{"id":49662,"date":"1990-05-04T00:00:00","date_gmt":"1990-05-03T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/oil-and-natural-gas-commission-and-vs-association-of-natural-gas-on-4-may-1990"},"modified":"2017-10-14T11:16:35","modified_gmt":"2017-10-14T05:46:35","slug":"oil-and-natural-gas-commission-and-vs-association-of-natural-gas-on-4-may-1990","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/oil-and-natural-gas-commission-and-vs-association-of-natural-gas-on-4-may-1990","title":{"rendered":"Oil And Natural Gas Commission And … vs Association Of Natural Gas … on 4 May, 1990"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Oil And Natural Gas Commission And … vs Association Of Natural Gas … on 4 May, 1990<\/div>\n
Equivalent citations: 1990 AIR 1851, \t\t 1990 SCR (3) 157<\/div>\n
Author: S Rangnathan<\/div>\n
Bench: Rangnathan, S.<\/div>\n
           PETITIONER:\nOIL AND NATURAL GAS COMMISSION AND ANR.\n\n\tVs.\n\nRESPONDENT:\nASSOCIATION OF NATURAL GAS CONSUMING INDUST-RIES OF GUJARAT\n\nDATE OF JUDGMENT04\/05\/1990\n\nBENCH:\nRANGNATHAN, S.\nBENCH:\nRANGNATHAN, S.\nOJHA, N.D. (J)\nVERMA, JAGDISH SARAN (J)\n\nCITATION:\n 1990 AIR 1851\t\t  1990 SCR  (3) 157\n 1990 SCC  Supl.  397\t  JT 1990 (2)\t516\n 1990 SCALE  (1)900\n\n\nACT:\n    Constitution  of  India,  1950:  Articles  14,  32\t and\n226--OGC--A\tstatutory     corporation--Whether     State\nagency--'Public utility' concern --Obliged to supply gas  at\nreasonable     rates--Price    fixation--Interference\t  by\nCourt--Permissibility of.\n    Oil and Natural Gas Commission Act,\t 1959: Section\t14--\nONGC--Whether 'public utility' undertaking--Whether  obliged\nto supply gas for consumption of public.\n    Words and Phrases: 'Public utility'--'Reasonableness  of\nrates' meaning of.\n\n\n\nHEADNOTE:\n    The appellant, Oil & Natural Gas Commission. is a statu-\ntory corporation constituted by and under the Oil and  Natu-\nral  Gas  Commission Act, 1959. In most of  its\t oil  fields\nsituated  in Gujarat, gas comes out along with crude oil  as\n\"free gas\".\n    The\t appellant  had\t agreed to supply this\tgas  to\t the\nGujarat State Electricity Board (GSEB) and the Gujarat State\nFertiliser Corporation (GSFC) at a price related to fuel oil\nprice on the basis of thermal value equivalence, without any\nreference  to the cost of production of gas as such.  Public\ndiscontent over the alleged high price charged was expressed\nand eventually the dispute was referred to the sole arbitra-\ntion  of Dr. V.K.R.V. Rao who gave his award. Dr.  Rao\tmade\nthe \"cost plus\" method the basis of his award in  preference\nto  the\t basis\tof thermal  equivalence\t of  alternate\tfuel\n(thermal equivalence basis).\n    In\tJuly 1967, the supply of gas to some of\t the  indus-\ntries in and around Vadodara city was started, on the  basis\nof individual annual contracts. Aggrieved by the steady rise\nin  the prices, the respondents Association of\tNatural\t Gas\nConsuming Industries and Others--moved the Bombay High Court\nin March 1979 by way of a writ petition- In the petition  it\nwas, inter alia, prayed that the ONGC be directed (i) to\n158\ncontinue  to supply the gas to the respondents\tdespite\t the\ncontracts in their favour having lapsed; (ii) to discuss and\nnegotiate  a fair, reasonable and just price for  supply  of\ngas;  (iii) to stop charging discriminatory prices  for\t the\nsupply\tof  gas to the respondents in  comparison  with\t the\nprice  charged\tto public sector undertakings; and  (iv)  to\nrestrict the minimum guaranteed quantity of offtake.\n    The\t High  Court passed an interim order  directing\t the\nONGC  to continue the supply of gas to the  respondents,  at\nthe existing rate of Rs.504 per unit which was later  raised\nby the Court to Rs. 1000 per unit.\n    The\t High  Court  held;  (i) The  Oil  and\tNatural\t Gas\nCommission is a public Utility Undertaking and has a duty to\nsupply\tgas  to anyone who requires it so long as  there  is\nenough supply available; (ii) Price fixation is generally  a\nlegislative function. But the Oil and Natural Gas Commission\nbeing a State instrumentality, is bound to act reasonably in\nthe  matter of fixation of price; such price is bound to  be\ndetermined by following any one of the modalities  suggested\nin  the judgment of the High Court; (iii) There was no\tdis-\ncrimination  by the Oil and Natural Gas\t Commission  between\nthe  public  sector  undertakings on the one  hand  and\t the\nrespondents' undertakings on the other in charging differen-\ntial  prices; and (iv) The clause regarding minimum  guaran-\nteed offtake was valid and enforceable.\n    Before  this Court. the appellant  primarily  challenged\nthe  finding of the High Court that the ONGC was  a  'public\nutility\t undertaking' which was bound to supply gas  at\t the\nrequest of any member of the public at large. The  appellant\nalso  contested the correctness of the High Court's  conclu-\nsion  that the price of gas must be determined on the  basis\nof  cost  of  production plus a reasonable  return  for\t the\ninvestment made. The appellant submitted that (i) the prices\nunder  the contracts entered into with the  respondents\t had\nbeen determined on the basis of a wellknown principle.\tviz.\nthe  ruling prices for an alternate fuel and this could\t not\nbe said to be either arbitrary or unreasonable\tparticularly\nwhen  a large number of industries were willing to take\t the\nsupply of gas at the prices fixed on that basis; (ii)  while\npublic sector units and State instrumentalities ought not to\nbe  allowed to exploit the consumers. it was equally  neces-\nsary  to ensure that such units and  instrumentalities\twere\nenabled to make reasonable profits; (iii) in the context  of\nthe integrated activity of production of crude oil and\tgas.\nit was almost impossible to work out the cost in respect  of\nany particular area or of a particular bye-product; (iv) the\ncost plus basis was fixed by the Award several years ago and\nthat too in the context of supply to certain State\n159\nundertakings which, in turn, supplied essential\t commodities\nlike electricity and fertilizers; and (v) the onus of  show-\ning  that the prices charged were unreasonable or  arbitrary\nwas  on\t the respondents and they had done nothing  to\tdis-\ncharge this onus.\n    On\tbehalf\tof the respondents it was contended  that  a\npublic utility undertaking could not arbitrarily discontinue\nits  supply  or\t services merely because  the  customer\t was\nunwilling  to pay the price asked for as unconscionable\t and\nunreasonable. It was further contended that the price  fixed\nmust be reasonable and fair so as to give the undertaking  a\nreasonable  return  on the capital employed and\t that  there\ncould  not be any discrimination against industrial  consum-\ners. According to the respondents. this was the only reason-\nable  way  of price fixation and referred to  the  Award  in\nsupport\t of this proposition- The respondents further  urged\nthat to allow Oil and Natural Gas Commission to sell gas  at\na higher price than this merely because. otherwise. but\t for\nthe  availability of gas, the consumers would have to  spend\nmore  for  their sources of energy. will  really  amount  to\nintroduction  an irrelevant element in the process of  price\nfixation  and  result in allowing the Oil  and\tNatural\t Gas\nCommission  to make unreasonable profits at the\t expense  of\nunhappy consumers. It was argued that these principles\twere\napplicable with greater force in the context of the  consti-\ntutional  discipline  over  state  instrumentalities   under\nArticle 38 & 39 of the Constitution.\n     Bolt v. Stennett CJ E.R.__Revised--p. 1572; Allnutt  v.\nInglis CIV E.R.--Revised--p. 206; Ira Y. Munn v. People,  24\nL.Ed.  77: United Fuel Gas Co. v. Railroad Commission,\t73L.\nEd. 390; Los Angeles Gas & Electric Corporation v.  Railroad\nCommission.  77 L.Ed. 1180; Leo Nabbia v. People.  78  L.Ed.\n940; Harold E. West v. Chesapeake & Potomac Telephone  Com.,\n79 L.Ed. 1640; Federal Power Commission v. Hope Natural\t Gas\nCo.,  88 L.Ed. 333; premier Automobiles v. Union,  [1972]  2\nS.C.R. 526; Panipat Cooperative Sugar Mills v. Union,<\/a> [1973]\n2  S.C.R.  860;\t Shree Meenakshi Mills v.  Union,<\/a>  [1974]  2\nS.C.R. 398; Saraswati Industrial Syndicate v. Union,<\/a>  [1975]\n1  S.C.R.  956; Prag Ice and Oil Mills v.  Union,<\/a>  [1978]  3\nS.C.R. 293; Union of India v. Cynamide India Ltd.,<\/a> [1987]  2\nS.C.C. 720, relied upon.\n     Allowing  the appeals and upholding the prices  charged\nby the Oil and Natural Gas Commission, this Court,\n     HELD:  (1) The Oil and Natural Gas Commission does\t not\nsatisfy\t the primary conditions for being a  public  utility\nundertaking  as it has not so far held itself out or  under-\ntaken or been obliged by any law to\n160\nprovide\t gas supply to the public in general or to any\tpar-\nticular\t crosssection of the public. The proviso to  Section\n14(1)(e)  of the Act which lays down that the setting up  of\nindustries  to\tbe  run with the aid of gas was\t not  to  be\nundertaken by the Oil and Natural Gas Commission without the\nCentral Government's approval also gives an indication\tthat\nthe  supply of gas to various industries on a general  basis\nwas  not in the immediate contemplation of the Act  but\t was\nenvisaged as a future expansion to be initiated with Central\nGovernment's approval. Perhaps a stage in the  developmental\nactivities  of the Oil and Natural Gas Commission will\tsoon\ncome  when  such  an obligation could be  inferred  but,  at\npresent,  the  Oil and Natural Gas Commission  supplies\t gas\nonly to certain selected contractees. [181E-G]\n    (2) It is however not necessary in this case to  express\nany final opinion on the issue whether the ONGC was a public\nutility\t undertaking  except to say, prima  facie,  that  it\ncould  not be placed on par with a public utility  undertak-\ning. All that the respondents wanted was a declaration\tthat\nthey  were  entitled to the supply of gas  at  a  reasonable\nprice.\tIt was sufficient, for disposing of this  claim,  to\ndeal with this aspect of the matter and the larger aspect of\nOil and Natural Gas Commission being a public utility under-\ntaking could be left out of account. [183E-F]\n    (3) The treatment of the Oil and Natural Gas  Commission\nas  a public utility undertaking for the supply of gas\twill\nraise innumerable basic questions totally inconsistent\twith\nthe present system of selective supply which the respondents\nwant to be continued. It will transpose the area of  contro-\nversy  to  a totally different and wider  plane.  The  Court\nwould then be constrained to hold that the present system of\nsupply\twas inconsistent with public law and  the  constitu-\ntional requirements of a public utility undertaking.  [183C-\nD]\n    (4) The main activity of the Oil and Natural Gas Commis-\nsion  is that of exploration and prospecting  for  petroleum\nand  petroleum\tproducts.  So far as gas,  which  is  a\t bye\nproduct,  is concerned, the Oil and Natural  Gas  Commission\nhas  not  so  far been able to\tvoluntarily  or\t constrained\nstatutorily  to harness and utilise its production for\tcon-\nsumption by the public. [181H; 182A]\n    (5)\t There is no doubt that Dr. Rao made the  cost\tplus\nmethod the basis of his award in preference to the basis  of\nthermal\t equivalence of alternate fuel (thermal\t equivalence\nbasis).\t But,  the cost plus basis fixed by Dr. Rao  in\t the\nbackground  of\tthe real nature of the\tdispute\t before\t him\nthree  decades ago could not be taken as conclusive  in\t the\npresent\n161\nsituation.  Dr.\t Rao was concerned primarily with  an  issue\nraised\tby  the\t public of Gujarat as against  the  Oil\t and\nNatural Gas Commission. He was really adjudicating upon\t the\nprice which the Oil and Natural Gas Commission should charge\nto  public  sector undertakings catering  to  the  essential\nneeds  of  the State. In that context,\this  objective\twas,\nunderstandably,\t to  fix the price as low as  possible.\t The\nconsumer  under consideration by him represented the  public\nneed  of  the State of Gujarat and, as against\tsuch  public\ninterest,  the Oil and Natural Gas Commission's\t profit\t re-\nquirements paled into insignificance. [189C; G; D-E]\n    (6) Here, the Court is dealing with a price to be  fixed\nunder a contract between the Oil and Natural Gas  Commission\nand  one set of industries in the State who wish to  make  a\nchange\tover  from the furnance oil system to  that  of\t gas\nsupply\twith a view to increase their own profitability\t and\ngain an advantage, if possible, over other industries in the\nState.\tIn this context, Oil and Natural Gas  Commission  is\nentitled  to a larger latitude and charge a price which\t the\nmarket can bear. The only restriction is that, being a State\ninstrumentality, it should not be a whimsical or  capricious\nprice but should be one based on relevant considerations and\non some recognised basis. [189H; 190A]\n    (7) Cost plus is not a satisfactory basis in all  situa-\ntions.\tMay  be the cost plus is an ideal  basis  where\t the\ncommodity  supplied  is the product of a monopoly  vital  to\nhuman  needs.  In  that context the price  fixed  should  be\nminimum\t possible as the customer or consumer must have\t the\ncommodity  for his survival and cannot afford more than\t the\nminimum. Per Contra, there can be situations where the\tneed\nof the consumer is not so vital and the requirements of\t the\neconomic  scene\t are  such that the needs  of  the  producer\nshould\tbe given greater consideration. In such\t situations,\nthe  \"plus\"  element  in the cost plus\tbasis  (namely,\t the\nallowable  profit margin) should not be confined to \"a\trea-\nsonable return on the capital\" but should be allowed to have\na much larger content depending on the circumstances.  Given\na favourable area of operation, commercial profits need\t not\nbe either anathema or forbidden fruit even to public  sector\nenterprises- [191D-E; G-H]\n     Anakapallee Case, [1973] 2 S.C.R. 882; Venkatachalam v.\nDeputy Transport Commissioner, [1977] 2 S.C.R. 392, referred\nto.\n     (8)  It would not be right to insist that the  Oil\t and\nNatural\t Gas Commission should fix oil prices only  on\tcost\nplus basis. Indeed, its policy of pricing should be based on\nthe  several  factors  peculiar to the\tindustries  and\t its\ncurrent situation. and so long as such a policy is not\n162\nirrational or whimsical, the court may not interfere. [195D]\n    (9) Price fixation is generally a legislative  function.\nBut Parliament generally provides for interference only at a\nstage  where in pursuance of social and economic  objectives\nor  to\tdischarge duties under the Directive  Principles  of\nState Policy, control has to be exercised over the distribu-\ntion and consumption of the material resources of the commu-\nnity. [195F]\n    M\/s.  Shri Sitaram Sugar Company Ltd. & Anr.  v.  Union,\nJ.T.<\/a>  1990 (1) S.C. 452; Jagadamba Paper Industries v.\tHar-\nyana  State Electricity Board, [1984] 1 S.C.R.\t165;  Kerala\nState  Electricity Board etc. v. M\/s. S.N. Govinda Prabhu  &\nBros. & Ors. etc., [1986] 4 S.C.C. 1968, referred to.\n    (10)  It  cannot be said that the Oil  and\tNatural\t Gas\nCommission has acted arbitrarily in fixing the prices on the\nthermal equivalence basis; the fact that it has not done  it\non cost plus basis does not vitiate the price fixation.\t The\nonly question to be considered is as to whether the Oil\t and\nNatural\t Gas Commission has fixed a price based on  relevant\nmaterials and on some known principle. [200C]\n    (11)  The manufacture, distribution and  consumption  of\ngas has yet not attained the status of an essential commodi-\nty till recently. At present, the industry is in the  penum-\nbral region where the commodity is free to be distributed at\nthe  manufacturer's choice, but yet where such\tmanufacturer\nbeing a State instrumentality, has to conform to Articles 14\nand 19 of the Constitution. At this stage of development  of\nthe  industry  a much wider latitude is permissible  in\t the\nfixation  of prices than the imposition of a \"no profit,  no\nloss\" basis or a \"cost plus\" basis on the producer. [200E-G]\n    (12) It is now well settled that a favourable  treatment\nof public sector organisations, particularly ones dealing in\nessential commodities or service, would not be discriminato-\nry.  No\t tangible material has been brought to\tthe  Court's\nnotice\twhich would support the plea of\t unfair\t discrimina-\ntion. [203E-F]\n    (13)  The High Court rightly upheld the Oil and  Natural\nGas Commission's right to insist on a munimum off take guar-\nantee. [202G]\n    Amalgamated\t Electricity  Co. Ltd.\tv.  Jalgaon  Borough\nMunicipality,<\/a> [1976] 1 S.C.R. 636.\n163\n\n\n\nJUDGMENT:\n<\/pre>\n
    CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.  8530-40
\nof 1983.\n<\/p>\n
    Appeals  by\t Certificate from the  Judgment\t and  Decree
\ndated  30.7.1983 of the Gujarat High Court in Special  Civil
\nApplication  Nos.  883 of 1979, 913 of 1979, 1897  of  1981,
\n2316 of 1982, 2384of 1982, 2445 of 1982, 2470 of 1982,\t2977
\nof 1982, 4194 of 1982, 4520 of 1982 and 2542 of 1982.
