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PETROLEUM AND NATURAL GAS REGULATORY BOARD

1st FLOOR, WORLD TRADE CENTRE, BABAR ROAD,

NEW DELHI-110001 FAX No: 23709151

Ph. No: 011-23457700, 011-23457744, 011-23457751 www.pngrb.gov.in

BEFORE THE PETROLEUM AND NATURAL GAS REGULATORY

BOARD, NEW DELHI IN THE MATTER OF M/s SHYAM INDUSTRIES

AND OTHERS VS GAIL (INDIA) LIMITED (GAIL)

(Reference: Complaint dated 15.06.2010)

Petroleum and Natural Gas Regulatory Board: Mr. L. Mansingh, Chairperson, Mr.

B.S. Negi, Member (Infrastructure), Dr. Y.P.C. Dangay, Member (Legal) and Mrs.

Sudha Mahalingam, Member (Distribution).

Present from Petitioners - M/s Shyam Industries & Others: Mr. Anand K Ganesan,

Advocate; Ms Swapna Seshadri, Advocate; Ms Ranjitha Ramachandran, Advocate.

Present from Respondent - M/s GAIL: Mr. Dinesh Agnani, Advocate; Ms Leena

Tuteja, Advocate; Ms Sumita Das, DM (Law), GAIL; Mr CVLN Sharma, CM

(Gas Marketing), GAIL; Mr R K Jaipuriyar, Manager (Pricing), GAIL.

Also present from Petroleum and Natural Gas Regulatory Board: Mr. Rajiv

Bakhshi, OSD (B); Mr. Rakesh Dewan, Legal Consultant (RD)

FACTS OF THE CASE:

On 15.06.2010, the Petroleum and Natural Gas Regulatory Board

(hereinafter referred to as the “Board”) received a complaint from M/s Shyam

Industries on the aspect of reduction and refund of excess gas transportation

charges levied by GAIL to their SSI unit since commencement of the first Gas

Supply Agreement dated 18.07.2000 between GAIL and Shyam Industries. In their

complaint, the petitioners contended that GAIL has been charging them very heavy

gas transportation charges since the year 2000. It was also brought out by them that

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they have written to GAIL many times on this issue but failed to get any redressal

of their grievance. The petitioners provided the following reasons for justifying

their request for reduction in gas transportation charges as well as refund of excess

transportation charges which have been already been paid by them:-

(a) The gas connection to both Shyam Industries and the adjacent Reliance

Industries Ltd. Naroda, Ahmedabad has been given from Ranasan T/O.

(b) The distance from Ranasan T/O to Shyam Industries is 1.27 km, whereas

to Reliance it is about 2.5 km.

(c) The gas transportation that has been charged to Shyam Industries is Rs.

3,60,000/- fixed per month for contracted quantity of 2000 SCMD, as per

copy of GAIL Invoice no. GJ00033176 dated 15.01.2009.

(d) The gas transportation being charged to Reliance Industries is Rs 309.00

per 1000 SCM having contracted quantity of about 2,30,000 SCMD, as

per copy of GAIL Invoice no. GJ00033190 & GJ00033186 dated

15.01.2009.

(e) It is the policy of Govt. of India and its enterprises, to protect and

promote SSI unit by allowing them concessional lower rates for reducing

their cost of production for ensuring their resistance to global

competition. Therefore, Shyam Industries being the SSI Unit should be

charged lower transportation charges by GAIL. On the contrary GAIL

has been charging much higher transportation charges to Shyam

Industries as compared to Reliance Industries Ltd. being the large scale

private limited company for transportation of gas over a longer distance

from the same source.

(f) They have already have paid gas transportation charges cumulatively to

GAIL from the year 2000-2001 to 2008-2009 of Rs. 2,60,87,514/-.

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(g) The total actual investment made by GAIL in laying connecting line to

Shyam Industries from Kalol-Ramol pipeline is Rs. 64.12 Lacs, as per

GAIL‟s letter no. GAILINDIRTIIV.P.l28/07 dated 12/03/2007.

Accordingly, Shyam Industries has paid excess gas transportation

charges about Rs. 2,52,06,927/- to GAIL for the period from year 2000-

2001 to 2008-2009.

