UNIVERSITY OF PETROLEUM AND ENERGY STUDIES

SCHOOL OF LAW

SEMESTER-6

PROJECT ON

TOPIC: Gail India Limited v. Shyam Industries and Ors

SUBMITTED TO: SUSHMITA HALDAR

NAME: AKANKSHA KOHLI

BATCH: BA L.L.B (ENERGY LAWS)

ROLL NO: 13

SAP ID: 500060476

Facts of the case:

1. GAIL India Limited is the Appellant herein. Five Consumers who use to receive the
supply of Gas from the Appellant, namely (1) M/s. Haldyn Glass Gujarat Limited (2)
Bharat Glass Tube Limited (3) SchottGlass Industries India Limited (4) Shyam Industries
Limited and (5) Punjab SteelRolling Mills (Baroda) Pvt Limited are the Respondents.
The Petroleum Board is the other Respondent.
2.  One of the Respondent Consumers M/s. Shyam Industries filed a complaint on 15.6.2010
before the Petroleum Board complaining against GAIL, the Appellant with regard to
excess Gas Transportation Charges levied on them and praying for the refund of the said
excess charges.
3. Similarly, on 9.12.2010, all the five Respondent consumers jointly filed a similar
complaint praying for the same relief.
4. Since the issues raised in both the complaints were same, both the complaints were heard
together by the Petroleum Board which in turn, passed the final order on 25.5.2011
holding that the collection of transportation charges levied by GAIL was excess and
arbitrary and directing the GAIL to re-compute the  
Judgment in Appeal No.86  of 2011 & Appeal No. 87 of 2011  applicable transportation
charges and refund the excess charges levied with interest w.e.f 1.10.2007 to the
Respondent Consumers.

5. Aggrieved by this order, the GAIL India Limited has filed these Appeals in Appeal No.86
and 87 of 2011.

6. The Appellant has challenged the impugned order on the following grounds:

(i) The Petroleum Board lacks the jurisdiction to adjudicate the issue in question in view
of the arbitration clause in the agreement.

(ii)The line in question is not a dedicated line but it is just a spur line.

(iii) The complaints filed by the Respondent consumers was barred by limitation.
In view of the above, the petitioner contended that there appears to be some mistakes in
calculation or its parameters for calculating the gas transportation charges to them which
needed to be re-checked properly and the Board was accordingly requested to study the
case and give relief on their request for reduction of gas transportation charges and refund
of excess transportation charges since commencement of first Gas Supply Agreement
dated 18.07.2000 between GAIL and Shyam Industries. During the hearing on 27.7.2010,
the Counsel appearing on behalf of the petitioners sought additional time to file revised
complaint including copy of the Gas Sales Agreement along-with other documents and
the Respondent also correspondingly sought additional time to file reply. In the additional
affidavit filed on 16.8.2010, the Petitioner contended that it had entered into a Gas Sales
and Transportation contract with GAIL for the purchase and transmission of natural gas
to their industrial unit at Naroda, Ahmedabad vide contract dated 18.07.2000. The latest
contract document was dated 30.3.2006 which superseded all previous agreements
entered into between the parties. The contract document was prepared by GAIL and the
complainant was required to sign the contract as drafted by GAIL. In terms of the
Contract between GAIL and Shyam Industries, the natural 4 gas is to be delivered by
GAIL from the Ranasan T/O on the Kalol-Ramol gas pipeline operated and maintained
by GAIL. The distance between the Ranasan T/O and the industrial premises of the
complainant where the gas is delivered is connected through a dedicated gas pipeline of
1.278 Km. This gas pipeline of 1.278 Km does not serve any other consumer for delivery
of gas by GAIL. There is another gas pipeline from Ranasan T/O to Reliance Industries
premises which is at a distance of about 2.5 km and the gas pipeline of Reliance
Industries is also a dedicated line with no other unit being served on the said line. In their
additional affidavit, the petitioners also argued that the Natural Gas supply and
transportation was till recently the monopoly of Government Utilities. The construction
and operation of pipe lines for transmission of natural gas has all along been a monopoly
of GAIL by virtue of the policies of the Central Government having strict regulation on
the entry of private entities in the sector till the adoption of the policy of liberalization.
By virtue of its monopolistic position in the past, GAIL owns, operates and exercises
substantial control on the total gas pipeline network in the country. GAIL being the only
player in the market engaged in laying down and operating gas pipelines has commanded
a near monopoly situation whereby it has been in a position to dictate onerous terms and
conditions for transmission of gas and laying down of gas pipelines and to compel the
consumers to agree to the same.