\n    K.\tParasaran, Attorney General, B. Sen,  A.K.  Ganguli,
\nDr.  Y.S. Chitley, T.S. Krishnamurthy Iyer, N. Nettar,\tG.S.
\nNarayana,  p. Parameshwaran, T.V.S.N. Chaff and N.N.  Sharma
\nfor the Appellants.\n<\/p>\n
    Anil  B.  Diwan,  K.J. Kazi, Dr. L.M.  Singhvi,  Ms.  M.
\nArora, Mrs. B. Chib, M. Singhvi, D.A. Dave, Mrs. M. Karanja-
\nwala,  R.N. Karanjawala, Mr. P.H. Parekh, Mr. C.A. Cazi\t and
\nMrs. H.S. Anand for the Respondents-\n<\/p>\n
D.N. Misra for the Intervenor.\n<\/p>\n
The Judgment of the Court was delivered by
\n    RANGANATHAN,  J. These are eleven appeals  preferred  by
\nthe Oil and Natural Gas Commission (ONGC, for short) from  a
\njudgment  and  order, dated 30th July, 1983, of\t a  Division
\nBench  of the High Court of Gujarat at Ahmedabad in a  batch
\nof writ petitions, since reported in 1983-24(2) Gujarat\t Law
\nReporter 1437. The appeals are pursuant to a certificate  of
\nfitness granted by the High Court.\n<\/p>\n
     The  ONGC was initially a Department of the  Government
\nof  India  but, in view of its expanding activities  in\t the
\nsearch for strategic and vital materials like oil, petroleum
\nand  its products it was set up as a body corporate.  It  is
\nnow a statutory corporation constituted by and under the Oil
\nand  Natural  Gas Commission Act, (Central Act 43  of  1959,
\nhereinafter referred to as ‘the Act’). The Act provides\t for
\nthe  establishment of a Commission “for the  development  of
\npetroleum  and\tpetroleum products produced by\tit  and\t for
\nmatters\t connected therewith”. Section 2(f) of the  Act\t de-
\nfines  ‘petroleum’  as\thaving the same meaning\t as  in\t the
\nPetroleum  Act,\t 1934  (Act 30 of  1934)  and  as  including
\n‘natural gas’. The Commission established under the Act took
\nover  the previously existing organisation with effect\tfrom
\n18.9.59.\n<\/p>\n
Some of the provisions of the Act which are relevant for our
\n164<\/span>
\npresent\t purposes  may be set out here.\t Chapter  III  which
\ndeals  with the powers and functions of the Commission\tcon-
\nsists of Sections 14 and 15. S. 14 reads thus:
\n“14. Functions of the Commission–\n<\/p>\n
(1) Subject to the provisions of this Act, the functions  of
\nthe Commission shall generally be to plan, promote, organise
\nand  implement programmes for the development  of  petroleum
\nresources  and\tthe  production and sale  of  petroleum\t and
\npetroleum products produced by it and to perform such  func-
\ntions  as  the Central Government may, from  time  to  time,
\nassign to the Commission.\n<\/p>\n
(2) In particular and without prejudice to the generality of
\nthe foregoing provision, the Commission may take such  steps
\nas it thinks fit–\n<\/p>\n
(a)  for  the  carrying out of\tgeological  and\t geophysical
\nsurveys for exploration of petroleum;\n<\/p>\n
(e) for the transport and disposal of natural gas and refin-
\nery gases produced by the Commission:\n<\/p>\n
\t  Provided  that no industry, which will use any  of
\nthese  gases as a raw material, shall be set up by the\tCom-
\nmission without the previous approval of the Central Govern-
\nment.\n<\/p>\n
(h)  to\t perform any other function which  is  supplemental,
\nincidental  or consequential to any of the functions  afore-
\nsaid or which may be prescribed.”\n<\/p>\n
Section\t 15  empowers the Commission to\t exercise  all\tsuch
\npowers\tas may be necessary or expedient for the purpose  of
\ncarrying  out its functions under the Act. Such\t powers\t in-
\nclude the disposal of any property, right or privilege,\t the
\noriginal  or book value of which exceeds such amount as\t may
\nbe prescribed, or where no such amount has been\t prescribed,
\nexceeds\t ten lakhs of rupees and this power could  be  exer-
\ncised  after obtaining the previous approval of the  Central
\nGovernment
\n165<\/span>
\n[Clause\t (c)I.\tChapter IV of the,Act  deals  with  finance,
\naccounts,  audit and reports. Sections 16 and 17  deal\twith
\nthe  capital of the Commission and the vesting, in the\tCom-
\nmission,  of the previous set up in this regard. Section  23
\nof the Act requires the Commission to furnish to the Central
\nGovernment such returns and statements and such\t particulars
\nin  regard  to any proposed or existing\t programme  for\t the
\ndevelopment  of petroleum resources and the  production\t and
\nsale  of  petroleum and petroleum products produced  by\t the
\nCommission as the Central Government may, from time to time,
\nrequire. Section 24 in Chapter V (Miscellaneous) enacts that
\nany  land  required by the Commission for carrying  out\t its
\nfunction  under\t the Act shah be deemed to be needed  for  a
\npublic purpose and such land can be acquired by the  Commis-
\nsion under the provisions of the Land Acquisition Act, 1894.
\nS. 31 confers rule making powers on the Central\t Government,
\nin  pursuance of which have been framed the Oil and  Natural
\nGas  Commission Rules, 1960. The only rule relevant for\t our
\npresent\t purposes  is rule 25, dealing\twith  contracts.  It
\nreads as follows:\n<\/p>\n
“25. Contracts:\n<\/p>\n
(1) The Commission may enter into contracts for the  purpose
\nof performing its functions under this Act;
\nProvided  that provision therefore exists in the budget\t ap-
\nproved by the Government.\n<\/p>\n
(2)  Contracts made on behalf of the Commission shah not  be
\nbinding\t on  it unless they are executed by  a\tperson\tduly
\nauthorised by it.\n<\/p>\n
(3) A person authorised by the Commission to enter into\t any
\ncontract  on its behalf shall not be personally\t liable\t for
\nany assurance or contract made on its behalf and any liabil-
\nity  arising  out  of such assurance or\t contract  shall  be
\ndischarged from the Fund.”\n<\/p>\n
The statute, it may be observed, neither imposes a  specific
\nduty on the O.N.G.C. to supply its products to consumers  at
\nlarge nor contains any provisions regarding the fixation  of
\nprices\tfor the commodities made available by  the  O.N.G.C.
\nfor sale.\n<\/p>\n
     In\t the course of its drilling and exploration of\toil,
\nthe ONGC discovered oil-bearing fields in Cambay and Ankles-
\nwar region in 1969
\n166<\/span>
\nand 1961 respectively. In most of the oil fields situated in
\nGujarat, gas comes out along with crude oil and is  commonly
\nknown as “associated gas”. In Cambay area, gas is unaccompa-
\nnied by crude oil and is known as “free gas”. This is easily
\ncombustible and can be used as domestic as well as industri-
\nal  fuel. We are concerned here with both these\t commodities
\nwhich  are  generally known as ‘natural gas’  and  we  shall
\nrefer to them compendiously as ‘gas’.\n<\/p>\n
    In October, 1961 ONGC first thought of the idea of using
\nnatural\t gas in addition to fuel oil in industries.  It\t had
\ndetailed  discussions  with the\t Gujarat  State\t Electricity
\nBoard (GSEB) and it was agreed between them that gas  should
\nbe supplied to the GSEB at a price related to fuel oil price
\non the basis of thermal value equivalence. On this basis, an
\nagreement  was\tentered\t into between them  in\tMarch,\t1963
\nwhereunder  the price of fuel oil was fixed at Rs.77.26\t per
\ntonne  including rail frieght; and, based on this price\t and
\nthermal value equivalence, the price of Cambay gas was fixed
\nat  Rs.80.14 per 1000 cubic metres (hereinafter referred  to
\nas ‘the Unit’) and of Ankleshwar gas at Rs. 106.66 per unit,
\nrounded off to Rs.80 and Rs. 100 per unit respectively.\t The
\nONGC began to supply gas from Cambay region of Dhruvan Power
\nStation in 1964 and from Ankleshwar to Uttaran Power Station
\nin  1965.  The ONGC also entered into discussions  with\t the
\nGujarat\t State Fertilizer Corporation (GSFC) and  ultimately
\nit  was\t agreed, on the footing of the price  of  Rs.76\t per
\ntonne  in  respect of Koyali Naphtha,  that  associated\t gas
\nshould\tbe supplied to the GSFC at between Rs.88  and  Rs.90
\nper  unit on the principle of thermal equivalence. This\t was
\nin  1966.  It may be mentioned here that the  three  parties
\nconcerned  viz.\t the ONGC, GSEB and GSFC, had more  or\tless
\nagreed\tto the principle of determining the price of gas  on
\nthe basis of thermal equivalence with an alternative fuel or
\nfeedstock emanating from the processing of crude oil.  There
\nwas no reference to the cost of production of gas as such.
\n    Despite  the  above agreements, however,  the  concerned
\nparties were not all very happy. The GSFC resented the\tfact
\nthat  discount was not given to them as bulk purchasers\t and
\nthat  the prices charged for the Trombay fertiliser  factory
\nand power house at Bombay were substantially lower than\t the
\nprices\tthat the ONGC charged them. Eventually, public\tdis-
\ncontent\t was expressed over the alleged high price that\t was
\nbeing charged for gas by the ONGC to these organisations. It
\nwas  felt  that the ONGC was denying to them  the  advantage
\nthey  should  have obtained by the discovery of gas  in\t the
\nregion of their operation. It was also felt that this treat-
\nment resulted in discrimination against
\n167<\/span>
\nthem  in comparison with advantages enjoyed by other  States
\ndue  to the availability of fuel resources such as  coal  or
\nhydro-power within their areas. In view of these expressions
\nof public feeling, the question of fixing a proper price for
\nthe  gas was taken up by the Government of Gujarat with\t the
\nGovernment  of India. Eventually, as no agreement  could  be
\narrived\t at, the disputes was referred to the sole  arbitra-
\ntion  of  Dr. V.K.R.V. Rao who gave his\t award\t(hereinafter
\nreferred to as ‘the award’) on 23.9.1967. He determined\t the
\nprice  of  natural gas at Rs.50 per  unit  ex-well-head,  to
\nwhich  were added royalty, sales-tax, depreciation  and\t the
\ntransport  charges.  This  award was to be  enforced  for  a
\nperiod of five years i.e. upto 31.3.1971. Between April 1971
\nand  December  1975, the well-head price was  increased\t and
\nfixed  at Rs.66 per unit, we are all told, on the  interven-
\ntion of the then Gujarat Governor. These prices were revised
\nsubsequently. The supply to GSEB was revised to Rs. 155\t and
\nthe rate of supply to GSFC was revised to Rs.320 per unit.
\n    At\tthat time, there were very few industries set up  in
\nand around Vadodara and these depended, besides electricity,
\non other forms of energy generated through coal or  furnance
\noil. In July 1967, the supply of gas to some of these indus-
\ntries in and around Vadodara city was started, initially  as
\na temporary measure pending the effective materialisation of
\nthe  Gujarat Fertilizer Corporation demand, after which\t the
\nindustries  were  to  go over to fuel oil if  gas  could  no
\nlonger\tbe  supplied.  After a series  of  discussions,\t the
\nFederation of Gujarat Mills and Industries agreed to a price
\nof  Rs. 100 per unit of Ankleswar gas for this\tsupply.\t The
\ncharging of ten rupees less per unit supplied to the  Ferti-
\nliser  Corporation  was justified on the  ground  that\tsuch
\ndifferentiation was consistent with general practice where a
\npetroleum  feed stock is used for chemical  industry.  Among
\nthe  industries that thus received gas supply were  the\t ten
\nrespondents (respondents 2 to 10 in these appeals) who\thave
\nformed\tthemselves, in September, 1978, into an\t association
\ncalled “The Association of Natural Gas-Consuming  Industries
\nof Gujarat”, which is respondent No. 1. The supply to  these
\nindustries–extended  later  to\t a few\tmore–was  based  on
\nindividual  contracts  entered\tinto with each\tone  of\t the
\nconcerns.  Initially, the ONGC entered into contracts  valid
\nfor  a period of five years at a time but,  subsequently–it
\nis  said, due to a fear of possible shortage in\t the  avail-
\nability\t of enough gas–this was changed and  the  contracts
\nwere,  generally, made annual, except in regard\t to  certain
\npublic sector undertakings and, it is said, a few companies.
