Transactions Purely Commercial; Public Trust Doctrine Can't Defeat Limitation: Madras HC Dismisses GAIL Appeals In ₹246 Cr Dispute

In an important ruling for the natural gas sector, the Madras High Court Bench of Justices G Jayachandran and Mummineni Sudheer Kumar denied appeals by GAIL (India) Limited against five natural gas supplier companies in arbitrations aggregating to Rs. 246 crores, observing that natural gas transactions are commercial and GAIL could not invoke the public trust doctrine to escape limitation.

Five companies, M/s Arkay Energy (Rameswaram) Limited, M/s Coromandel Electric Co Ltd, M/s Sahell Exports Pvt Ltd, M/s Kaveri Gas Power Ltd and M/s OPG Energy Pvt Ltd entered into Gas Supply Contracts with GAIL and procured gas at the GSC price. After dismantling of the APM, the Buyers confirmed usage for power generation and eligibility for APM pricing. However, a CAG audit found the gas supplied at APM was not distributed through public utilities but sold to captive consumers. GAIL raised debit notes for differential pricing, which was disputed and led to arbitrations.

In most arbitrations, GAIL's claims were allowed. The Buyers filed applications to set aside the awards. The Single Judge held that GAIL's claims prior to 15.11.2008 were barred by limitation and for 16.11.2008 to 15.11.2011 were barred by waiver, acquiescence or estoppel, but permitted non-APM price prospectively from 16.11.2011. GAIL appealed.

GAIL argued that the Buyers, being private power generators selling to captive consumers, were not entitled to APM benefits and that as a trustee of natural resources, the doctrines of waiver or limitation did not apply. It was alleged that the Buyers misrepresented the nature of their business and derived unfair benefit.

Buyers argued that the distinction between public and captive consumers lacked justification and that the contract was governed purely by contractual principles. They denied unjust enrichment.

The Court held that pricing policy and clarificatory letters did not provide any consumer subclassification and rejected the allegation of misrepresentation. The plea of unjust enrichment was held inapplicable as the Buyers generated energy and sold at fixed prices. It observed that public trust doctrine would not apply to this transparent commercial transaction and that concluded contracts could not be reopened by importing new terms. Entertaining GAIL's stance would create perpetual uncertainty against public policy.

Thus, the Court upheld that GAIL could not claim differential price retrospectively, with rights to claim non-APM price only prospectively as per GSC, and dismissed the appeals.