by the EGOM is completely mauled, overhauled and given a go-by the Ministry of P&NG also cannot be accepted. A perusal of the various EGOMs decisions referred above would clearly show that a very high priority has been accorded to the core/priority sectors like Fertilizer, Power, CGD (Domestic and Transport) and LPG. Initially when the production from KG D-6 base was expected to be only 25 mmscmd and was thereafter expected to gradually increase to 40 mmscmd; the decision of the EGOMs clearly indicates that the entire supply would be distributed amongst the core sector. In fact, any further supply was to be allocated to the power sector which is evident from clause 2 (c) (iii) of the EGOMs minutes dated 28.5.2008. Clause 2 (d) of the said minutes in fact indicates that the highest priority was to be given for revival to closed fertilizer plants, expansion of fertilizer plants and conversion of naptha based plants to CNG based plants. The decisions in the EGOMs meeting dated 23.10.2008 will have to be read along with the decisions in the earlier meeting dated 28.5.2008 and subsequent meetings dated 8.1.2009 and 27.10.2009 and cannot be read in isolation. Even clause 10 of the Press Note at Exhibit C or clause 2 (j) of the EGOMs minutes dated 23.10.2008 cannot be interpreted to mean that once the minimum supply exceeds 40 mmscmd, the entire ::: Downloaded on - 09/06/2013 17:28:13 ::: 58 WP3748.11.doc additional or incremental supply would be allocated to steel sector.
In fact, the priority to the sponge iron plants was even then kept after the aforesaid four core priority sectors. This aspect is further clear from clause 5 of the EGOMs minutes dated 8.1.2009 which indicates that existing demand from Petrochemicals, Refinery and Steel sectors including downstream units of RIL, which was itself an exploration contractor, would be considered at a later stage after the production increases beyond 40 mmscmd. Lastly, the EGOMs decision dated 27.10.2009 reflected in the Press Note dated 16.11.2009 leaves no manner of doubt that the firm allocation of 4.19 of mmscmd to the steel sector would be after the firm allocation to the aforesaid four priority/core sectors. The chart annexed to the said Press Note clearly shows that the sub total of the firm allocation made to the four priority/core sectors would be 50.503 mmscmd and after fulfillment of the said allocation alone supply to other non-core sectors would arise for consideration.
22. For the aforesaid reasons, the submissions of the petitioners that the impugned decisions and order are contrary to the EGOMs' decisions and further submissions that the Ministry of PN&NG is confusing between the words "allocation" and "priority" will have to be rejected. The further submission of the petitioners that the ::: Downloaded on - 09/06/2013 17:28:13 ::: 59 WP3748.11.doc residuary power left with the Ministry of P&G is only to reduce the allocation if the production falls below the first 40 mmscmd cannot also be accepted if a conjoint reading of all the EGOMs decisions is done. As held by the Hon'ble Supreme Court, the government in regulating and distributing the manner of sale of natural gas through the allotments and allocations is expected to adopt a course which would subserve the best interest of the country. Importance of supply to the Four Core Priority sectors is also noted and acknowledged by the Supreme Court and the decision to give priority to these sectors on account of a fall in production is in public interest as these sectors have been recognized as vulnerable sectors even by the Supreme Court of India. The observations in paragraphs 218 and 250 in the Judgment in the case of RNRL VS.
RIL supra is a complete answer to the arguments advanced by the petitioners. It is observed that "The Union of India may not - allow the extraction and distribution without periodic evaluation of the current distribution and making an assessment of how greater equity can be achieved, as between sectors and also between regions;" Further all the EGOM decisions empower the Ministry of PN &NG to take decisions regarding the supply of natural gas to sectors/individual customers consequent to gas being available on account of short offtake, delay and any other unforeseen ::: Downloaded on - 09/06/2013 17:28:13 ::: 60 WP3748.11.doc circumstances. (Emphasis supplied by us). Thus viewed, the Ministry of P & NG was within its authority in issuing the impugned directives dt. 31.3.2011 and 21.4.2011 and they are certainly issued in larger public interest.