\nThe  rates of supply were also slowly stepped up as  can  be
\nseen from the following table:\n<\/p>\n
168<\/span><\/p>\n
Period\t\t\t\t    Price of supply\n1.1.1976 to 31.03.1976\t\t    Rs.322.63.\n1.4.1976 to 31.12.1976\t\t    Rs.341.45\n1.1.1977 to 31.03.1977\t\t    Rs.351.00\n1.4.1977 to 31.12.1977\t\t    Rs.371.16\n1.1.1978 to 31.03.1978\t\t    Rs.382.15\n1.4.1978 to 31.03.1979\t\t    Rs.504.00\n<\/pre>\n
    According  to  the ONGC, the price demanded\t from  these
\nindustries and initially been based on alternative fuel cost
\ni.e., the cost which these industries would have had to\t pay
\nfor fuel oil if no supply of gas had been available.  Later,
\nupto  December\t1975,  the price was based on  the  cost  of
\nproduction, as determined by the award. After the expiry  of
\nthe period of operation of the award, the basis for calcula-
\ntion of price was revised on the basis of the thermal equiv-
\nalence\tof  coal price. The rates of supply from  1.4.78  as
\nfixed  above from time to time were also made subject to  an
\nautomatic annual escalation at 5%. The contracts, as already
\nmentioned, were annual and contained no term for renewal. On
\nthe  expiry  of each contract, a fresh contract\t had  to  be
\nentered\t into  and, naturally, the new\tcontract  stipulated
\nprices\tfor  supply that were prevalent at the time  of\t the
\nrespective contracts. It may be mentioned that the  existing
\ncontracts with the various consumers had lapsed by efflux of
\ntime  on 31.3.79 in some cases, 30.1.80 in some other  cases
\nand in 1982 in respect of others.\n<\/p>\n
    Aggrieved  by the steady rise in the prices, writ  peti-
\ntion  No.  883 of 1979 was filed by the respondents  in\t the
\nBombay\tHigh Court in March 1979. In this writ\tpetition  it
\nwas prayed that the ONGC should be directed (a) to  continue
\nto  supply  the gas to them despite the contracts  in  their
\nfavour\thaving\tlapsed; (b) to supply the break-up  and\t the
\ndata  on the basis of which the price structure was  arrived
\nat and to fix the price after giving reasonable\t opportunity
\nto  the concerned industries or their associations;  (c)  to
\ndiscuss and negotiate a fair, reasonable and just price\t for
\nsupply of gas; (d) to restrict the minimum guaranteed  quan-
\ntity  of offtake to 75 per cent of the\tcontracted  quantity
\n(this was because the ONGC had been insisting on raising the
\nsaid  guarantee\t to 90 per cent) and; (e) to  stop  charging
\ndiscriminatory\tprices for the supply to the respondents  in
\ncomparison with the price charged to public sector undertak-
\nings.  Pending the hearing and final disposal of  the  peti-
\ntion, an interim order was sought restraining the ONGC\tfrom
\ndiscontinuing  the supply of gas to the petitioners on\tsuch
\nterms as the Court may think fit and proper.\n<\/p>\n
169<\/span><\/p>\n
    On 30.3.1979, the Court passed an interim order  permit-
\nting  the petitioners to continue to pay “on the same  terms
\nas  at present” ie. at Rs.504 in some cases and\t a  slightly
\ndifferent figure in other cases. Subsequently, however, with
\nthe  passage of time the price of gas was stepped up by\t the
\nONGC in the following manner:\n<\/p>\n
Period\t\t\t\t       Amount\n1.4.1981 to 31.12.1981\t\t       Rs. 741.00\n01.1.1982 to 31.12.1982\t\t       Rs.2095.70\n01.1.1983\t\t\t       Rs.2403.03\n15.2.1983\t\t\t       Rs.2503.03\n17.3.1985\t\t\t       Rs.2878.00\n<\/pre>\n
We  are told that the sudden jump in prices w.e.f.  1.1.1982
\nwas  consequent\t on the decision of the ONGC to\t change\t the
\nbasis  of  fixation  of price, once again,  to\tfurnace\t oil
\nequivalence. In view of this increase in the prices demanded
\nby  it\tfrom other parties, who according to the  ONGC\twere
\nwilling to pay the price asked for, an application was\tmade
\nto  vacate or modify the interim order dated  30.3.1979.  On
\n5.11.1982,  the\t Division  Bench of the\t High  Court,  after
\npointing  out the various difficulties and questions  raised
\nby the case thought it would be fit and proper to direct the
\nONGC not to discontinue the supply of gas but to continue to
\nsupply\tit at the rate of Rs. 1,000 per unit  till  November
\n30,  1983 (unless the petition was disposed of in the  mean-
\nwhile), subject to adjustment being made in case this  Court
\nor  the machinery evolved at the time of final\tdisposal  of
\nthe  petition  determined the price of gas  at\ta  different
\nrate.  In  other  words, if, ultimately, the  price  of\t gas
\nshould be determined at a higher rate, the writ\t petitioners
\nwould  be  obliged to make good the difference.\t In  case  a
\nlower  rate should be determined, the ONGC would be  obliged
\nto  refund the excess amount collected or adjust it  against
\nfuture\tsupplies,  as the Court may direct at  the  time  of
\ndisposing of the matter finally. A similar order was  passed
\non 29.12.1982 in another batch of cases. When these  appeals
\nwere  filed a Bench of this Court, on  6.10.1983,  continued
\nthe interim price of Rs. 1,000 per unit without prejudice to
\nthe  rights and contentions of the parties and directed\t the
\nappeals to be expedited.\n<\/p>\n
     It\t has taken six years since then for these  petitions
\nto  come  up for heating and till now the  respondents\thave
\ncontinued  to pay at the rate of Rs. 1,000 per unit. It\t has
\nbeen  stated  before us that some of  the  respondents\thave
\nfailed to pay even at the rate of Rs. 1,000 as directed
\n170<\/span>
\nby  this  Court and that this Court had to  direct,  by\t its
\norders\tdated  15.4.87 and 30.10.87,  that  the\t respondents
\n“will  not  charge, encumber or alienate,  except  with\t the
\nleave of this Court, any of their immovable assets  included
\nin the respective undertakings and that they will make their
\nimmovable  assets available for discharging  the  respective
\nliabilities  on\t account of the difference in the  price  of
\n(all)  the  gas supplied to them (and)\tfurther\t during\t the
\npendency of the appeals as determined by the orders made  by
\nthe Court while disposing of the appeals.”\n<\/p>\n
    In order to complete the narration of relevant facts, it
\nmay  be\t mentioned here that, though natural  gas,  being  a
\n“petroleum product” falls within the scope of the  Essential
\nCommodities  Act and though control orders have been  issued
\nunder the said Act regulating the supply and distribution of
\nseveral\t petroleum  products, it is only by an\torder  dated
\n30.1.1987  that the price of gas has been fixed by the\tGov-
\nernment\t at  Rs. 1400 per unit which, together\twith  taxes,
\ncomes  to about Rs. 1848 per unit. It may also be  mentioned
\nthat,  while on the one hand the said fixation of price\t has
\nbeen challenged by the petitioners and certain other  indus-
\ntries before the Gujarat High Court, the Government, on\t the
\nother  hand, is in the process of revising the prices,\tper-
\nhaps to a higher figure, in consultation with the Bureau  of
\nIndustrial  Costs  and Prices. In the  petitions  which\t are
\npending\t before the Gujarat High Court an interim  price  of
\nRs. 1,000 has been fixed following the orders in the matters
\nnow  before us. The result is that, ever since January\t1983
\nand till today, most of the petitioners have been paying for
\nthe gas supplied only at the rate of Rs. 1,000 per unit\t and
\nsome of the industries have defaulted even in doing this.
\n    A  prayer was made by the Union of India to transfer  to
\nthis Court the writ petition subsequently filed\t challenging
\nthe price fixation of 30.1.87 but this request was  declined
\non  4th August, 1988. This court observed that, after  these
\nappeals\t are  disposed\tof, the High Court  can\t proceed  to
\ndispose\t of the said writ petitions in accordance  with\t the
\njudgment.  The position, therefore, is that we are not\tcon-
\ncerned\tin  these appeals with the period  beyond  30.1.1987
\nwhen the jurisdiction to fix prices came to be vested in the
\nCentral\t Government. We are concerned in these matters\tonly
\nwith the period from the date of expiry of the contracts  in
\nfavour of each of the respondents to 30.1.1987 and with\t the
\nfollowing questions: (a) whether the O.N.G.C. is at  liberty
\nto  fix its own price for the gas or should be\tdirected  to
\nfix  the  price in any particular manner;  (b)\twhether\t the
\nO.N.G.C. can be directed to supply data and the break-up for
\nthe  price charged and to negotiate the price with the\tpar-
\nties concerned; (c) whether the
\n171<\/span>
\nO.N.G.C.  can be compelled to continue to supply gas to\t the
\nvarious petitioners at the interim prices fixed by the court
\nsubject\t to adjustment on fixation of prices  determined  in
\naccordance with the directions of the court; and (d) whether
\nthe  minimum  guarantee of off-take could be raised  by\t the
\nO.N.G.C. to 90 per cent instead of 75 per cent.
\n    It\tis unnecessary at this stage to set out the  various
\ncontentions  raised by the parties before the High Court  as
\nthey will have to be discussed in some detail later. Here it
\nmay  be\t sufficient  to summarise the  effect  of  the\tHigh
\nCourt’s\t judgment in disposing of these writ petitions.\t The
\nHigh Court held:\n<\/p>\n
       (i) The O.N.G.C. is a public utility undertaking\t and
\nhas  a duty to supply gas to anyone who requires it so\tlong
\nas there is enough supply available;\n<\/p>\n
       (ii) Price fixation is generally a legislative  func-
\ntion.  But the O.N.G.C., being a State\tinstrumentality,  is
\nbound to act reasonably in the matter of fixation of  price;
\nsuch price is bound to be determined by following any one of
\nthe modalities suggested in the judgment of the High Court;\n<\/p>\n
       (iii)  There  was no discrimination by  the  O.N.G.C.
\nbetween\t the public sector undertakings on the one hand\t and
\nthe  respondents’  undertakings\t on the\t other\tin  charging
\ndifferential prices;\n<\/p>\n
       (iv) The clause regarding minimum guarantee was valid
\nand enforceable.\n<\/p>\n
However,  in view of its finding that the ONGC is  a  public
\nutility undertaking, the Court took the view that it  should
\nsupply gas to the respondents subject to the availability of
\ngas  supply  and also that such supply should be made  at  a
\nprice which was to be determined in one of the four  differ-
\nent methods set out in paragraph 36 of the judgment. It\t was
\nalso observed by the Court that, the respondents were agree-
\nable to price fixation by anyone of three of the said  meth-
\nods. The concluding portion of the judgment, reads thus:
\n“36.  Now we come to the last part of this judgment.  It  is
\nregarding  what\t relief should be granted in this  group  of
\npetitions. We have already said above that the action of the
\nONGC in charging the rate in the respective cases is
\n172<\/span>
\nex-facie  unreasonable and to that extent their\t demand\t for
\nthe said price is set. aside. The ONGC however, shall be  at
\nliberty\t to  get the price for that  period  and  subsequent
\nperiod fixed according to the reasonable and rational  norms
\nand  for that purpose it is open to the ONGC to\t follow\t any
\none of the following three courses:\n<\/p>\n
(i)  They  may request the Central Government to  appoint  a
\nCommission  for\t the purpose of deciding the prices  of\t gas
\nfrom time to time, including the time for which we have\t set
\naside their demand of price, invoking the provisions of\t the
\nCommission of Inquiry Act or any other law;\n<\/p>\n
(ii) They may invoke the arbitration of some eminent  econo-
\nmist in consultation with the petitioners; or\n<\/p>\n
(iii)  They may themselves decide the price, after  bringing
\nto  their  consideration all relevant factors and  for\tthat
\npurpose they may hear fully and effectively the\t petitioners
\nand other persons likely to be affected thereby:
\nIf  the\t last of the above three courses is adopted  by\t the
\nONGC for deciding the price structure afresh, it would be in
\ntheir  interest to give hearing to the persons likely to  be
\naffected  so that the possibility of a new round of  litiga-
\ntion is avoided. We reiterate that as far as the petitioners
\nare  concerned, they are amenable to any of the three  modes
\nwhich the ONGC may choose to adopt.\n<\/p>\n
“37.  We  accordingly set aside the prices demanded  by\t the
\nONGC  from  these petitioners in this  group  of  petitions,
\nleaving\t it  open to the ONGC to deal with the\tquestion  of
\nprice  fixation in any one of the three modes  suggested  by
\nus.  The petitions are accordingly partly allowed.  Rule  is
\naccordingly made absolute in all these petitions with costs.\n<\/p>\n
38.  The civil applications, in view of the final  decision,
\ndo not survive and stand disposed of and till the new  price
\nfixation is had, the price charged last from these petition-
\ners under the respective contracts with them shall  continue
\nto  operate between the parties, subject to  adjustments  in
\nfuture after prices are fixed as stated above.”\n<\/p>\n
173<\/span><\/p>\n
    Shri B. Sen, who appeared for the ONGC, made R clear  at
\nthe  outset that he was not disputing the  propositions\t (a)
\nthat the ONGC is ‘State’ within the meaning of Article 12 of
\nthe Constitution; and (b) that it has a duty to act reasona-
\nbly  and  fairly  so as not to infringe\t the  provisions  of
\nArticles 14 and 19 and also in consonance with the directive
\nprinciples of State policy set out, inter alia, in  Articles
\n38  and 39 (b) of the Constitution. His challenge  is,\tpri-
\nmarily, to the finding of the High Court that the ONGC is  a
\n‘public\t utility undertaking’ which was bound to supply\t gas
\nat  the request of any member of the public at large and  to
\nits  direction that it should continue to supply gas to\t the
\nrespondents at an uncertain price till the price is fixed in
\naccordance with the procedure outlined by it,  notwithstand-
\ning that the contracts under which the respondents  procured
\nsuch  supplies have expired long ago. He also  contests\t the
\ncorrectness of the High Court’s conclusion that the price of
\ngas  must be determined on the basis of cost  of  production
\nplus a reasonable return for the investments made, (herinaf-
\nter  referred to broadly as the “cost plus” basis). He\tsub-
\nmits  that the prices under the contracts entered into\twith
\nthe  respondents  have\tbeen determined on the\tbasis  of  a
\nwell-known principle viz. the ruling prices for an alternate
\nfuel  and  this\t cannot be said to be  either  arbitrary  or
\nunreasonable particularly when a large number of  industries
\nare  even  today willing to take the supply of\tgas  at\t the
\nprices fixed on that basis. He also complains that the\tHigh
\nCourt  overlooked that the respondents are not domestic\t but
\nindustrial  consumers. If the ONGC were to be treated  as  a
\npublic\tutility\t bound to supply an essential  commodity  of
\nthis nature to any one for the asking subject to availabili-
\nty, it may be that the price for such supply should be fixed
\non  a  cost plus basis. But where the supply is\t limited  to
\ncertain\t industries  and other similarly  placed  industries
\nhave  to produce similar goods by consuming furnance oil  or
\nother equivalent alternate fuel, it is quite reasonable\t for
\nthe O.N.G.C. to stipulate–indeed, it would be discriminato-
\nry, were it not to stipulate–that its prices would be based
\non  the\t cost of alternate fuel which would have to  be\t in-
\ncurred\tby these industries otherwise and which is  in\tfact
\nbeing incurred by other industries engaged in the production
\nof  similar  goods to which the O.N.G.C. is not\t making\t any
\nsupplies  at  all. Sri Sen urges that  while  public  sector
\nunits  and State instrumentalities should not be allowed  to
\nexploit\t the  consumers, it is equally necessary  to  ensure
\nthat  such units and instrumentalities are enabled  to\tmake
\nreasonable  profits and made good as commercial\t enterprises
\nby charging prices which the “traffic can bear” so that they
\ncan  also contribute substantially to national\tdevelopment.
\nIt  is\tsubmitted that, as against the respondents  who\t are
\nreceiving supplies at the rate of Rs. 1,000 per unit,  there
\nare 29 industries paying the Govern-\n<\/p>\n
174<\/span><\/p>\n
ment-fixed price of Rs. 1840 (since 1987), 12 other  parties
\nwho have earlier signed contracts at the furnace oil equiva-
\nlent  rate and 65 industries which are willing to sign\tcon-
\ntracts at the aforesaid Government rates. It should not also
\nbe  overlooked that, even if the cost plus basis were to  be
\ncontemplated, the prices would require substantial  revision
\nconsidering the huge expenditure incurred by the  Government
\nof India in recent years in prospecting for oil and the need
\nfor  heavy capital investment for meeting which the  Govern-
\nment  has had to obtain huge loans from the World  Bank\t and
\nother  organisations.  In  the context\tof  this  integrated
\nactivity,  it is almost impossible to work out the costs  in
\nrespect\t of  any particular area or of the  particular\tbye-
\nproduct\t with  which we are here concerned.  The  cost\tplus
\nbasis was fixed by the award several years ago and that\t too
\nin  the\t context  of supply to\tcertain\t State\tundertakings
\nwhich,\tin turn, supplied essential commodities\t like  elec-
\ntricity\t and  fertilisers.  Subsequent\tenquiry\t commissions
\n(such  as the Damle award) do not price commodities  on\t the
\nbasis  of cost. The ONGC, if it is to  function\t effectively
\nand make reasonable profit on the supply of this  commodity,
\nshould be allowed the latitude atleast to fix its own  prin-
\nciple of pricing. So long as such principle is a  recognised
\none  and  is  not per se unfair or  unreasonable  the  court
\nshould\tnot interfere. Else, Sri Sen submits, a\t controversy
\nregarding fixation of price will be raging eternally as\t the
\nindustries would raise some objection or other to the  price
\nfixation,  whatever it be, and the interests of\t the  public
\nwill  suffer  if  the ONGC is constrained to  stick  to\t the
\nthrow-away  prices fixed in outdated contracts until  prices
\ncan  be\t fixed on a basis agreeable to the  consumer  indus-
\ntries,\tas has indeed happened in this case during the\tpast
\nten  years.  Sri Sen concluded by urging that  the  onus  of
\nshowing that the price charged was unreasonable or arbitrary
\nwas  on\t the respondents and they had done nothing  to\tdis-
\ncharge\tthis onus, except saying that the prices  have\tbeen
\nstepped up from time to time and that the increase in prices
\nhas been steep. Rather they have, in their pleadings, sought
\nto  throw  the\tonus on the ONGC to prove  that\t the  prices
\ncharged\t by it are fair and reasonable. Even this, says\t Sri
\nSen, the ONGC has done.\n<\/p>\n
    The\t discussions in the judgment of the High Court\tand,
\nto  some  extent,  the discussions before  us  have  touched
\nseveral\t aspects  of the principles to be kept in  mind\t for
\nprice fixation of essential commodities basic to public need
\nand, in doing so, have, in our opinion, travelled beyond the
\nframework and scope of the questions that arises for consid-
\neration\t in this case. It is necessary to remember that\t the
\nwrit  petitioners  are\ta few industrial  houses  which\t had
\nentered into con-\n<\/p>\n
175<\/span><\/p>\n
tracts\twith  the ONGC for supply of natural  or  associated
\ngas.  These were ordinary commercial contracts entered\tinto
\nby private treaty between the ONGC and these respondents  to
\nsell  and  buy\tcertain goods produced by the  ONGC  at\t the
\nprices\tstipulated in the contracts. Looked at\tpurely\tfrom
\nthe contractual angle, the ONGC was perfectly at liberty  to
\nstop  the supply on the expiry of the relevant contract\t and
\nrefuse\tto supply further unless a fresh contract  could  be
\nentered into agreeing upon a price for such supply. Assuming
\nthat  the  ONGC\t is a State instrumentality  and  the  price
\ndemanded by it is susceptible to judicial review, the  court
\nmay,  where a contract has been entered into,  consider\t the
\nsustainability of the price agreed upon or where no contract
\nhas  been  entered into, injunct the ONGC from\tdemanding  a
\nprice  for supply which is found unreasonable. But we  doubt
\nwhether\t it is open to the Court to direct the ONGC to\tcon-
\ntinue the supply indefinitely without a contract and without
\nany price fixation.\n<\/p>\n
    It\tis  clear that, in giving directions as\t above,\t the
\nCourt  was considerably weighed by its conclusion  that\t the
\nONGC  is  a  public utility undertaking which  is  bound  to
\nsupply gas to all who demand such supply subject only to the
\navailability  of enough gas. Dr. Chitale, for  the  respond-
\nents, strongly supported this viewpoint. He urged that it is
\nwell  settled law that a public utility\t cannot\t arbitrarily
\ndiscontinue  its supply or services merely because the\tcus-
\ntomer is unwilling to pay the price asked for as unconscion-
\nable  and unreasonable. He submitted that this,\t indeed,  is
\nnot a modern rule of constitutional law but an ancient\trule
\nof  public  law. He referred in this context  to  the  early
\ndecisions of the King’s Bench Division in Bolt v.  Stennett,
\nCI E.R.-Revised–p. 1572 followed in Allnutt v. Inglis,\t CIV
\nE.R.–Revised-p.  206 as laying down the basic principle  in
\nthis regard. This principle, he said, has also been  applied
\nby  the American Courts in Ira Y. Munn v. People,  24  L.Ed.