2. In view of the above, the petitioner contended that there appears to be some

mistakes in calculation or its parameters for calculating the gas transportation

charges to them which needed to be re-checked properly and the Board was

accordingly requested to study the case and give relief on their request for

reduction of gas transportation charges and refund of excess transportation charges

since commencement of first Gas Supply Agreement dated 18.07.2000 between

GAIL and Shyam Industries.

3. During the hearing on 27.7.2010, the Counsel appearing on behalf of the

petitioners sought additional time to file revised complaint including copy of the

Gas Sales Agreement along-with other documents and the Respondent also

correspondingly sought additional time to file reply. In the additional affidavit filed

on 16.8.2010, the Petitioner contended that it had entered into a Gas Sales and

Transportation contract with GAIL for the purchase and transmission of natural gas

to their industrial unit at Naroda, Ahmedabad vide contract dated 18.07.2000. The

latest contract document was dated 30.3.2006 which superseded all previous

agreements entered into between the parties. The contract document was prepared

by GAIL and the complainant was required to sign the contract as drafted by

GAIL. In terms of the Contract between GAIL and Shyam Industries, the natural

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gas is to be delivered by GAIL from the Ranasan T/O on the Kalol-Ramol gas

pipeline operated and maintained by GAIL. The distance between the Ranasan T/O

and the industrial premises of the complainant where the gas is delivered is

connected through a dedicated gas pipeline of 1.278 Km. This gas pipeline of

1.278 Km does not serve any other consumer for delivery of gas by GAIL. There is

another gas pipeline from Ranasan T/O to Reliance Industries premises which is at

a distance of about 2.5 km and the gas pipeline of Reliance Industries is also a

dedicated line with no other unit being served on the said line.

4. In their additional affidavit, the petitioners also argued that the Natural Gas

supply and transportation was till recently the monopoly of Government Utilities.

The construction and operation of pipe lines for transmission of natural gas has all

along been a monopoly of GAIL by virtue of the policies of the Central

Government having strict regulation on the entry of private entities in the sector till

the adoption of the policy of liberalization. By virtue of its monopolistic position

in the past, GAIL owns, operates and exercises substantial control on the total gas

pipeline network in the country. GAIL being the only player in the market engaged

in laying down and operating gas pipelines has commanded a near monopoly

situation whereby it has been in a position to dictate onerous terms and conditions

for transmission of gas and laying down of gas pipelines and to compel the

consumers to agree to the same.

6. Some relevant provisions of the contract dated 30.3.2006 entered into

between GAIL and Shyam Industries were also highlighted by the petitioners

which inter-alia, provides as under:

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"10.2 In addition to Gas Price as mentioned under Article 10.1 above the

BUYER shall pay to the SELLER the following charges (as applicable)

(a) Deleted

(b) The fixed monthly transmission charges of Rs. 339833/- (Rupees Three

Lacs Thirty Nine Thousand Eight Hundred Thirty Three only) per month

plus additional transmission charges at the unit rate of Rs. 4119/- (Rs. Four

Thousand One Hundred Nineteen Only) per thousand standard cubic meters

for the Quantity over and above the quantity as mentioned under Article 5.1

(c) Deleted

(d) Deleted

(e) Other charges like Marketing Charges, Compression Charges (as

applicable)

The above monthly transmission charges/additional monthly

transmission charges as mentioned at 10.2.b shall be escalated by

3(Three) per cent on yearly basis with effect from 01.04.2007 (First

April Two Thousand and Seven)

The above monthly/unit rate transmission charges is exclusive of

replacement/ modifications of the existing pipeline and associated

facilities (including Compression facility) wholly/partly for supply of

Gas to the Buyer at the Delivery Point. Cost of such additional facility

shall be applicable from the date of notice/agreement of such

replacement/modification. "

Article 10.7 of the contract dated 30.3.2006 reads as under:

10.7 GAIL is developing alternative method for transmission charges

applicable. The same shall be discussed and applied.

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7. It was contended by the petitioner that the transportation charge was to cover

the servicing of the capital cost and operating cost of the transmission line. The

underlying basis behind the levy of transportation charges is that since GAIL

would incur expenditure on the laying down of the transmission pipeline for supply

of gas to Shyam Industries, GAIL should be entitled to recover the capital cost of

the transmission pipeline and also the operating cost for transmission of natural

gas. Logically deduced, upon recovery of the entire capital cost of the line, GAIL

should be entitled to the reasonable operating costs incurred in maintaining the

line. After the recovery of the entire capital cost incurred there was no justification

for continued recovery of capital cost from Shyam Industries.