23. Thus, the EGOMs having decided the broader policy regarding determination of core and non-core sectors and having fixed price and overall principles regarding the supply allocation and distribution; the concerned Ministry namely Ministry of P&NG was given the requisite freedom or "play in joints" to implement the EGOMs decisions and the Gas Utilization Policy in the best interest of the country. The charts annexed to the affidavit filed by respondent no. 1 clearly indicate that in fact from December, 2010 itself even the core sectors are not being supplied gas up to firm allocation even if the reduced figures as indicated in the said charts vis-a-vis the chart annexed to the Press Note dated 16.11.2009 are taken into consideration. It is therefore not possible to accept the argument of the petitioners that the residuary power of the Ministry of P&NG was only restricted.
24. The third submission of the petitioners that on account of the EGOMs decision dated 23.10.2008, the allocation made vide OMs ::: Downloaded on - 09/06/2013 17:28:13 ::: 61 WP3748.11.doc dated 12.6.2009 and 19.11.2009 read with GSPAs executed by petitioners with respondent nos. 2 and 3; the government would be estopped from reducing the supply cannot be accepted for more than one reasons. The Apex Court has already held that the PSC between the Union and respondent nos.2 and 3 shall override any other contractual obligation between the Contractor and any other party. Gas being scarce natural resource has to be used so as to subserve the best public and national interests. The fact that sectors like Fertilizer, power, transport and household are vulnerable sectors has been acknowledged by the apex court in para 218 of its judgment in R.N.R.L. supra. Once it is obligatory for the Union to ensure that the distribution of natural gas has to be in public interest and the PSC overrides any other contract; applying the ratio of the judgments of the Hon'ble Supreme Court in the case of Shrijee Sales vs UOI, Kasinka Traders vs UOI, M. P. Mathur Vs. DTC and State Of West Bengal Vs. Niranjan Singha referred herein above, the Doctrine of Promissory Estoppel or Legitimate Expectation cannot be held to be applicable. There can be no promissory estoppel against public interest and the impugned action of curtailing gas supply to non-priority sectors so as to ensure that the reduction in supply of gas to core/priority sectors is kept at the minimum can be certainly said to be eminently in public interest and hence even the ::: Downloaded on - 09/06/2013 17:28:13 ::: 62 WP3748.11.doc said submission regarding the promissory estoppel will have to be rejected.
25. This takes us to the last challenge namely challenge to the order dated 18.5.2001 on the ground that the same is irrational, unreasonable and the authority has asked itself wrong question which has resulted in a wrong answer and the further submission that public trust doctrine referred by the Apex Court would not have any relevance in the facts of the present case since the controversy and issues involved are entirely different. The order was sought to be criticized on aforesaid grounds and also on the ground that the reasons sought to be given by the Authority regarding requirement of extra power on account of increased demand for fertilizers in the Kharif season and intense heat in summer calling for higher power production were factors which were always present and must have been taken into consideration or must be deemed to have been taken into consideration by the EGOMs and hence the authority passing the impugned order could not have taken into consideration the said factors or factors like economic benefit to the Government of India or level playing field being available to other sponge iron manufacturers etc. We do not accept the said submissions. It is well-settled that judicial review of an administrative action is ::: Downloaded on - 09/06/2013 17:28:13 ::: 63 WP3748.11.doc essentially of the decision making process and not of the merits of the decision itself and the well established parameters of a judicial review are illegality, irrationality, procedural impropriety and proportionality. The celebrated case commonly known as Wednesbury case (Associated Provincial Pictures Private Ltd.) vs Wednesbury Corporation (1948) 1 KB0223 : 1947 (2) All ER 680 (CA)9 is a landmark decision laying down the basic principles of judicial review of administrative and statutory decisions.
Recently in the case of Siemens Public Communication Network vs Union of India (2008) 16 SCC 21510 the parameters of judicial review have been elaborately discussed.