\n77;  United  Fuel Gas Co. v. Railroad Commission,  73  L.Ed.
\n390;  Los  Angeles Gas & Electric  Corporation\tv.  Railroad
\nCommission,  77 L.Ed. 1180; Leo Nebbia v. People,  78  L.Ed.
\n940;  Harold E. West v. Chesapeake & Potomac Telephone\tCo.,
\n79  L.Ed. 1640 and Federal Power Commission v. Hope  Natural
\nGas  Co., 88 L.Ed. 333). These decisions clearly  lay  down,
\naccording  to him, that the price fixed must  be  reasonable
\nand  fair, that the price should be so fixed as to give\t the
\nundertaking a reasonable return on the capital employed\t and
\nthat  there cannot be any discrimination against  industrial
\nconsumers. These principles, he argued, are applicable\twith
\ngreater\t force in the context of the  Constitutional  disci-
\npline over State Instrumentalities under Articles 38 and  39
\nof the Constitution which mandate the State to direct  their
\npolicy towards securing “that the
\n176<\/span>
\nownership and control of material resources of the community
\nare so distributed as to subserve the common good.”\n<\/p>\n
    As already stated, the ONGC does not dispute the  propo-
\nsition\tthat  it  is a State instrumentality  and  that\t its
\nactions\t are subject to review under Articles 14 and  19  of
\nthe Constitution; it only refutes the suggestion that it has
\nbecome\ta public utility undertaking with an  obligation  to
\nsupply\tgas to any consumer on reasonable conditions  as  to
\nprice  etc. It is contended by Sri K. Parasaran and  Sri  B.
\nSen that the ONGC is not a ‘public utility’ under a duty  to
\nsupply\tgas to members of the public. It is argued  that  in
\nEnglish\t common law, the expression has a specific  connota-
\ntion; it refers to an entity dealing in a commodity which is
\ncommonly used by the members of the public and under a duty,
\nin  terms of a statute, licence or franchise obliging it  to
\nsupply\tthe  commodity\tto the public at  large.  Thus,\t for
\nexample,  in England the Public Health Act, 1936, the  Elec-
\ntricity Act, 1947 and the Gas Act, 1948 provide examples  of
\na  duty cast on suppliers of water, electricity or  gas.  So
\nalso, in India, the Indian Electricity Act spells out a duty
\non the part of the licensee to supply electricity to members
\nof the public. There are also other public utility undertak-
\nings providing for water, sewage connections, transport\t and
\nthe  like which are under a statutory obligation  to  supply
\ngoods  and  services  to members of the\t society  at  large,
\nsubject\t to  the fulfilment of\treasonable  conditions\tpre-
\nscribed\t therefore.  The supply of gas by the  ONGC,  it  is
\nurged, has not attained this “status” yet.\n<\/p>\n
    As far as we have been able to see, there is no statuto-
\nry  definition\tof ‘public utility’ in the  context  of\t any
\nIndian\tenactment that may be relevant for our present\tpro-
\npose.  There is a definition of “public utility service”  in
\ns.  2(n) of the Industrial Disputes Act, 1947  which,  inter
\nalia,  covers “any industry which supplies power,  light  or
\nwater to the public” and certain notified industries. It  is
\narguable  whether supply of natural gas is included in\tthis
\ndefinition  for, though ‘power’ connotes generally any\tform
\nof  energy available for doing work, it is normally  related
\nto  such energy made available by mechanical  or  electrical
\nmeans  (vide, Webster Comprehensive, Vol. 2, p. 990). It  is
\nalso  a moot question whether that definition can be  appro-
\npriate in the context with which we are concerned.
\n    Dr. Chitale cited profusely from American  Jurisprudence
\n(2nd  Edition, Vol. 64) on the subject of public  utilities.
\nSome of these passages may be usefully quoted. At page\t549,
\nit discusses the definition and nature of a public  utility.
\nThe passage runs thus:\n<\/p>\n
177<\/span><\/p>\n
1. Definition and nature
\n    A  “public\tutility” is a business or service  which  is
\nengaged in regularly supplying the public with some commodi-
\nty  or service of public consequence, such  as\telectricity,
\ngas, water, transportation, or telephone or telegraph  serv-
\nice.  Publicly\towned utilities are those  owned  by  public
\ncorporations such as municipal public utility districts\t and
\npublic\tutility districts. Apart from statutes which  define
\nthe  public utilities which are within the purview  of\tsuch
\nstatutes, it would be difficult to construct a definition of
\na public utility which would fit every conceivable case, but
\nthere  are certain considerations that are of aid in  deter-
\nmining\twhether\t a specific organization or  business  is  a
\npublic\tutility.  As its name indicates,  the  term  “public
\nutility” implies a public use and service to the public, and
\nindeed,\t the  principal determinative  characteristic  of  a
\npublic utility is that of service to, or readiness to serve,
\nan  indefinite\tpublic (or portion of the  public  as  such)
\nwhich  has a legal right to demand and receive its  services
\nor commodities.” There must be a dedication or holding\tout,
\neither\texpress\t or implied, of produce or services  to\t the
\npublic\tas a class. The term precludes the idea\t of  service
\nwhich is private in its nature and is not to be obtained  by
\nthe  public, although a public utility may perform  acts  in
\nits private, as distinguished from the public, capacity,  in
\nwhich  case  it is subject to the same rules  as  any  other
\nprivate\t person so acting. Some courts, however, reject\t the
\nnotion\tthat  in  order to be a public\tutility\t subject  to
\ngovernmental  regulation the nature of the service  must  be
\nsuch  that  all members of the public  have  an\t enforceable
\nright to demand it, and declare that business to be a public
\nutility which in fact serves such a substantial part of\t the
\npublic as to make its operations a matter of public concern.
\nThis  view is in close accord with what has been termed\t the
\nhistoric  basis\t of  classification of\tsome  businesses  as
\npublic callings, that is, economic conditions, or the impor-
\ntance of the business to the public. While the terms “public
\nservice corporation” and “quasipublic corporation” are\tused
\nto  describe  public  utility  corporations,  and  the\tterm
\n“public service commission” to describe the body  regulating
\nsuch  utilities,  some courts distinguish between  a  public
\nsector\tcorporation and a public utility on the\t basis\tthat
\nthe latter is required to serve the
\n178<\/span>
\npublic\tgenerally,  whereas the former may  be\trequired  to
\nserve members only.\n<\/p>\n
\t The mere fact that a corporation declares itself to
\nbe  a public utility does not make it such.  In\t determining
\nwhether or not a company is a public utility, the law  looks
\nat what is being done, not what it asserts it is doing.\t Nor
\nwill  the  legislative declaration that a  certain  business
\nshall  be deemed a public utility make it such if, in  fact,
\nthe business as conducted is not impressed with a public use
\nor carried on for the public benefit, since it is beyond the
\npower  of  the\tstate by legislative edict to  make  that  a
\npublic\tutility\t which in fact is not, and to  take  private
\nproperty  for  public use by its fiat that the\tproperty  is
\nbeing  devoted to public use. Furthermore, a  dedication  of
\nprivate\t property  to  public utility service  will  not  be
\npresumed  from the fact that the product and service of\t the
\nuse of such property is the usual subject matter of  utility
\nservice;  neither does such presumption arise from the\tsale
\nby  private contract of such product and service to  utility
\ncorporations  for  purposes of resale.\tSuch  dedication  is
\nnever presumed without evidence of unequivocal intention.
\n\t  A business affected with a public interest is\t not
\nnecessarily  a public utility or public service\t commission.
\nThe fact that a business is affected with a public  interest
\nmeans that it may be regulated for the public good but\tdoes
\nnot imply that is under a duty to service the public.”
\nBlack’s\t Law  Dictionary (Fifth Edition) defines  a  “public
\nutility” thus at p. 1108:\n<\/p>\n
“Public\t Utility:  A privately owned and  operated  business
\nwhose services are so essential to the general public as  to
\njustify\t the  grant  of special franchises for\tthe  use  of
\npublic\tproperty or of the right of eminent domain, in\tcon-
\nsideration  of which the owners must serve all\tpersons\t who
\napply, without discrimination. It is always a virtual monop-
\noly.\n<\/p>\n
A business or service which is engaged in regularly  supply-
\ning  the public with some commodity or service which  is  of
\npublic\tconsequence  and  need, such  as  electricity,\tgas,
\nwater, transportation or telephone or telegraph service.\n<\/p>\n
179<\/span><\/p>\n
Gulf States Utilities Co. v. State, Tex. Civ. App., 46\tS.W.
\n2d 1018, 1021. Any agency, instrumentality, business, indus-
\ntry or service which is used or conducted in such manner  as
\nto  affect  the community at large, that is,  which  is\t not
\nlimited or restricted to any particular class of the  commu-
\nnity.  The  test for determining if a concern  is  a  public
\nutility is whether it has held itself out as ready, able and
\nwilling to serve the public. A term implies a public use  of
\nan  article, product, or service, carrying with it the\tduty
\nof  the producer or manufacturer, or one attempting to\tfur-
\nnish the service, to serve the public and treat all  persons
\nalike, without discrimination. It is synonymous with “public
\nuse”, and refers to persons or corporations charged with the
\nduty to supply the public with the use of property or facil-
\nities  owned or furnished by them. Euder v. First Nat.\tBank
\nin St. Louis, C.C.A. Mo., 16 F. 2d 990, 992. To constitute a
\ntrue “public utility”, the devotion to public use must be of
\nsuch character that the public generally, or that part of it
\nwhich  has been served and which has accepted  the  service,
\nhas  the  legal right to demand that that service  shall  be
\nconducted,  so\tlong  as it is\tcontinued,  with  reasonable
\nefficiency under reasonable charges. The devotion to  public
\nuse  must be of such character that the product and  service
\nis  available to the public generally and  indiscriminately,
\nor  there  must be the acceptance by the utility  of  public
\nfranchises  or\tcalling to its aid the police power  of\t the
\nState – ‘ ‘
\nThe  Corpus  Juris Secundum (Vol. 73, p- 990)  also  carries
\nlike definitions.\n<\/p>\n
    Once a concern is found to be a public utility, at least
\ntwo  consequences  follow. One is a general  duty  to  serve
\nwhich is described in American Jurisprudence thus:
\n“16. General duty to serve
\nThe primary duty of a public utility is to serve on reasona-
\nble  terms all those who desire the service it renders,\t and
\nit may not choose to serve only the portion of the territory
\ncovered\t by its franchise which is presently profitable\t for
\nit  to serve. Upon the dedication of a public utility  to  a
\npublic\tuse  and in return for the grant to it of  a  public
\nfranchise,
\n180<\/span>
\nthe  public  utility is under a legal obligation  to  render
\nadequate  and  reasonably  efficient  service\timpartially,
\nwithout\t unjust discrimination, and at reasonable rates,  to
\nall  members of the public to whom its public use and  scope
\nof  operation extend who apply for such service\t and  comply
\nwith  the  reasonable rules and regulations  of\t the  public
\nutility.  This obligation is one implied at common  law\t and
\nneed  not  be expressed by statute or contract,\t or  in\t the
\ncharter of the public utility. The fact that the  franchises
\ngranted\t to the company do not expressly impose upon it\t the
\nobligation  to\tserve all persons in the locality  does\t not
\nrelieve\t the  company,\tnor does the fact  that\t the  person
\napplying  for  gas is already supplied with gas\t by  another
\ncompany. The fact that a pipe laid by a water company  along
\na street in the exercise of its franchise was laid under  an
\nagreement, with certain persons who paid the expenses,\tthat
\nthey  should have the exclusive use of water, and  that\t the
\ncompany should not tap the pipe without their consent unless
\nit  first  repaid them for the pipe, does  not\trelieve\t the
\ncompany\t from its obligation to supply water, on  reasonable
\nterms,\tto all persons living on such street who  may  apply
\nfor it. A provision in an ordinance granting a franchise  to
\nan electric light company, that the city should not  require
\nthe company to make “extensions” except upon certain  condi-
\ntions  does not affect the right of a resident in an  estab-
\nlished\tservice\t zone  to invoke the aid of  the  courts  to
\ncompel\tthe company to connect his premises with  its  line.
\nThis  duty  to serve all applicants  without  discrimination
\ncannot be evaded by a natural gas company on the ground that
\nthe  gas pressure has fallen so low that existing  customers
\ncannot\tbe adequately supplied, new applicants are  entitled
\nto  share equally in such supply as can be  furnished.\tFur-
\nthermore, the obligation of a public utility, such as a gas,
\nwater,\tor electric company, to supply a given\tdistrict  is
\ninclusive  of  the duty, under\treasonable  limitations,  to
\ncarry  the mains or lines of the utility to a point  on\t the
\nconsumer’s  premises where use can be made of  the  service.
\nHowever,  neither by common law nor by statute is  a  public
\nutility required to serve all; the conduct prohibited on the
\npart  of a public utility is unjust  discrimination,  unfair
\nrates or practices, or unreasonable rules.”
\nThe second constraint is in regard to the rates that can  be
\ncharged by such an undertaking:\n<\/p>\n
181<\/span><\/p>\n
A  public utility may, in the absence of a legislative\tpre-
\nscription  or limitation of rates, fix and exact  reasonable
\nrates for services furnished, in which respect the  reasona-
\nbleness\t of the rate is to be considered in relation to\t the
\nvalue  of  the property used by the utility  in\t the  public
\nservice.  Thus, in the absence of legislation, carriers\t are
\nordinarily  entitled  to establish such rates and  to  adopt
\nsuch  policy of ratemaking as they may deem best.  They\t may
\nvoluntarily  render  service  for less than  they  could  be
\ncompelled to accept.\n<\/p>\n
\t The right of a public utility or carrier to set its
\nown rates is subject to the limitation that such rates\tmust
\nbe nondiscriminatory and reasonable.\n<\/p>\n
xxx\t\t\t\t\t\t\t xxx\nxxx\n<\/pre>\n
This obligation to furnish service at a reasonable price  is
\nimplied\t by law and is incurred by acceptance of  the  fran-
\nchise and privilege to serve the public. Furthermore,  there
\nis authority to the effect that a public utility must give a
\nconsumer the benefit of the most favourable rate which he is
\nentitled to receive.”\n<\/p>\n
    We\tdo not think that ONGC satisfies the primary  condi-
\ntions enunciated above for being a public utility  undertak-
\ning  as it has not so far held itself out or  undertaken  or
\nbeen obliged by any law to provide gas supply to the  public
\nin general or to any particular cross-section of the public.
