Safiya Malik

The High Court of Madras, Division Bench of Justice Dr. G. Jayachandran and Justice Mummineni Sudheer Kumar, in an important matter concerning the natural gas sector, denied appeals filed by GAIL (India) Limited against five natural gas supplier companies arising from arbitration proceedings amounting to about Rs. 246 crores. The Court held that GAIL’s claims to recover the differential price between APM and non-APM rates were time-barred and affected by waiver and estoppel. Emphasizing that the gas supply arrangements were commercial in nature, the Bench stated that GAIL could not rely on the public trust doctrine to overcome limitation and found no evidence of misrepresentation or unjust gain by the purchasing companies.

The dispute originated from gas supply arrangements between M/s GAIL (India) Limited and five companies engaged in power generation, including M/s Arkay Energy (Rameswaram) Limited, M/s Coromandel Electric Company Ltd., M/s Saheli Exports Pvt. Ltd., M/s Kaveri Gas Power Ltd., and M/s OPG Energy Pvt. Ltd. These companies procured natural gas under Gas Supply Contracts (GSCs) and Gas Sales and Transmission Agreements (GSTAs). Gas prices were initially governed by a 1997 Government Pricing Order until a revised pricing policy was introduced in 2005. This policy classified certain consumers as eligible for APM gas prices.

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GAIL supplied gas at APM rates based on the companies' representations that they generated electricity distributed through the Grid for consumer utilisation. However, a later CAG audit report in 2011 described the consumers under four categories and concluded that certain companies were not eligible for APM pricing as they supplied electricity to captive consumers using wheeling arrangements. The CAG determined that supplying APM-priced gas to such companies caused revenue loss. Based on this report, GAIL issued debit notes claiming differential amounts between APM and non-APM pricing for periods extending back to 2005.

The companies disputed the claims, asserting that they had complied with contractual obligations and pricing policies and that gas supplies were intentionally billed at APM rates with full knowledge of the end usage. They also objected to retrospective reclassification of their consumer category. Arbitration proceedings ensued, resulting in varying findings, but none supported GAIL's retrospective claims. The awards led to GAIL filing petitions under Section 34 of the Arbitration Act, which were heard together by a Single Judge.
The Single Judge partially confirmed the awards and held that GAIL's claims for differential pricing were barred by limitation for the period prior to 15.11.2008 and by waiver, acquiescence, and estoppel for the period thereafter until 15.11.2011. GAIL appealed these findings, raising additional grounds such as the public trust doctrine and the applicability of Sections 10 and 17 of the Limitation Act.

The Court recorded that "the pricing policy for the supply of natural gas always been the prerogative of the Government" and referred to Article 10 of the GSC. It noted that GAIL had been supplying gas at APM prices "after confirming that the respondents are power generators and distributing the power through Grid for the utilisation of consumers."

The Court observed that the CAG's classification of consumers under four categories was not supported by any contemporaneous communication from the Ministry. It recorded that "we are not able to find the four categories of consumers mentioned in the CAG report" and therefore the allegation that companies misrepresented facts was "totally untenable."

The Bench stated that the respondents had sold the energy generated using gas at the agreed price, and held that "there is no unjust enrichment for the respondents". It further observed that GAIL had full knowledge that the power was distributed to captive consumers under wheeling arrangements and stated that "the plea of public trust doctrine... will not apply to the case in hand". The Court held that concluded contracts cannot be reopened by inserting terms not found in the agreement or clarificatory letters.

The Bench also recorded that GAIL's right to revise pricing would apply only prospectively and not retrospectively, stating that "their right to claim non-APM price... will apply only prospectively". Regarding limitation, the Court observed that GAIL could not invoke Section 10 of the Limitation Act, remarking that the plea was "baseless and preposterous". It concluded that GAIL could not prove that the supplies at APM price were made under mistake or misrepresentation.

“The learned Single Judge, after due consideration of the facts, had rightly held that M/s GAIL (India) Limited cannot claim any differential price with retrospective effect. Their right to claim non-APM price from the power generators, who are not supplying the power to the general public not entitled for APM price, will apply only prospectively and such change of policy is permissible under Article 10 of the Gas Supply Contract.

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In the light of the above discussion, we hold that these appeals preferred against the well-considered Common Order of the learned Single Judge deserved to be dismissed. Accordingly, O.S.A.No.300 of 2020, O.S.A.(CAD)No.42 of 2021, O.S.A.No.64 of 2021, O.S.A.(CAD)No.109 of 2021, O.S.A.(CAD)No.125 of 2021 and O.S.A.(CAD)No.127 of 2021 all filed by M/s GAIL (India) Limited stand dismissed. O.S.A.(CAD)No.66 of 2022 filed by M/s Arkay Energy (Rameswaram) Limited also stands dismissed.

The Civil Miscellaneous Petitions to receive additional ground have been considered both by the learned Single Judge as well as by this Court. Hence, no separate order is required in these Petitions. Consequentially, the other Miscellaneous Petitions for stay of operation of the Common Order of the learned Single Judge are closed. In the result, all OSAs and CMPs are dismissed. No order as to costs.”

Advocates Representing the Parties:
For the Petitioners: Senior Counsel Mr. P.V.S. Giridhar assisted by Ms. Pooja Jain; Senior Counsel Mr. M.Ajmal Khan assisted by Ms. Pooja Jain; Senior Counsel Mr. P. Wilson assisted by Ms. Pooja Jain.
For the Respondents: Senior Counsel Mr. P.S. Raman for Mr. K. Harishankar; Mr. Vinod Kumar; Mr. Anirudh Krishnan and Mr. Adarsh Subramanian.

Case Title: M/s GAIL (India) Limited v. Coromandel Electric Company Ltd. & connected matters
Case Number: O.S.A.No.300 of 2020, O.S.A.(CAD)No.42 of 2021, 64 of 2021, O.S.A.(CAD)No.66 of 2022,O.S.A.(CAD)No.109 of 2021, O.S.A.(CAD)No.125 of 2021 and O.S.A.(CAD)No.127 of 2021 & C.M.P.Nos.13812 of 2024, 14366 of 2020,13808 of 2024, 13807 of 2024, 13811 of 2024,18525 of 2021, 13809 of 2024, 20224 of 2021,13810 of 2024 and 20250 of 2021
Bench: Justice Dr. G. Jayachandran and Justice Mummineni Sudheer Kumar