Writ petition under Article 226 maintainable even in contract cases if State fails to be fair or practices discrimination: Supreme Court

The Supreme Court on Wednesday held that the writ jurisdiction of the High Court under Article 226 can be exercised even in contractual dealings, if the government fails to exercise a fairness or practices discrimination [M/S Gas Authority of India Limited v. M/S Indian Petrochemicals Corporation Limited and Others].A division bench of Justices Sanjay Kishan Kaul and Abhay S Oka made the observation while upholding a Gujarat High Court decision to grant relief to Indian Petrochemicals Corporation Ltd. (IPCL) in exercise of the Court's writ jurisdiction in a contractual dispute with the Gas Authority of India Limited (GAIL)..IPCL and GAIL had entered into a gas supply contract in 2001, wherein IPCL was required to lay down the pipelines for the gas supply. While so, GAIL also levied a charge under the head ‘loss of transportation charges’ in the contract. IPCL was a public undertaking until 2002. .On March 9, 2006, 5 years after the contract was entered into, IPCL challenged the levy of 'loss of transportation charges' before the High Court and sought a refund of all such charges paid to GAIL. The High Court ruled in IPCL's favour prompting GAIL to move the Supreme Court in appeal. .Before the Supreme Court, Solicitor General Tushar Mehta appearing for GAIL, argued that the writ petition by IPCL was not maintainable. In this regard, he pointed out that the gas supply contract had an arbitration clause and that IPCL could have availed arbitration remedies. Further, it was contended that the matter was purely contractual in nature and that there was no violation of any fundamental right. He emphasised that a public law element was necessary for a Court to intervene in the case through the exercise of its writ jurisdiction. .Senior Advocate AM Singhvi, appearing for IPCL, asserted that the State (GAIL) had acted arbitrarily and that there was a violation of Article 14 of the Constitution. Hence, a writ petition was the appropriate remedy, he contended. He further argued that the transportation charges levied by GAIL had a discriminatory effect on IPCL. In this regard, it was pointed out that IPCL was being treated on par with others who used the Hazira-Bijaipur-Jagdishpur (HBJ) pipeline laid down by GAIL, whereas IPCL was using its own pipeline. .The Court, in turn, found merit in IPCL's submissions. On the issue of maintainability, the Court noted that the writ petition was maintainable since GAIL was a public undertaking and, therefore, 'State' under Article 12 of the Constitution.Rejecting GAIL's argument that there was no public law element involved in the case, the Court observed:"At the time of entering into contract, GAIL was enjoying a monopolistic position with respect to the supply of natural gas in the country. IPCL, having incurred a significant expense in setting up the appropriate infrastructure, had no choice but to enter into agreement with GAIL. Thus, there was a clear public element involved in the dealings between the parties." Pertinently, the Court observed, "Further, writ jurisdiction can be exercised when the State, even in its contractual dealings, fails to exercise a degree of fairness or practices any discrimination.".The Court, therefore, rejected GAIL's contention that IPCL ought to have first availed the alternative remedy of arbitration before approaching the High Court. "In the present case, GAIL’s action in levying ‘loss of transportation charges’ was ex facie discriminatory, insofar as IPCL was mandated to build its own pipeline in terms of the allocation letter and was not using GAIL’s HBJ pipeline at all. Thus, it cannot be said that merely because an alternative remedy was available, the Court should opt out of exercising jurisdiction under Article 226 of the Constitution and relegate the parties to a civil remedy," the Court said. .The Supreme Court concluded that the contract clause challenged by IPCL was discriminatory and unfair."It would be extremely unfair and unjust, apart from being an arbitrary action in violation of Article 14 of the Constitution of India that IPCL is charged for loss of transportation charges when it is mandated to lay down its own pipelines and not to transport the gas through the HBJ pipeline. This action also violates the principle of non-discrimination enshrined in Article 14," the Court said. .The bench also accepted IPCL's argument that GAIL had exercised an unequal bargaining power at the time of signing the contract."What is of most significance is that IPCL was bound to follow the allocation terms provided by the principal authority, i.e., MoPNG. Thus, as pleaded by IPCL, they were faced with a “Hobson’s choice”, where they had to either give up the contract or accept the clauses levying transportation charges. On a conspectus of the above factors, it can be said that GAIL exercised an unequal bargaining power at the time of signing the contract," the Court observed..Hence, the Court dismissed GAIL's appeal and upheld the relief granted to IPCL. However, the top court restricted the amount of refund payable by GAIL to the amount payable for three years after the writ petition was filed, in view of IPCL's delay in approaching the High Court. .[Read Judgment]