\nThe proviso to sec. 14(1)(e) of the Act which lays down that
\nthe  setting up of industries to be run with the aid of\t gas
\nwas  not  to be undertaken by the ONGC without\tthe  Central
\nGovernment’s  approval\talso gives an  indication  that\t the
\nsupply\tof gas to various industries on a general basis\t was
\nnot in the immediate contemplation of the Act but was envis-
\naged  as  a further expansion to be initiated  with  Central
\nGovernment’s approval. Perhaps a stage in the  developmental
\nactivities  of the ONGC will soon come when such an  obliga-
\ntion can be inferred but, at present, the O.N.G.C.  supplies
\ngas only to certain selected contractees. It does not supply
\ngas  to the public either in the sense that  any  individual
\nmember\tof the public or any identifiable  cross-section  of
\nthe public is entitled to demand and receive such supply due
\nto various limitations we shah now touch upon.
\nThe main activity of the ONGC is that of exploration and
\n182<\/span>
\nprospecting for petroleum and petroleum products. So tar  as
\ngas,  which is a bye product, is concerned the ONGC has\t not
\nso  far been able voluntarily or constrained statutorily  to
\nharness\t and utilise its production for consumption  by\t the
\npublic. Even as per the information placed on record by\t the
\nrespondents  about  3,000 million cubic metres of  gas\twere
\nburnt in 1985-86 due to the inability of the ONGC to harness
\nit for industrial or domestic use. Such large scale utilisa-
\ntion  will involve capital outlay to a\tconsiderable  extent
\nparticularly for the laying of pipe lines to convey the\t gas
\nto  sites of its user. The quantity of gas which is  put  to
\nsuch use at present is an insignificant part of the gas that
\nis being produced and so far the Government does not  appear
\nto  have  called upon the ONGC to draw up or submit  to\t the
\nGovernment  under s. 23 of the Act any programme of sale  of
\nnatural gas to the public generally or even to some  catego-
\nries of public consumers. There is no doubt that the  expan-
\nsion of the oil sector in recent years, including the recent
\nconstruction  of the HBJ pipeline, will\t eventually  require
\nthe  ONGC  to  set up and devise a  rational  and  equitable
\nscheme of distribution and supply of gas to various types of
\nconsumers situate over various parts of India. But, as\tyet,
\nthe  ONGC has not embarked on any such scheme. It  has\tbeen
\nsupplying gas to certain consumers on the basis of individu-
\nal  contracts and it is in regard to these  consumers  alone
\nthat the question of price has been raised before us.
\n    We\tdo not, however, think that it is at  all  necessary
\nfor  us to delve further into the above concept\t or  express
\nany final opinion as to whether the ONGC is a public utility
\nor not because the claim of the respondents is for a contin-
\nuance of the present system followed by the ONGC of  supply-
\ning  gas to select customers on the basis of  contracts\t en-
\ntered  into with them. They only want the price to be  regu-
\nlated  by  the\tcourt; they do not  challenge,\tfor  obvious
\nreasons, the system of distribution thus far adopted by\t the
\nONGC.  If the argument that the ONGC is a public utility  is
\naccepted, then the first consequence to follow will be\tthat
\ngas  should be made available by it to all persons who\tneed
\nit for use. It cannot be supplied by the ONGC to only a\t few
\npublic sector undertakings like the GSEB and GSFC or only to
\na few industries like those of the respondents or only to  a
\nfew municipalities like the Vadodara Municipality for domes-
\ntic supply, at its sweet will and pleasure. It would then be
\nopen to all undertakings, industries and domestic  consumers
\nin  Bombay, Gujarat and perhaps elsewhere in the country  to
\ndemand\tthat steps should be taken for the supply of gas  to
\nthem  also. We are unable to agree with the  observation  of
\nthe High Court that, even if the ONGC is treated as a public
\nutility, the respon-\n<\/p>\n
183<\/span><\/p>\n
dents,\tmerely because they had entered into temporary\tcon-
\ntracts\tfor supply of gas with the ONGC, could still  insist
\non continued supply to themselves on “the first come,  first
\nserved”\t basis,\t to the exclusion of later arrivals  on\t the
\nscene.\tIf, as suggested by the respondents, the ONGC is  to
\nbe treated as a public utility and the price of gas is bound
\nto  be on cost plus basis, it may be that quite a few  other
\nindustries  would like to avail themselves of  such  supply.
\nThey  have perhaps kept out so far only because\t the  supply
\nprice  based on alternative fuel price is not acceptable  to
\nthem.  They are keeping out only because they are under\t the
\nimpression  that the ONGC is entitled to supply gas to\tper-
\nsons with whom it has entered into commercial contracts\t and
\non  the\t terms of supply envisaged in those  contracts.\t The
\ntreatment  of the ONGC as a public utility  undertaking\t for
\nthe  supply  of gas will raise innumerable  basic  questions
\ntotally\t inconsistent with the present system  of  selective
\nsupply\twhich the respondents want to be continued. It\twill
\ntranspose the area of controversy to a totally different and
\nwider plane. We cannot say that the ONGC is a public utility
\nundertaking and yet direct that it should supply gas to\t the
\nrespondents  and  a few other industries with which  it\t has
\nentered into contracts. The court would then be\t constrained
\nto  hold that the present system of supply  is\tinconsistent
\nwith  public  law and the constitutional requirements  of  a
\npublic utility undertaking and direct the ONGC to completely
\noverhaul  its system of public distribution on\tsound  lines
\nqua types of consumers to be catered to, areas of supply  to
\nbe covered, price for supply and all other matters. That  is
\nnot the relief sought by the respondents. All that they want
\nis a declaration that they are entitled to the supply of gas
\nat  a reasonable price. It is sufficient, for  disposing  of
\nthis  claim, to deal with this aspect of the matter and\t the
\nlarger\taspect\tof ONGC being a public\tutility\t undertaking
\nshould be left out of account. We, therefore, do not express
\nany  final opinion on the issue except to say, prima  facie,
\nthat it cannot be placed on par with a public utility under-
\ntaking.\n<\/p>\n
    In this context, we should like to point out once  again
\nthat the ONGC does not dispute that the price to be  charged
\nby  it\tfor  gas supply should have some basis\tand  not  be
\narbitrary  or  unconscionable. Their stand before  the\tHigh
\nCourt (vide para 29 of the judgment) and before us has\tbeen
\nthat  the  prices are fixed by them from time to time  on  a
\nwell-recognised principle viz. on the basis of the  alterna-
\ntive  fuel  cost which the consumers may have to  incur\t had
\nthey not been in receipt of gas supply. Assuming this to  be
\ncorrect, is there any illegality in the procedure adopted by
\nthem?–that  is the question. The respondents  contend,\t and
\nthe High Court has held, that there is.\n<\/p>\n
184<\/span><\/p>\n
According  to them, a public sector undertaking must  supply
\nits  goods at a price which will cover their cost and  leave
\nthem a reasonable margin of profit and no more. Dr.  Chitale
\nsays that this is the only reasonable way of price  fixation
\nand  refers to the award in support of this proposition.  He
\npoints\tout that this is the basis incorporated\t in  several
\nstatutory  instruments, such as the Sugarcane Price  Control
\norder  or  the\tDrug Prices Control order  or  other  orders
\npassed\tunder  the Essential Commodities Act. He  cites\t the
\nfollowing  decisions  of  this Court  in.  relation  to\t the
\nfixation  of  such  prices: Premier  Automobiles  v.  Union,<\/a>
\n[1972] 2 SCR 526; Panipat Cooperative Sugar Mills v.  Union,<\/a>
\n[1973]\t2 SCR 860; Shree Meenakshi Mills v. Union,<\/a> [1974]  2
\nSCR  398; Saraswati Industrial Syndicate v. Union,<\/a> [1975]  1
\nSCR  956; Prag Ice and Oil Mills v. Union,<\/a> [1978]  3  S.C.R.
\n293  and  Union of India v. Cynamide India  Ltd.,<\/a>  [1987]  2
\nS.C.C. 720. He urges that, to allow the ONGC to sell gas  at
\na higher price than this merely because, otherwise, but\t for
\nthe  availability of gas, the consumers would nave to  spend
\nmore  for  their sources of energy, will  really  amount  to
\nintroducing  an\t irrelevant element i the process  of  price
\nfixation and result in allowing the ONGC to make  unreasona-
\nble  profits at the expense of unhappy consumers. The  ques-
\ntion for consideration is whether this argument is  correct.
\nIs  the\t ONGC  bound to adopt only the cost  plus  basis  in
\nfixing its prices or can it also invoke any other well-known
\nand reasonable, if commercial, formula in fixing its prices?\n<\/p>\n
    We\tshall first consider the findings in the award.\t Dr.
\nV.K.R.V.  Rao was arbitrating on a dispute between the\tONGC
\nand  the Gujarat State Government as to the price  at  which
\ngas was to be supplied by the ONGC. Though the dispute arose
\nas a result of the dissatisfaction of the GSEB and the\tGSFC
\nwith the prices charged by the ONGC, the terms of  reference
\nto Dr. Rao were very much wider. They read:\n<\/p>\n
“The  point at issue is the price that should be charged  by
\nthe  ONGC  for gas that may be supplied\t after\ttaking\tinto
\nconsideration the volume and pressure of gas supplied to any
\nparticular  party  and the distance to which it\t has  to  be
\ncarried.  You  may also indicate if ONGC  should  offer\t any
\ndifferential rates in respect of gas supplied to:\n<\/p>\n
(a) Undertakings for the generation of power\n<\/p>\n
(b) Fertiliser plants\n<\/p>\n
(c) State projects
\n185<\/span>\n<\/p>\n
(d) Private sector industries\n<\/p>\n
(e) Domestic fuel”\n<\/p>\n
The contentions urged by the two parties arrayed before\t the
\narbitrator  and\t set out in sections IV and V of  the  award
\nalso  covered  a very wide ground. The award starts  with  a
\ndiscussion of certain general considerations and while doing
\nso,  dealing with a contention comparing the price  fixation
\nin Assam and Gujarat, the award says:\n<\/p>\n
“The  Gujarat contention that in fixing the price of gas  in
\nGujarat,  note\tshould be taken of the price  fixed  by\t Oil
\nIndia  for  the sale of Assam gas to the  Assam\t Electricity
\nBoard  at  25 paise per cubic foot cannot  be  dismissed  as
\nlightly\t as  the O.N.G.C. seem to have done. Nor can  it  be
\ncontended by Gujarat that if a mistake has been made once in
\none  area,  that therefore it should be\t extended  to  other
\nareas. It must be added also that the price of gas in  Assam
\nand  in Gujarat is not on all fours for the reasons  that  I
\nshall  mention\tlater. All the same, one cannot\t ignore\t the
\nrelevance of the Assam gas price, even though the  remedical
\naction\trequired is perhaps more on the Assam side  than  on
\nthe ONGC attitude in Gujarat. I shall have something to\t say
\non  the question later on in this report, though it  is\t not
\nstrictly within the terms of reference given to the arbitra-
\ntor.\n<\/p>\n
\t  I  am not prepared to accept the  ONGC  contention
\nthat because they are All India agency expected to  function
\nas  a commercial undertaking in the public sector, they\t are
\nentitled  to  take no account of the fact that the  cost  of
\npower generation is high in Gujarat, that this has  hampered
\nthe possible development of some industries for which  Guja-
\nrat has natural resources and that public opinion in Gujarat
\nhas  a\tnatural expectation of a reduction in  the  cost  of
\npower production on account of the discovery of gas in their
\narea.  After  all the ONGC is an enterprise  in\t the  public
\nsector and is expected to take public interest into  account
\nand not be exclusively concerned with commercial  considera-
\ntions  that  would be more appropriate to a  private  enter-
\nprise.\tMoreover,  there, as in the United States,  the\t gas
\nindustry is in the private sector, there is also  governmen-
\ntal  regulation through the Federal Power Authority  in\t the
\npublic interest. I believe that Gujarat has a valid point in
\n186<\/span>
\nurging\tthat  advantages  that accrue  to  the\tcoal-bearing
\nprovinces  by  way of low cost in fuel or  power  generation
\nshould also apply to Gujarat because of the discovery of gas
\nin  its area and its protected use for power  generation.  I
\npropose therefore to take into account the pit-head price of
\nBengal coal and its thermal equivalence with Gujarat gas  in
\ndetermining  my award on the price of gas. I must  add\tthat
\nthis  will not be the primary basis for my award, though  it
\nwill certainly be treated as a relevant consideration.
\nAt p. 16 the report deals with the contention that the price
\nof  gas should be based on the price of substitute  products
\nin the following words:\n<\/p>\n
“As regards the ONGC contention that the price of gas should
\nbe  based on the price of substitute products and that\tthis
\nis the practice generally followed in the oil industry, I am
\nnot prepared to accept the ONGC constention. While the price
\nof substitutes undoubtedly would determine the demand  price
\nfor  gas,  the position becomes different  when\t prices\t are
\nsought to be fixed and not left to market forces; and prices
\nhave to be fixed because the ONGC is virtually a monopoly at
\nleast  as  far as Gujarat is concerned; there is  no  market
\nprice in the normally understood sense of the term as emerg-
\ning  from sales by competing sellers; the ONGC is  a  public
\nsector\tenterprise,  and  considerations  of  public  policy
\ncannot\tbe considered irrelevant in the fixation of  prices.
\nAbove  all  it has always been the practice in\tIndia,\twhen
\nprices are fixed. to base it on the cost of production\tplus
\na  reasonable profit and this has been what the Tariff\tCom-
\nmission\t has  been doing all these yeas in regard  to  other
\ncommodities.  Under  the circumstances, while the  price  of
\nsubstitutes  is\t undoubtedly  a relevant  (factor?)  in\t the
\nfixation of the price of gas, I have no doubt that it cannot
\nbe  treated as the primary factor under the  Indian  circum-
\nstances referred to earlier.”\n<\/p>\n
Again, at p. 18, the basic formula is expounded as follows:
\n“I  have  already  indicated my\t thinking  on  the  question
\nof  …..   prices of substitute materials on the  basis  of
\nthermal\t equivalence in the concluding para of the  previous
\nsection. Gas pricing in relation to the prices of substitute
\nmaterials
\n187<\/span>
\n    understandable in foreign countries, where gas has\tbeen
\ndeliberately pushed into the fuel market by pipe line compa-
\nnies  which have constructed long and expensive\t pipe  lines
\nand sold gas at a price lower than that of alternative fuels
\nin  order  to capture and retain the market.  In  fact,\t the
\nprice of gas in the initial stage was much less than that of
\ncompeting  alternative\tfuels  and not\ton  par\t with  their
\nprices.\t With the growing recognition of the special  advan-
\ntages obtained by the use of gas in manufacturing  operation
\nwhere close control of heat and cleanliness of operation are
\nessential and worth paying for or in commercial and residen-
\ntial  cooking, water heating and space heating,\t gas  prices
\nhave  been  steadily rising over the last  few\tyears.\tThus
\nwhile  crude oil wholesale prices have moved downward  since
\n1957, gas prices have recorded a steady rise throughout\t the
\npost-war period. At the same time, drilling of gas wells  is
\nincreasing  and so is the place of gas in world energy\tcon-
\nsumption.  It is therefore not correct to suggest  that\t the
\noil companies were selling gas on the basis of the price and
\nthermal\t equivalence of alternative fuels. Gas was  sold  at
\nthe  price  which  it could fetch and not on  the  basis  of
\neither\tcost of production or parity with substitute  fuels.
\nAs  regard the price of gas in the field, Prof. Adleman\t has
\npointed out that it is not correct to expect any  particular
\nceiling\t for this price. He adds “if the  special  advantage
\nuses could generate enough effective demand, the field price
\nof  gas in the United States or elsewhere could\t conceivably
\nequal  or surpass the thermal- equivalent of the crude\toil;
\notherwise it will not”. In actualfact, the principal use  of
\ngas  is till not (now?) in its field of special\t advantages.