26. Without burdening this judgment with other precedents, it is now necessary to consider whether the order dated 18.5.2011 suffers from any of the aforesaid vices of irrationality, illegality, procedural impropriety or is manifestly arbitrary or whether any irrelevant factors have been taken into consideration or whether any relevant factors have been ignored from consideration. We are unable to persuade ourselves to accept the submission of the learned senior counsel for the petitioners that the authority has misdirected
9. Wednesbury case (Associated Provincial Pictures Private Ltd.) vs Wednesbury Corporation (1948) 1 KB0223 : 1947 (2) All ER 680 (CA)
10. Siemens Public Communication Network vs Union of India (2008) 16 SCC 215 ::: Downloaded on - 09/06/2013 17:28:13 ::: 64 WP3748.11.doc itself or has asked itself a wrong question leading to wrong answer or has considered irrelevant factors. The further criticism based on the judgment of the Apex Court in Mohinder Singh Gill (supra) to the effect that the authority is trying to support/supplant the order by an affidavit also does not commend to us. A perusal of the said order dated 18/5/2011 shows that the author of the said order has carefully noted the submissions of the petitioners and other stake holders in proper perspective. In fact the written submissions filed by the petitioners and points raised therein are also considered. The reasons given by the authority in paragraphs 6.2 and 6.3 indicate that the authority was conscious of the fact that various industries/plants have come up in various sectors which are dependent on gas and it was therefore necessary to identify the sectors where lower price of gas results in passing on the benefit to the public at large. The said authority also appears to be conscious about the difference between the core sectors and non-core sectors.
A perusal of paragraph 6.4 of the said order shows that the authority has correctly applied legal principles laid down by the Apex Court.
The authority has also noted that the EGOMs minutes empower the Ministry of P&NG to take decision regarding the supply of natural gas based on Gas Utilization Policy and the directions of the Ministry were to ensure higher supply to the core/priority sectors.
::: Downloaded on - 09/06/2013 17:28:13 :::65 WP3748.11.doc The submissions advanced on behalf of the petitioners regarding economic loss has also been duly considered by observing that while these non-priority sectors can pass on their additional financial burden on account of procurement of gas from open market to their customers; the core/priority sectors which operate in a controlled price regime are unable to pass on such additional burden to their customers. The policy of giving top priority to the aforesaid four core sectors so as to achieve maximum public benefit has already been acknowledged by the Apex Court which is evident from paragraphs 218 and 250 of the report. Applying the settled principles regarding judicial review of decision making process and considering even the merits of the said administrative decision, it is not possible to hold that either the decision making process or decision itself are arbitrary, illegal, irrational or manifestly unjust. It is also not possible to hold that the decision is contrary to the principles of proportionality. In fact, we may note that the authority has also applied its mind and was aware of a possible situation in future that if production increases the supply to various non-core customers would also increase and that their supply would also increase. It is therefore clear that the said decision is supported by reasons which are cogent, germane, in consonance with the policy and law and cannot be termed as arbitrary. The affidavit has merely ::: Downloaded on - 09/06/2013 17:28:13 ::: 66 WP3748.11.doc indicated what has already been recorded in the impugned order dt.
18.5.2011 and merely because authentic data regarding the production and supply of CNG from KG-D6 fields for the months of December, 2010 to May, 2011 has been placed on record; merely on that account it cannot be held that there is an effort to supplement or supplant the order by filing an affidavit.
27. The production, allocation, distribution and sale of natural gas is a matter involving wider financial implications for the core and non-core sectors, general public, Union and State governments.
The Ministry of P&NG having taken a conscious decision in accordance with over all policy laid down by EGOMs and in a manner which would subserve the national interests, this Court exercising its jurisdiction under Article 226 of the Constitution of India will not sit in appeal over such a well informed decision on a matter relating to financial policy involving complex economic factors. The courts have consistently refrained from interfering with economic decisions and unless the economic decision, based on economic expediencies, is demonstrated to be so violative of constitutional or legal limits on power or so abhorrent to reason, the courts would decline to interfere. The aforesaid principle has been laid down by the Hon'ble Supreme Court in the case of Balco ::: Downloaded on - 09/06/2013 17:28:13 ::: 67 WP3748.11.doc Employees' Union vs Union of India (2002) 2 SCC 33311 and we follow the same.
28. Before parting with this judgment it is necessary to note the relief claimed in terms of prayer clause (b) of the petition.
However, during the course of the submissions the said aspect has not been seriously argued and hence we do not express any opinion in that regard. In any case such a grievance will have to be first raised before the respondent no.1 who will address the same in accordance with law.
29. We record our appreciation for the able assistance rendered to the court by the respective counsels appearing for the parties.
30. For the aforesaid reasons and subject to the observations in paragraph 28 above, we see no merit in this writ petition and the same is hereby dismissed. Rule discharged. No order as to costs.
CHIEF JUSTICE GIRISH GODBOLE, J
11. Balco Employees' Union vs Union of India (2002) 2 SCC 333 ::: Downloaded on - 09/06/2013 17:28:13 :::