Related provisions

In addition to Gas Price as mentioned under Article 10.1 above the BUYER shall pay to
the SELLER the following charges (as applicable)
(a) Deleted
(b) The fixed monthly transmission charges of Rs. 339833/- (Rupees Three Lacs Thirty
Nine Thousand Eight Hundred Thirty Three only) per month plus additional transmission
charges at the unit rate of Rs. 4119/- (Rs. Four Thousand One Hundred Nineteen Only)
per thousand standard cubic meters for the Quantity over and above the quantity as
mentioned under Article 5.1
(c) Deleted
(d) Deleted
(e) Other charges like Marketing Charges, Compression Charges (as applicable) The
above monthly transmission charges/additional monthly transmission charges as
mentioned at 10.2.b shall be escalated by 3(Three) per cent on yearly basis with effect
from 01.04.2007 (First April Two Thousand and Seven) The above monthly/unit rate
transmission charges is exclusive of replacement/ modifications of the existing pipeline
and associated facilities (including Compression facility) wholly/partly for supply of Gas
to the Buyer at the Delivery Point. Cost of such additional facility shall be applicable
from the date of notice/agreement of such replacement/modification. "

It was emphasized by the petitioners that the above principle laid down by the Hon'ble
Supreme Court applies directly to this case, where GAIL acting in its monopoly capacity
has been dictating the transmission charges for use of gas pipe lines by the consumers. It
was expected of GAIL as a monopoly public sector undertaking to act in a reasonable
manner and to levy charges having correlation to the actual charges and expenses
incurred by GAIL in laying down and operating the pipelines. It was submitted by the
petitioners that the action on the part of GAIL in charging transportation tariff on an
arbitrary basis and exploiting the consumers is wholly unjustified as there can be no
justification for a public enterprise engaged in public utility services to recover such
amounts from consumers and the action of GAIL is an unfair practice and against the
consumer interest

Contentions of the petitioners:

The petitioners stated that the Board has been constituted under the provisions of the
PNGRB Act, 2006 (hereinafter referred to as the “Act”) to regulate various aspects of the
petroleum and natural gas sector. It was submitted that under the provisions of the Act,
the Board is vested with the jurisdiction and mandate to protect the interests of consumers
and promote competition and fair trade amongst the entities in the sector. They also
pointed out that the Board is vested with the jurisdiction to adjudicate upon complaints
and disputes raised against entities relating to various aspects in the sector including
transportation of natural gas. As per the petitioners, in terms of the provisions of Section
11 (a) of the Petroleum and Natural Gas Regulatory Board Act, 2006 the Board has the
function to protect the interest of consumers by fostering fair trade and competition
amongst the entities. The above functions and consequently the powers of the Board
under Section 11 (a) has been held to be independent of other powers and functions of the
Board and can be exercised even in respect of the products which are not notified.
Therefore, as per the petitioners, the Board has got the powers to receive complaints and
redress the grievance of Shyam Industries in regard to unfair trade indulged in by GAIL
while collecting transportation charges from petitioner.

As per the petitioners, the above findings of the Hon'ble High Court of Gujarat rightly
emphasize that a Regulatory body has wide amplitude of powers and obligations to take
appropriate measures in the overall interests of the consumers and it is not expected to
confine itself to only specific measures enumerated in certain provisions. Further, the
powers of the Board to adjudicate upon any complaint/dispute have been elaborated in
the provisions of Section 12 of the Act, which are given below:
Section 12: Powers regarding complaints and resolution of disputes by the Board- (1)
The Board shall have jurisdiction to-
(b) receive any complaint from any person and conduct any enquiry and investigation
connected with the activities relating to petroleum, petroleum products and natural gas on
contravention of .
(iii) any other provision of this Act or the rules or the regulations or orders made
thereunder. (2) While deciding a complaint under Section (1), the Board may pass such
orders and issue such directions as it deems fit or refer the matter for investigation
according to the provisions of Chapter V

Contentions of Defendant:

The Counsel for the Complainants has brought out that there were many Supreme Court
pronouncements that give widest amplitude when phrases like "relating to" are used. The
above cited provisions of Section 12 make it clear that the jurisdiction and power of this
Board is not restricted to the notified petroleum products only and the Board can look
into various issues connected with and related to activities in the sector. In this context, it
would be relevant to point out the observations by High Court of Gujarat in the same
matter relating to SEBI, giving wide amplitude to generic terms in the SEBI Act: The
words other persons associated with the securities market have not been defined in the
Act. The question then arises whether the persons associated with the securities markets
takes its colour from 14 persons enumerated in clause (ba)? If one has to go by the literal
meaning, the interpretation which restricts the meaning of persons associated with the
securities would include all and sundry who have something to do with the securities
market. It is to be noted that the securities market in the sense is not confined to the stock
exchanges only. The words persons associated with the securities market are of much
wider import than intermediaries. Persons associated with denotes a person having
connection or having a intercourse with the other. In the present case that other with
whom the person is to have connection or intercourse is the securities market. We
therefore hold that the Board can adjudicate on issues "relating to" various activities in
the sector. 15. As pointed out by the petitioners, in the appeal filed by Industry.
 Judgment:

That the Board has wrongly exercised its jurisdiction. However, it is noticed that the finding
which have been given by the Board with reference to the collection of excess charges was on
the basis of the guidelines which have been issued by the Board on 2.12.2010. It is noticed that
though the Board has assumed jurisdiction on 1.10.2007, the complaints have been filed by the
consumers only on 15.6.2010 by the Shyam Industries and on 9.12.2010 by other consumers.
Therefore, it would be appropriate to modify the impugned order to the effect that the Appellant
is liable to refund the excess charges levied with interest w.e.f. 2.12.2010, the date of issuance of
guidelines. Accordingly, the order is liable to be modified.

Therefore, we modify the order to the effect that the impugned order shall take effect only from
2.12.2010, the date of issuance of guidelines, instead of 1.10.2007 as mentioned in the impugned
order. Thus, the impugned order is modified. Appeal is partly allowed. However, there is no
order as to costs.