\nThere  is  validity therefore for his view that\t “Since\t gas
\ncosts  roughly\tthree times to deliver, per BTU as  oil\t the
\nprice of gas in the producing area could not possibly  equal
\nthe  price  of oil. Scarce resources are best used  of\tthis
\nfuel expensive to transport, is used to the maximum, nearest
\nits source of supply, whiles the transport–cheap oil  moves
\ngreater\t distances”.  Thermal  equivalence  with  substitute
\nfuels  and a price based thereon could therefore only  be  a
\nceiling\t on the price of gas rather than a parity basis\t for
\nits  price fixation. Moreover, in the case of  Gujarat,\t the
\nsubstitute  fuel  comes from long distance and\tbears  heavy
\nfrieght charges, while the gas is found within the State. It
\nmust  also be remembered that unlike in the case of  foreign
\noil companies, cost
\n188<\/span>
\ndata  are more readily available in the case of ONGC, as  it
\nis a public sector enterprise and subject to the control  of
\nParliament  and the scrutiny of its Public Accounts  Commit-
\ntee. All cost data have been made available to the  Arbitra-
\ntor  by the ONGC. Under the circumstances, it is my  consid-
\nered judgment that formula of fixing the price of gas on the
\nbasis  of  the thermal equivalence and price  of  substitute
\nfuel  or feedstock should not be accepted, though the  price
\nresulting  from such a formula certainly is a relevant\tcon-
\nsideration  as indicating the ceiling below which the  price
\nof gas should be fixed by the Arbitrator. I would  therefore
\nreject\tthe ONGC proposal that “the formula to be  used\t for
\nthe price of gas should be based on the price of the  avail-
\nable alternative fuels or feedstock.”\n<\/p>\n
\t The only other basic formula is the one advanced by
\nthe  Gujarat  Government, namely, “that\t the  only  rational
\napproach to the pricing of gas is via the cost plus  profits
\nformula”.  And\tit is the cost plus profit  formula  that  I
\npropose\t to  adopt as the primary base\tfor  determining  my
\naward  on the price of gas in Gujarat. Having said  this,  I
\nmust  hasten  to add that this does not mean  my  acceptance
\neither of the connotation that the Gujarat Government  gives
\nto  this formula in terms of the content postulated for\t the
\ncost  of production and profit or the figures they have\t put
\nforward for the price of gas on the basis of their interpre-
\ntation of the content of cost of production and profit. What
\nI accept is the principle of cost of production plus reason-
\nable profit and not the interpretation that is sought to  be
\ngiven to this principle by the Gujarat Government”.
\nThe second part of the issue referred to the arbitration was
\ndisposed of summarily by the award, in a few words:
\n“Finally,  on the question whether there should be any\tdif-
\nferentiation  between  the prices to be\t charged  for  power
\ngeneration,  fertilisers, and other industries, I am not  in
\nfavour of any such differentiation, as it would only  intro-
\nduce  an unnecessary complication in the  pricing  machinery
\nand my award is primarily based on estimated cost of produc-
\ntion plus reasonable profit. If, however, in order to  regu-
\nlate  supplies\tin adjustment to  different  intensities  of
\ndemand from the different users of gas, some premium or
\n189<\/span>
\ndiscount  becomes  necessary on the price suggested  by\t me,
\nthis  would not be inconsistent with my award  provided\t the
\ntotal  receipts do not exceed the amount that  would  accrue
\nfrom the application of my award on the price of gas.
\nDr.  Chitale naturally placed considerable reliance on\tthis
\naward.\tHe  contended  that the reasoning of  the  award  is
\nimpeccable and that the considerations that impelled Dr. Rao
\nto  adopt  the cost plus basis are more weighty\t in  today’s
\ncontext\t and in the background of the State’s  duties  under
\nArticles 38 and 39(b) of the Constitution.\n<\/p>\n
    There is no doubt that Dr. Rao made the cost plus method
\nthe basis of his award in preference to the basis of thermal
\nequivalence  of alternate fuel (which we shall refer  to  as
\nthermal\t equivalence  basis).  But at  least  two  important
\naspects have to be kept in mind in assessing the applicabil-
\nity  of\t the same principle in the present context.  In\t the
\nfirst  place,  as explained earlier, Dr. Rao  was  concerned
\nprimarily  with an issue raised by the public of Gujarat  as
\nagainst the ONGC. He was really adjudicating upon the  price
\nwhich  the ONGC should charge to public\t sector\t undertaking
\ncatering  to the essential needs of the State. In  the\tcon-
\ntext, his objective was, understandably, to fix the price as
\nlow  as possible. The consumers under consideration  by\t him
\nrepresented the public need of the State of Gujarat and,  as
\nagainst such public interest, the ONGC’s profit requirements
\npaled  into insignificance. He proceeded, more or  less,  on
\nthe  footing  that the ONGC was obliged to  supply  gas\t for
\nmeeting\t those\tessential purposes. Secondly, Dr.  Rao\talso
\nagrees\tthat the thermal equivalence basis is  a  recognised
\nmethod\tfor fixation of price, that it has a  relevance\t and
\nthat  it  has to be taken into account\tin  determining\t the
\nprice for gas supply. We also wonder whether, in the present
\nset up of the ONGC with a vast expansion of its\t exploratory
\nactivities, enough data are available to work out a price on
\nthe  cost  plus\t basis. Any such computation  will  have  to
\nprovide\t adequately  for  future  explorations,\t infructuous
\nexpenditure,  expenditure on modern uptodate  machinery\t and
\nresearch and above all expenditure that will be necessary to
\nreach the gas to the consumers. In these circumstances,\t the
\ncost  plus basis fixed by Shri Rao in the background of\t the
\nreal  nature  of the dispute before him\t three\tdecades\t ago
\ncannot be taken as conclusive in the present situation. Here
\nwe  are\t dealing with a price to be fixed under\t a  contract
\nbetween the ONGC and one set of industries in the State\t who
\nwish  to make a change over from the furnace oil  system  to
\nthat  of gas supply with a view to increase their own  prof-
\nitability  and\tgain an advantage, if possible,\t over  other
\nindustries in the State. In this context, we think, ONGC  is
\nentitled to a
\n190<\/span>
\nlarger\tlatitude  and charge a price which  the\t market\t can
\nbear.  The only restrictions is that, being a State  instru-
\nmentality, it should not be a whimsical or capricious  price
\nbut  should be one based on relevant considerations  and  on
\nsome recognised basis.\n<\/p>\n
    While  the\tcost plus basis is a  recognised  basis\t for
\nfixation  of  prices  of essential commodities\tor  for\t the
\nservices rendered by a public utility undertaking, it  would
\nnot, in our view, be correct to treat it as the only permis-
\nsible basis in all situations. On behalf of the ONGC it\t has
\nbeen  pointed  out that even in the fixation  of  prices  of
\nessential  commodities like levy sugar, the concept of\tcost
\nplus is not necessarily the only method of fixing the  price
\nfor  the commodity. In considering the question whether\t the
\nprice  fixation in that case was based on proper  principles
\nand by following correct methods in accordance with  section
\n3(3C) of the Essential Commodities Act, this Court  observed
\nin the Anakapallee case, [1973] 2 SCR 882 at p. 899:
\n“While\texamining question No. 3 learned  Solicitor  General
\nhas reminded us that ‘cost plus’ cannot always be the proper
\nbasis for price fixation. Even if there is no price  control
\neach unit will have to compete in the market and those units
\nwhich are uneconomic and whose cost is unduly high will have
\nto compete with others which are more efficient and the cost
\nof which is much lower. It may be that uneconomic units\t may
\nsuffer\tlosses\tbut  what they cannot achieve  in  the\topen
\nmarket they cannot insist on where price has to be fixed  by
\nthe  government.  The Sugar Enquiry Commission in  its\t1965
\nreport\texpressed the view that ‘cost-plus’ basis for  price
\nfixation  perpetuates inefficiency in the industry  and\t is,
\ntherefore, against the longterm interest of the country.
\n    The Court quoted from a study prepared in  collaboration
\nwith the Institute of Chartered Accountants of India.
\n“Costs\talone do not determine the prices. Cost is only\t one
\nof the many complex factors which together determine prices.
\nThe only general principle that can be stated is that in the
\nend there must be some margin in prices over total costs, if
\ncapital is to be unimpaired and production maximised by\t the
\nutilisation of internal surpluses  ….. while the cost plus
\npricing method is the most common, it may be argued that  it
\nis not the best available method
\n191<\/span>
\nbecause\t it ignores ‘demand or fails to\t adequately  reflect
\ncompetition or is based upon a concept of cost which is\t not
\nsolely\trelevant for pricing decision in all cases. What  is
\nessential is not so much of current of past costs but  fore-
\ncast of future cost with accuracy  …..  Generally  pricing
\nshould\tbe  such  as to increase production  and  sales\t and
\nsecure an adequate return on capital employed.”
\nAgain,\tin  a somewhat different context in  relation  K,  a
\nState transport undertaking, this Court observed, in  Venka-
\ntachalam v. Deputy Transport Commissioner, [1977] 2 SCR 392:
\n”  …..  the special status of a Government owned transport
\nundertaking  is obvious\t …..\tIts functional motto is\t not
\nmore profits at any cost but service to citizens first\tand,
\nin a far larger measure than private companies and individu-
\nals, although profitability is also a factor even in  public
\nutilities.\n<\/p>\n
\t\t\t(emphasis added)
\n    These  passages indicate that cost plus is not a  satis-
\nfactory\t basis in all situations. The basis may need  to  be
\nmade more stringent in some situations and more\t broad-based
\nin others. May be the cost plus is an ideal basis where\t the
\ncommodity  supplied is the product of a monopoly  vital’  to
\nhuman  needs.  In  that context the price  fixed  should  be
\nminimum\t possible as the customer or consumer must have\t the
\ncommodity  for his survival and cannot afford more than\t the
\nminimum.  The producer should not, therefore, be allowed  to
\nget  back  more than a minimum profit.\tIndeed,\t in  certain
\nsituations, it may even be inequitable to fix varying prices
\non the basis of the cost of each individual manufacturer and
\nthus encourage inefficiency; it may be necessary to base  it
\nuniformly  for\ta  whole industry on the cost  of  the\tmost
\nefficient manufacturer as has been done in the case of drugs
\n(vide:\tCynamide case, [1987] 2 S.C.C. 720. It was so  vital
\nthat  the goods should be available to the common  man\tthat
\nthe  prices were statutorily fixed so low as to\t drive\taway
\ninefficient producers and so as to make it possible only for
\nthe  most  efficient manufacturers to survive.\tPer  contra,
\nthere  can be situations where the need of the\tconsumer  is
\nnot so vital and the requirements of the economic scene\t are
\nsuch that the needs of the producer should be given  greater
\nconsideration. In such situations, the “plus” element in the
\ncost plus basis (namely, the allowable profit margin, should
\nnot be confined to “a reasonable return on the capital”\t but
\nshould be allowed to have a much larger content depending on
\nthe circumstances.\n<\/p>\n
192<\/span><\/p>\n
    The\t notion\t that the cost plus basis can  be  the\tonly
\ncriterion  for\tfixation  of prices in the  case  of  public
\nenterprises stems basically from a concept that such  enter-
\nprises\tshould function either on a no profit-no loss  basis
\nor  on\ta minimum profit basis. This is not  a\tcorrect\t ap-
\nproach. In the case of vital commodities or services,  while
\nprivate concerns must be allowed a minimial return on  capi-
\ntal invested, public undertakings or utilities may even have
\nto  run at losses, if need be and even a minimal return\t may
\nnot be assured. In the case of less vital, but still  basic,
\ncommodities,  they may be required to cater to needs with  a
\nminimal profit margin for themselves. But given a favourable
\narea  of operation, “commercial profits” need not be  either
\nanathema  or  forbidden fruit even to public  sector  enter-
\nprises.\n<\/p>\n
    A  publication  on “Public Enterprises”  by\t the  Indian
\nInstitute  of  Public  Administration,\tproduced  before  us
\nelaborates on the above aspects. It also gives an  interest-
\ning  analysis  of  pricing policies adopted  in\t respect  of
\nvarious commodities. It is unnecessary to touch upon all the
\ndetails. It is sufficient, for our present purposes, to\t say
\nthat the monograph points out, a propos such pricing policy,
\nthat several state undertakings are already earning  profits
\nand  the general policy has been accepted that\tthe  maximum
\neconomic  returns should be secured from all  public  enter-
\nprises,\t whether these are operated by the Central or  State
\nGovernments directly or through corporation or companies and
\nthat the surplus of public enterprises will have to play  an
\nincreasing part in financing economic development under\t the
\nvarious National Plans. It proceeds to say (at p. 173):
\n“A growing source of governmental revenue in many  countries
\nis  the\t profits of public undertaking. In  under  developed
\ncountries public enterprises fostered on public revenues are
\nexpected  to  play  a more positive role  in  financing\t the
\ncountries’  development than similar enterprises do  in\t de-
\nveloped\t economies.  In determining the\t price\tpolicies  of
\nthese undertakings considerations of maximising revenue will
\nnot play as important a part as profits do in private enter-
\nprises, but within the limits set by the necessity to foster
\neconomic  development, their price policies are designed  to
\nbring  in some profits to the countries’  general  revenues.
\nPublic enterprises in the under-developed areas are to break
\nground\tin  projects which are the core of  development.  If
\nsuch projects are to be financed on an increasing scale, the
\nprice  policies\t have  to be so\t designed  that\t significant
\nsurpluses are left with the projects
\n193<\/span>
\nto  be employed either for their own expansion or  for\tfinancing
\nthe expansion of other projects. In other words, there should  be
\nan  element of profit in the prices of their products or  in  the
\ncost of their services to the public.”\n<\/p>\n
    The\t Krishna  Menon\t Committee  on\tState\tundertakings
\n(November 1959), the booklet proceeds. to point out, enunci-
\nated the following pricing policy for public enterprises:
\n“We have stressed in these pages the importance of incentive
\nand healthy competition and emphasised that concerns must be
\nable  to  stand on their own legs for efficient\t and  proper
\nconduct\t of business  …..  The considerations that  should
\ngovern\tprices appear to be the following.  Consumer  prices
\nnave  to be based upon general market prices and other\tfac-
\ntors as well. The decision as to what economy in cost has to
\nbe  passed  on\tto the consumer on the one  hand  or  should
\nbenefit\t the  taxpayer on the other and\t the  likelihood  of
\nnon-availabilities and, therefore, of scarcities in the near
\nfuture has also to be considered. The principle of ‘what the
\ntraffic can bear’ has also to be taken into account. ‘ ‘
\nDr. V.K.R.V. Rao has been quoted again as saying:
\n“As regards profits, it should be pointed out that  contrary
\nto  some  popular notions on the subject,  profits  have  an
\nimportant  place  in  a socialist  society,  the  difference
\nbetween\t the  economic price and the social price  would  be
\nwhat may be called the planned profit and this would largely
\ncorrespond  to\tthe excise duties and sales  tax  and  other
\nindirect  taxes\t that are imposed in a\tcapitalist  society.
\nThese planned profits being no more than a way of mobilising
\nresources  and\tmaking them available to the  community\t for
\npurposes  both\tof investment and  maintenance\texpenditure.
\nProfits\t also have another important role to play in so\t far
\nas  they relate to the economic price itself.  The  economic
\nprice  fixed at any particular moment of time  is  obviously
\nbased  on  the capital, technique and  productivity  of\t the
\ngiven base period when this price is fixed; any\t improvement
\nin  productivity is bound to lead to a decrease in the\tcost
\nproduction and in turn this would lead to the emergence of a
\nsurplus within the economic price itself and that would be a
\n194<\/span>
\nsurplus\t which\twill  represent a measure  of  the  nation’s
\nincrease  in  productivity  this surplus would\tnot  be\t the
\nresult of the policies laid down at national level as in the
\ncase of difference between the economic price and the social
\nprice. On the contrary, it would represent the result of the
\nmotivations  and efforts of a larger number of\tpersons\t en-
\ngaged  in productive activity. Hence the importance  of\t ar-
\nranging\t for proper incentive to stimulate the\tcreation  of
\nthis  kind of surplus. That is the reason why  in  socialist
\nsocieties now-adays, individual enterprises are permitted to
\nretain\ta larger share of such surpluses as they may  create
\nby an increase in productivity, this larger share to be used
\nby  them partly for increasing individual incomes  of  those
\nengaged in the enterprises and partly for giving an opportu-
\nnity  to the enterprises in question to build up the  finan-
\ncial  resources\t needed to following their  own\t independent
\ninvestment policies. Public enterprise must be carried on  a
\nprofitmaking basis, not only in the sense that public enter-
\nprise must yield an economic price in the terms described in
\na  previous  section  but must also get\t for  the  community
\nsufficient resources for financing a part of the  investment
\nand maintenance expenditure of government. Increasingly, the
\nshare of the profits of public enterprises in financing\t the
\ninvestment  and maintenance expenditure of  government\tmust
\nkeep  on increasing. It is not only the expenditure  on\t the
\npublic\tsector as such that will indicate the march  of\t the
\neconomy\t towards its socialist goal. Even more important  is
\nthe  increasing\t role that the public sector must  play\t for
\nfinding\t the resources needed for meeting both\tthe  mainte-
\nnance  and  investment expenditure of government.  This\t in-
\nvolves a price and profit policy in regard to public  enter-
\nprise  which goes against accepted opinion so far in  regard
\nto  public  enterprise. The theory ‘no profit, no  loss’  in
\npublic\tenterprise is particularly inconsistent with  a\t so-
\ncialist\t economy, and if pursued in a mixed economy it\twill
\nhamper\tthe evolution of the mixed economy into a  socialist
\nsociety. The sooner, therefore, this theory of ‘no profit no
\nloss’  in public enterprise is given up and the\t policy\t ac-
\ncepted of having a price and profit policy for public enter-
\nprise  such as will make the State increasingly\t reliant  on
\nits own resources (as distinguished from taxing the personal
\nincomes of its citizens), the quicker will be the  evolution
\nof a socialist society”.\n<\/p>\n
195<\/span><\/p>\n
    In\tanother\t article on “The Public\t sector\t in  India”,
\nquoted\tin “Issues in Public Enterprise” by Sri K.R.  Gupta,
\nDr. Rao is quoted as saying (at p. 84):\n<\/p>\n
”   …..  the pricing policy should be such as\t to  promote
\nthe  growth  of\t national  income  and\tthe  rate  of\tthis
\ngrowth\t …..public enterprises must make profits  and\t the
\nlarger\tthe share of public enterprises in all\tenterprises,
\nthe  greater is their need for making profits. Profits\tcon-
\nstitute the surplus available for savings and investment  on
\nthe  one  hand and contribution to national  social  welfare
\nprogramme  on  the other; and if public enterprises  do\t not
\nmake profits the national surplus available for stepping  up
\nthe  rate of investment and the increase of  social  welfare
\nwill suffer a corresponding reduction;\t….  Hence the need
\nfor  giving up the irrational belief that public  enterprise
\nshould, by definition, be run on a no-profit basis.”\n<\/p>\n
    In\tthe  light of the foregoing discussion,\t we  are  of
\nopinion\t that it would not be right to insist that the\tONGC
\nshould\tfix oil prices only on cost plus basis. Indeed,\t its
\npolicy\tof  pricing should be based on the  several  factors
\npeculiar  to the industry and its current situation  and  so
\nlong  as such a policy is not irrational or  whimsical,\t the
\ncourt may not interfere.\n<\/p>\n
    The question of fixation of a fair and reasonable  price
\nfor goods placed on the market has come up for consideration
\nof Parliament and Courts in different contexts. Price  fixa-
\ntion, it is common ground, is generally a legislative  func-
\ntion.  But  Parliament generally provides  for\tinterference
\nonly  at a stage where in pursuance of social  and  economic
\nobjectives or to discharge duties under the Directive  Prin-
\nciples of State Policy, control has to be exercised over the
\ndistribution  and consumption of the material  resources  of
\nthe community. Thus while Parliament has enacted the  Essen-
\ntial  Commodities Act, it has left it to the  discretion  of
\nthe  Executive to take concrete steps for fixing the  prices
\nof  essential commodities as and when necessity\t arises,  by
\npromulgating Control Orders in exercise of the powers vested
\nin the Act. Various types of foodgrains, sugarcane and drugs
\nhave  come under the purview of such control orders and\t the
\nmodalities  of fixation of fair prices thereunder have\talso
\ncome up for consideration of the Courts. There has also been
\nsuch  fixation of price under the Industries (Development  &
\nRegulation)  Act, 1951, vide: Premier Automobiles v.  Union,<\/a>
\n[1972] 2 SCR 726. In all these cases, the primary concern of
\n196<\/span>
\nGovernment  and\t Parliament has been that  the\tarticles  in
\nquestion should be available to the members of the  consumer
\npublic at the minimum prices possible and, in that  context,
\nthese legislations no doubt adopt the “cost plus  reasonable
\nreturn on investment” test in the fixation of prices.  That,
\neven in respect of such commodities, the “cost plus”  method
\nis  not\t the only reasonable method has been  recognised  in
\njudicial  decisions. The cases on this topic have  been\t re-
\nviewed\tand  the  limitations on judicial  review  of  price
\nfixations  fully discussed recently by a Constitution  Bench
\nof  this  Court\t in M\/s Shri Sitaram Sugar  Company  Ltd.  &
\nAnother\t v.  Union,  JT<\/a> 19901 SC 462. It  is,  however,\t not
\nnecessary  here to enter into a discussion of this  and\t the
\nearlier\t cases because those cases were primarily  concerned
\nwith  the question whether the price fixation had been\tmade
\nin consonance with the requirements of the relevant legisla-
\ntion fixing prices of essential commodities in the interests
\nof  the general public and also because ONGC does  not\tdeny
\nthat, as a State instrumentality, its price fixation  should
\nbe based on relevant material and should be fair and reason-
\nable. None of these decisions hold that the cost plus method
\nis  the only relevant method for fixation of prices. On\t the
\ncontrary,  there are indications in some judgments to  indi-
\ncate  that not a minimum but a reasonable profit  margin  is
\npermissible. Even in relation to a public utility  undertak-
\ning like the State Electricity Boards where the duty not  to
\nmake undue profits by abusing its monopoly position is clear
\n(vide: Jagadamba Paper Industries v. Haryana State Electric-
\nity  Board,  [1984] 1 SCR 165, this Court  said,  in  Kerala
\nState  Electricity Board etc. v. M\/s. S.N. Govinda Prabhu  &
\nBros. and Ors. etc, [1986] 4 S.C.C. 1988:\n<\/p>\n
“Now, a State Electricity Board created under the provisions
\nof  the Electricity Supply Act is an instrumentality of\t the
\nState  subject\tto the same constitutional  and\t public\t law
\nlimitations  as are applicable to the  government  including
\nthe principle of law which inhibits arbitrary action by\t the
\ngovernment (See Rohtas Industries v. Bihar State Electricity
\nBoard,\t[1984]\t3 SCR 59). It is a public  utility  monopoly
\nundertaking   which  may  not  be  driven  by  pure   profit
\nmotive–not  that profit is to be shunned but  that  service
\nand  not  profit should inform its actions. It\tis  not\t the
\nfunction  of the Board to so manage its affairs as  to\tearn
\nthe maximum profit; even as a private corporate body may  be
\ninspired  to earn huge profits with a view to  paying  large
\ndividends  to its shareholders. But it does not follow\tthat
\nthe Board may not and need not earn profits for the
\n197<\/span>
\npurpose of performing its duties and discharging its obliga-
\ntions under the statute. It stands to common sense that\t the
\nBoard must manage its affairs on sound economic\t principles.
\nHaving ventured into the field of commerce, no public  serv-
\nice  undertaking can afford to say it will  ignore  business
\nprinciples  which are an essential to public service  under-
\ntakings\t as  to commercial ventures.  (See Lord\t Scarman  in
\nBromely v. Greater London Council, [1982] 1 All ER 129).  If
\nthe  Board borrows sums either from the government  or\tfrom
\nother  sources\tor  by the issue of  debentures\t and  bonds,
\nsurely the Board must of necessity make provision year after
\nyear  for the payment of interest on the loans taken  by  it
\nand  for the repayment of the capital amounts of the  loans.
\nIf the Board is unable to pay interest in any year for\twant
\nof  sufficient revenue receipts, the Board must make  provi-
\nsion  for payment of such arrears of interest in  succeeding
\nyears.\tThe Board is not expected to run on a bare  year-to-
\nyear survival basis. It must have its feet firmly planted on
\nthe earth. It must be able to pay the interest on the  loans
\ntaken by it must be able to discharge its debts; it must  be
\nable to give efficient and economic service; it must be able
\nto continue the due performance of its services by providing
\nfor depreciation etc.; it must provide for the expansion  of
\nits services, for no one can pretend the country is  already
\nwell supplied with electricity. Sufficient surplus has to be
\ngenerated  for\tthis purpose. That we take it  is  what\t the
\nBoard would necessarily do if it was an ordinary  commercial
\nundertaking properly and prudently managed on sound  commer-
\ncial lines. Is the position any different because the  Board
\nis  a public utility undertakings or because of\t the  provi-
\nsions  of the Electricity Supply Act? We do not\t think\tthat
\neither the character of Electricity Board as a Public Utili-
\nty  Undertaking or the provisions of the Electricity  Supply
\nAct  preclude the Board from managing its affairs  on  sound
\ncommercial lines though not with a profit-thirst.\n<\/p>\n
7. A plain reading of Section 59 (as amended in 1978) plain-
\nly  indicates that it is the mandate of Parliament that\t the
\nBoard  should adjust its tariffs so that after\tmeeting\t the
\nvarious expenses properly required to be met a surplus is
\n198<\/span>
\nleft.  The original negative approach of functioning  so  as
\nnot to suffer a loss is replaced by the positive approach of
\nrequiring a surplus to be created.\n<\/p>\n
\t  Under\t the above provision, the Board is  under  a
\nstatutory  obligation to carry on its operations and  adjust
\nits tariffs in such a way to ensure that the total  revenues
\nearned\tin  any\t year of account shall,\t after\tmeeting\t all
\nexpenses  chargeable  to revenue leave such surplus  as\t the
\nState Government may, from time to time, specify. The tariff
\nfixation  has, therefore, to be so made as to  raise  suffi-
\ncient revenue which will not merely avoid any net loss being
\nincurred during the financial year but will ensure a  profit
\nbeing earned, the rate of minimum profit to be earned  being
\nsuch as may be specified by the State Government.\n<\/p>\n
8.  Shri  Potti, learned counsel for  the  consumers  placed
\ngreat  reliance on the observations of this Court in  Kerala
\nState  Electricity Board v. Indian Aluminium Co.,<\/a>  [1976]  1
\nSCR 552; Bihar State Electricity Board v. Workmen,<\/a> [1976]  2
\nSCR  42 and P. Nalla Thampy Thera v. Union of India<\/a> to\tcon-
\ntend  that the Electricity Board was barred from  conducting
\nits operations on commercial lines so as to earn a profit.
\nWe  do not think that any of these observations is  in\tcon-
\nflict  with what we have said. Pure profit motive,  unjusti-
\nfiable according to us even in the case of a private trading
\nconcern, can never be the sole guiding factor in the case of
\na public enterprise. If profit is made not for profit’s sake
\nbut  for the purpose of fulfilling, better and\tmore  exten-
\nsively, the obligation of the services expected of it cannot
\nbe  said  that\tthe  public  enterprise\t acted\tbeyond\t its
\nauthority.  The\t observations in the first case\t which\twere
\nrefined to us merely emphasised the fact that the Electrici-
\nty Board is not an ordinary trading corporation and that  as
\na public utility
\n199<\/span>
\nundertaking its emphasis should be on service and not  prof-
\nit. In the second case, for example, the Court said that  it
\nis not expected to make any profit and proceeded to  explain
\nwhy it is not expected to make a profit by saying that it is
\nexpected  to  extend the supply of electricity\tto  unserved
\nareas without reference to considerations of loss. It is  of
\ninterest that in the second case, dealing with the  question
\nwhether interest cannot be taken into account in working out
\nprofits, the Court observed, (SCC p. 235, para 5):\n<\/p>\n
    ‘The facile assumption by the Tribunal that the interest
\nshould not be taken into account in working out the  profits
\nis not borne out by the provisions of the statute’.
\nIn the third case, the court appeared to take the view\tthat
\nthe  railway  rate and fares should  cover  operational\t ex-
\npenses, interest on investment, depreciation and payment  of
\npublic\tobligations. It was stated more than once  that\t the
\ntotal  operational  cost would include the interest  on\t the
\ncapital\t outlay\t out of the national  exchequer.  While\t the
\ncourt expressed the view that there was no justification  to
\nrun a public utility monopoly service undertaking merely  as
\na commercial venture with a view to make profits, the  court
\ndid  not rule out but refrained from expressing any  opinion
\non  the question whether a public utility  monopoly  service
\nundertaking should ever be geared to earn profits to support
\nthe general revenue of the State.\n<\/p>\n
We  are\t of the view that the failure of the  government  to
\nspecify\t the  surplus which may be generated  by  the  Board
\ncannot\tprevent\t the Board from generating a  surplus  after
\nmeeting the expenses required to be met. Perhaps, the  quan-
\ntum of surplus may not exceed what a prudent public  service
\nundertaking may be expected to generate without\t sacrificing
\nthe  interests\tit is expected to serve\t and  without  being
\nobsessed by the pure profit motive of the private  enterpre-
\nneur.  The  Board may not allow its character  as  a  public
\nutility\t undertaking  to be changed into that  of  a  profit
\nmotivated  private trading or manufacturing  house.  Neither
\nthe tariffs nor the resulting surplus may reach such heights
\nas  to lead to the inevitable conclusion that the  Bard\t has
\nshed  its  public utility character. When that\thappens\t the
\ncourt may strike down the revision of tariffs as plainly
\n200<\/span>
\narbitrary. But not until then. Not merely because a  surplus
\nhas been generated, a surplus which can by no means be\tsaid
\nto be extravagant. The court will then refrain from touching
\nthe tariffs. After all, as has been said by this Court often
\nenough\t“price fixation” is neither the forte nor the  func-
\ntion of the court.”\n<\/p>\n
    We\tare  not called upon here, in the view we  take,  to
\ndecide\twhether the cost plus basis or the  thermal  equiva-
\nlence basis is more appropriate. All that we wish to say  is
\nthat, having regard to the basis on which the claims of\t the
\nrespondents  have  proceeded thus far, our task\t is  a\tvery
\nlimited one. We cannot say, for reasons set out below,\tthat
\nthe  ONGC has acted arbitrarily in fixing the prices on\t the
\nthermal equivalence basis; the fact that it has not done  it
\non cost plus basis does not vitiate the price fixation.\t The
\nonly  question\twe  have to address ourselves to  is  as  to
\nwhether\t the  O.N.G.C. has fixed a price based\ton  relevant
\nmaterials  and on some known principle. At the\toutset,\t one
\nmust notice that the price is not directly and\tspecifically
\nrelated\t to or based on any unreasonable margin\t of  profit.
\nThere is nothing to indicate that the ONGC was prompted,  in
\nfixing\tits  prices, on the one and  only  consideration  of
\nderiving  maximum profits for itself. On the other hand,  it
\nappears\t to have been guided by the needs of  the  situation
\nand the nature of the distribution system that is in  opera-
\ntion. As we said earlier, the manufacture, distribution\t and
\nconsumption  of\t gas has yet not attained the status  of  an
\nessential  commodity till recently. It is still at  a  stage
\nwhere  the  goods are being distributed under  private\tcon-
\ntracts.\t Whether  this is any longer justified\tand  whether
\nthere  should  not be a greater amount of control  over\t the
\nmodes  of,  as\twell as price for such,\t distribution  is  a
\nlarger\tquestion  with which we are not\t now  concerned.  At
\npresent, we are in the penumbral region where the  commodity
\nis free to be distributed at the manufacturer’s choice,\t but
\nyet  where such manufacturer being a State  instrumentality,
\nhas to conform to Articles 14 and 19 of the Constitution.
\n    At this stage of development of the industry, we think a
\nmuch wider latitude is permissible in the fixation of prices
\nthan  the  imposition of a “no profit, no loss” basis  or  a
\n“cost plus” basis on the producer. In fixing the prices,  it
\nis legitimate for the O.N.G.C. to take into account the fact
\nthat  its supplies are restricted only to a  few  industries
\nthat  have entered into contracts with it. Like\t industries,
\nproducing  the same or similar commodities, are carrying  on
\nbusiness  with other sources of energy such as coal or\tfur-
\nnace  oil  and the supply of gas is intended  to  supplement
\nthat source of energy. The supply of
\n201<\/span>
\ngas  to\t a few chosen industries at a much lower  rate\tthan
\nwhat  the companies may have to pay for an alternative\tfuel
\nmay  indeed lead to cries of discrimination as the  O.N.G.C.
\nis  scarcely in a position to supply gas to  all  industries
\nand  replace furnace oil as a source of\t energy\t altogether.
\nAlso,  it  must be kept in mind that exploration of  oil  is
\ncapital-intensive and money-consuming and the ONGC would  be
\nwell justified in supplying gas to voluntary contractors  at
\na  price  which several parties are willing  to\t accept\t and
\nwhich will enable the ONGC to build up a surplus to meet its
\nmanifold  requirements-The  surpluses, it should  be  remem-
\nbered, are not to fatten the coffers of a private individual
\nbut  only  to strengthen the backbone of the  public  enter-
\nprise.\tTo fix its prices on the basis of  alternative\tfuel
\ncannot,\t therefore, be described, in the present  situation,
\nas irrational or arbitrary. Our attention has been drawn  to
\na  passage  from Joan Mitchell on “Price  Determination\t and
\nPrice  Policy” where, dealing with the basis of fixation  of
\ngas price by negotiation between the British Gas  Commission
\nand companies producing North Sea gas, it is pointed out hat
\nthe  price is set by the nearest alternative  fuel,  usually
\nfuel oil. This was also the basis, it will be remembered, on
\nwhich  initially  the GSEB and GSFC had\t agreed\t to  receive
\nsupplies from the ONGC. Thus this is a basis of fixation  of
\nprice that is recognised in this field. Fixation of price on
\nthis  basis is, therefore, a logical and appropriate one  in
\nthe circumstances-\n<\/p>\n
     We\t should once again like to emphasise that  different
\nconsiderations may perhaps have to prevail if the  treatment
\nof ONGC as a public utility is taken to its logical  conclu-
\nsion  but  that is not the basis on which the  present\twrit
\npetitions  can be decided. Even at present the ONGC is\tsup-
\nplying to public sector undertakings at a much lower  price.
\nThat has not been challenged by those organisations and\t the
\ndifferentiation\t has also been upheld, in principle, by\t the
\nHigh  Court, rightly in our opinion. Fortunately,  with\t the
\ndiscovery of more and more oil wells in various parts of the
\ncountry the economy of the country is booming and gas supply
\nmay  also  become more plentifully available  in  course  of
\ntime.  The time will perhaps soon come for the evolution  of
\nproper schemes of distribution and price control. We are now
\nconcerned, however, with the price fixation regarding supply
\nto  a few parties who considered it all right to enter\tinto
\ncontractual  agreements\t for supply of gas to  them  on\t the
\nbasis  of the price fixed by the ONGC. So far as the  scheme
\nof  supply is concerned; the respondents also stand  by\t the
\nexisting contract scheme as they want the supply to  contin-
\nue-  It\t is  certainly not their prayer\t that  the  existing
\nsupply of gas, such as it is, should be considered a  public
\nutility and rationed to meet the needs of all industries and
\nconsumers in Bombay or Vadodara or
\n202<\/span>
\nelsewhere. Nor is there any complaint today from any  indus-
\ntry  not receiving gas supply that they are being  discrimi-
\nnated  against and that the supply to  selective  industries
\nshould stop. There is, therefore, no justification to strike
\ndown  the  scheme of supply on the basis of  contracts.\t The
\nonly  objection that survives, therefore, is that the  price
\nfor  the supply should be reasonable and fair. It should  be
\nbased  on principle, not caprice. We have pointed out  that,
\nthough\tthe ONGC has stepped up the prices considerably,  it
\nhas claimed to have done so on a principle and the  correct-
\nness  of  this\thas not been challenged. The  claim  of\t the
\nrespondents only is that prices should not be fixed on\tthat
\nbasis  but should, instead, be fixed on the basis  of  “cost
\nplus”.\tFor reasons indicated earlier, we do not think\tthat
\nthe  respondents are justified in challenging this basis  of
\nfixation.  The basis on which the ONGC has fixed the  prices
\nis  a  known basis and, as pointed out by us, also  a  basis
\npermissible  at this stage of the industry where  a  certain
\namount\tof freedom is permitted to the organisation in\tsup-
\nplying\tthe gas produced by it. The situation really is\t one
\nwhere the choice is between making the limited supply of gas
\navailable to a few chosen individuals at rock-bottom  prices
\nso  that  they can make huge profits and  making  the  price
\nhigher but competitive so that it subserves the common\tgood
\nand does not benefit only a chosen few. The ONGC has rightly
\nchosen\tthe  second alternative. We would,  therefore,\thold
\nthat  the  respondents can insist on a supply only  if\tthey
\nagree to pay the prices fixed by the ONGC. They are also not
\nentitled  to demand supply as of right,\t without  contracts.
\nBut,  as they have in fact had the benefit of  the  supplies
\nunder  interim orders of the Court, this question  does\t not
\nsurvive\t and  all  that we can declare is  that\t the  prices
\ndemanded by the ONGC are not unreasonable or capricious\t and
\nare binding on the respondents.\n<\/p>\n
    Having dealt with the principal issue, we may now  refer
\nto certain subsidiary matters touched upon in the course  of
\narguments:\n<\/p>\n
(i)  A point was made about the ONGC’s right to insist on  a
\nminimum\t offtake  guarantee to the extent of 90%.  This\t has
\nbeen  upheld by the High Court and there is no\tappeal\t(the
\ncrossappeals  having been dismissed as time barred)  by\t the
\nrespondents.  There can, however, be no doubt that the\tHigh
\nCourt  was  right in its conclusion on this  issue.  If\t any
\nauthority  regarding  the  rationale of\t such  a  clause  is
\nneeded,\t it is to be found in the decision of this Court  in
\nAmalgamated Electricity Co. Ltd. v. Jalgaon Borough  Munici-<\/a>
\npality, [1976] 1 SCR 636.\n<\/p>\n
203<\/span><\/p>\n
(ii)  A\t statement was filed before us to show that  if\t the
\nprices\thad  been  determined on the basis  of\tthe  thermal
\nequivalence of coal, they would have been much smaller. This
\nstatement  has been filed before us for the first  time\t and
\nits  correctness  would need verification. It  is,  however,
\nunnecessary  to go into this question. The acceptability  of
\nthis  argument\tmay depend, inter alia on how far  the\tcoal
\nbasis  is  relevant for the industries located\tin  Vadodara
\nwhere the principal alternate fuel is fuel oil. It is possi-
\nble  that this is one alternative that may be available\t and
\nit  was\t open  to the petitioners to have  had\tdiscuss\t and
\nmediations  with  the ONGC for alteration of the  prices  on
\nthat footing. The ONGC has fixed prices on the basis of\t the
\nthermal equivalence of furnance oil which, by an large,\t was
\nthe  source of energy tapped by the local industries.  There
\nbeing  no  irrationality in adopting this basis, it  is\t not
\nopen  to us to say that the basis of thermal equivalence  of
\ncoal  should  be adopted rather than that of  furnance\toil,
\nparticularly  in the absence of fuller material and  discus-
\nsion.\n<\/p>\n
    (iii) A point was made that the ONGC is charging differ-
\nent  prices to different industries. The answer of the\tONGC
\nis  that, save in the case of certain public  sector  enter-
\nprises,\t their prices are fixed on the basis of\t the  prices
\nprevalent on the thermal equivalence of fuel oil basis as on
\nthe date the relevant contract is entered into. This has not
\nbeen shown to be wrong. The only discrimination urged at the
\nstage of the High Court was in regard to the disparities  in
\nprices\tbetween\t supply to public  sector  undertakings\t and
\nprivate\t industries.  Though  the award,  towards  the\tend,
\nsuggested  that there should be no such differentiation,  it
\nis  now well settled that a favourable treatment  of  public
\nsector organisations, particularly ones dealing in essential
\ncommodities or services, would not be discriminatory.  Also,
\nthis  differentiation,\tas  already pointed  out,  has\tbeen
\nupheld\tby  the High Court, we think  rightly.\tNo  tangible
\nmaterial has been brought to our notice which would  support
\nthe plea of unfair discrimination.\n<\/p>\n
(iv) A point has been made that the ONGC had entered into  a
\ncontract  for  a  ten year period with the  Amul  dairy\t for
\nsupply\tof  gas at Rs.741 per unit  which  demonstrates\t the
\nunreasonableness  of the prices charged to the\trespondents.
\nWe  do not agree. We have already pointed out that the\tONGC
\nis  supplying gas, to certain public sector undertakings  at
\nmuch  lower  rates and that this  differentiation  has\tbeen
\nupheld.\t Though the Amul Dairy is a cooperative\t society  it
\ndeals with a basic need of society and
\n204<\/span>
\nstands\ton no different footing from Electricity  Boards  or
\nFertiliser  Corporations  or  Municipal\t Corporations.\t The
\ninstance of the Amul Dairy cannot, therefore, be treated  as
\nan  index of the unreasonableness of the price charged\tfrom
\nthe respondents, particularly when the basis of fixation has
\nbeen explained and is an intelligible and rational one.\n<\/p>\n
      (v)  Reference  has been made to the price of  gas  in
\nAssam and U.S.A. So far as the former is concerned, the High
\nCourt has, rightly in our view, discarded the comparison. So
\nfar  as the latter is concerned, the point made by the\tONGC
\nwas that Dr. Rao had fixed the price of gas in India in 1967
\nat 15% below the then U.S. price and that on the same  basis
\nthe price of Rs.2000 per unit today could not be said to  be
\nunreasonable  as  prices in U.S.A. have also shot  up  about
\nthirty\tfold in the meantime. We find no effective reply  to
\nthis  argument. The High Court has just brushed it aside  by
\nreiterating  that  the well-head prices alone would  be\t the
\nreasonable basis for fixation of price.\n<\/p>\n
(vi) The High Court in its judgment has observed:
\n“if  the ONGC were acting fairly and reasonably,  there\t was
\nnothing to prevent them from placing all their cards on\t the
\ntable  of  the court. They did not put the  price  structure
\nthat possibly be worked out on the lines similar or akin  to
\nthose  suggested by Dr. V.K.R.V. Rao in his award.  Nor\t did
\nthey  put  forward any other reasonable criteria  for  price
\nfixation. All throughout they harped on the thermal  equiva-
\nlence  and furnace oil equivalance and the prices in  U.S.A.
\nand the prices of crude, but did not allow the Court to have
\nthe  bare  glimpse of what could possibly be  the  well-head
\nprice of gas, by making allowances for amortisation and\t all
\nother conceivable factors, having their sway in the ultimate
\nprice fixation. This also is indicative of the unreasonable-
\nness  on  their part and we would say that Mr.\tSinghvi\t was
\njustified  in complaining that the return filed by the\tONGC
\nin  this group of petitions was far from being\tsatisfactory
\nand,  therefore,  was  liable to be brandished\tas  no\treal
\nreturn at all”\n<\/p>\n
We  think this criticism is not justified. The stand of\t the
\nONGC was that it had fixed the prices on the thermal equiva-
\nlence  basis  and this has not been  controverted  or  found
\nagainst. It was the
\n205<\/span>
\nrespondents’  case that the cost plus price would  work\t out
\nmuch  cheaper and the onus was on them to prove it. We\tfail
\nto  see how the blame for not allowing the court to  have  a
\nglimpse of what could possibly be the well-head price of gas
\ncan be put at the doors of the ONGC. However, this aspect is
\nirrelevant  as\tthe  case throughout has  proceeded  on\t the
\nassumption  that the cost plus basis would yield lower\tfig-
\nures  and  the question debated was whether the\t ONGC  could
\ndiscard this and adopt the thermal equivalence basis.\n<\/p>\n
(vii)  Turning\tnow to para 36 of the judgment of  the\tHigh
\nCourt,\twe may observe that these directions do not  survive
\nin  view of the conclusion we have reached that\t the  prices
\ndemanded by ONGC are based on proper and relevant  criteria.
\nHowever, we may observe that directions (i) and (ii) in this
\nparagraph  virtually throw open the entire issue  for  fresh
\ndiscussion. It may have been helpful if such a direction had
\nbeen given before the hearing of the writ petitions but\t the
\nexercises would not be futile. Having reached the conclusion
\nthat the cost plus was the only proper basis of fixation  of
\nprice, the High Court should perhaps have directed the\tONGC
\nto  charge prices on that basis and given a reasonable\ttime
\nto  work  out the said price and  implement  the  direction.
\nInstead,  the High Court appears to have, by its  directions
\nin para 36, left the matter at large for it asks the ONGC to
\nget the price fixed “according to the reasonable and ration-
\nal norms”. We do not also see any justification for  provid-
\ning  that the price fixation should be done in\tconsultation
\nwith, or after giving an opportunity to the respondents.  It
\nis  for the ONGC to fix the prices and there can be  no\t re-
\nquirement of a prior consultation with the present  respond-
\nents  or with prospective customers. In such cases of  price
\nfixation,  as in the case of price fixations  by  Government
\n(see  Cynamide case, [1987] 2 SCC 720), the only  remedy  of
\naggrieved  consumers  can perhaps be to have  some  sort  of
\npost-decisional\t reconsideration by the ONGC  after  heating
\nthe  view points of those affected. But this  question\tdoes
\nnot arise now in the view we have taken to the ONGC’s  obli-
\ngations in this regard. We should also like to add that, now
\nthat  the  prices have been fixed by  the  Government  since
\n30.1.1987 and gas has already been supplied to the  respond-
\nents till then on the basis of interim prices, the implemen-
\ntation\tof the directions contained in this paragraph  would
\nbe  a prolonged and unmeaningful exercise and it would\thave
\nbeen much better to fix some ad hoc price, for this  period,
\nafter heating both parties. In fact, Sri B.\n<\/p>\n
206<\/span><\/p>\n
Sen  who appeared for the ONGC very fairly stated before  us
\nthat,  so  far as this period was concerned,  the  ONGC\t was
\nprepared  to  leave  it to this Court to fix  the  price  of
\nsupply at any figure that the Court might consider  reasona-
\nble. We also suggested to the respondents, keeping the price
\nfixed  by the order dated 30.3.1987 in mind, a figure  which
\nwe  thought  was  reasonable but the  respondents  were\t not
\nagreeable to the course suggested. They put forward  certain
\nalternative proposals which were not acceptable to the ONGC.
\nIn these circumstances, we have been constrained to hear the
\nappeals on merits.\n<\/p>\n
(viii) On behalf of the ONGC, it has been pointed out that a
\nsum  of Rs. 14.35 crores is outstanding for the period\tfrom
\nDecember 1982 to August 1989 from eighteen concerns, even on
\nthe  basis of the interim prices at which the ONGC has\tbeen
\nsupplying them gas under the orders of this Court, primarily
\ndue  to shortfalls in the guaranteed off-take and that\tfour
\nconcerns,  who\thave stopped taking supply of  gas,  are  in
\narrears\t to the tune of about Rs. 12 lakhs. We\tneed  hardly
\nsay that the ONGC will be at liberty to take immediate steps
\nto recover the charges due from the respondents in the light
\nof this judgment.\n<\/p>\n
(ix)  We wish to add that we are not called upon to, and  do
\nnot,  express any opinion regarding the\t notification  dated
\n30.1.87\t of  the Government issued subsequently\t fixing\t the
\nprice at Rs. 1,400 plus. We do not know the circumstances or
\nthe statutory authority or the basis on which the said price
\nfixation was made and that is totally outside the purview of
\nthese appeals.\n<\/p>\n
    This  concludes  a discussion of all  the  points  urged
\nbefore\tus. For the reasons detailed above, we\tallow  these
\nappeals and uphold the prices charged by the ONGC for supply
\nof  gas\t to the various respondents. We,  however,  make  no
\norder regarding costs.\n<\/p>\n
R.S.S.\t\t\t\t\t\t     Appeals\nallowed.\n?207\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Oil And Natural Gas Commission And … vs Association Of Natural Gas … on 4 May, 1990 Equivalent citations: 1990 AIR 1851, 1990 SCR (3) 157 Author: S Rangnathan Bench: Rangnathan, S. PETITIONER: OIL AND NATURAL GAS COMMISSION AND ANR. Vs. RESPONDENT: ASSOCIATION OF NATURAL GAS CONSUMING INDUST-RIES OF GUJARAT DATE […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-49662","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nOil And Natural Gas Commission And ... vs Association Of Natural Gas ... on 4 May, 1990 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/oil-and-natural-gas-commission-and-vs-association-of-natural-gas-on-4-may-1990\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Oil And Natural Gas Commission And ... vs Association Of Natural Gas ... on 4 May, 1990 - 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