8. As per the arguments of the petitioners the transportation charges claimed by

GAIL on a lump-sum basis is without any rationale and not consistent with the

servicing of the capital cost and operating cost and there is no justification

whatsoever in regard to charging of the transportation charges on lump sum basis

without regard to the established elements of determination of the cost in

infrastructure industries. Such arbitrary levy of transmission charges is being made

by GAIL only because there is no real competition and GAIL is in a position to

exploit its monopolistic situation. GAIL being a public utility, it is incumbent on

GAIL to act in a reasonable manner and not to exploit its monopoly position. It is

well settled that a Public Authority is required to act in a reasonable and fair

manner in the interest of consumers and in public interest and it is not expected of

a public authority engaged in the distribution and sale of an essential commodity

like natural gas to exploit its monopoly position or to charge any amount on an

arbitrary basis. In this regard, the petitioners pointed out to the decision of the

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Hon'ble Supreme in the case of Ashoka Smokeless Coal India (P) Ltd. v. Union of

India and Others, (2007) 2 SCC 640 while dealing with the price fixation process

by public sector companies has observed as under:

"109. It may be true that prices are required to be fixed having regard to the

market forces. Demand and supply is a relevant factor as regards fixation of

the price. In a market governed by free economy where competition is the

buzzword, producers may fix their own price. It is, however, difficult to give

effect to the constitution obligations of a State and the principles leading to

a free economy at the same time. A level playing field is the key factor for

invoking the new economy. Such a level playing field can be achieved when

there are a number of suppliers and when there are competitors in the

market enabling the consumer to exercise choices for the purpose of

procurement of goods. If the policy of the open market is to be achieved the

benefit of the consumer must be kept uppermost in mind by the State.

110. Can the consumer be expected to derive any such benefit from a

monopoly concern? Would a situation of this nature lead to a hybrid

situation where a coal company is allowed to fix its own price which may

not be a fair price? These are some of the question which were required to

be kept in mind by the coal companies before formulating a policy of fixing

price of an essential commodity.

111. The State when it exercises its power of price fixation in relation to an

essential commodity, has a different role to play. Object of such price

fixation is to see that the ultimate consumers obtain the essential commodity

at a fair price and for achieving the said purpose the profit margin of the

manufacturer/producer may be kept at a bare minimum. The question as to

how such fair price is to be determined stricto sensu does not arise in this

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case, as would appear from the discussions made hereinafter, as here the

Central Government has not fixed any price. It left the matter to the coal

companies. The coal companies in taking recourse to e-auction also did not

fix a price. They only took recourse to a methodology by which the price of

coal became variable. Its only object was to see that maximum possible

price of coal is obtained. The appellants do not question the right of the coal

companies to fix the price of coal. Such prices had been fixed on earlier

occasions also where for legally or otherwise the Central Government used

to give its nod for approval. The process of price fixation by the Central

Government in exercise of its powers under the 1945 Order continued from

1996 to 2004.

112. Does e-auction ultimately lead to fixation of a price? The answer to the

said question that must be rendered is a big emphatic "No", as by reason

thereof even the coal companies would not know what would be the price of

different varieties of coal. The issue must be determined from the perspective

as to whether the coal companies can be allowed to say that despite their

monopolistic character and they being "State" can fix a price which would

otherwise be unfair or unreasonable.

113. The State or a public sector undertaking plays an important role in the

society. It is expected of them that they would act fairly and reasonably in all

fields; even as a landlord of a tenanted premises or in any other capacity

……………"

9. It was emphasized by the petitioners that the above principle laid down by

the Hon'ble Supreme Court applies directly to this case, where GAIL acting in its

monopoly capacity has been dictating the transmission charges for use of gas

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pipe lines by the consumers. It was expected of GAIL as a monopoly public sector

undertaking to act in a reasonable manner and to levy charges having correlation to

the actual charges and expenses incurred by GAIL in laying down and operating

the pipelines. It was submitted by the petitioners that the action on the part of

GAIL in charging transportation tariff on an arbitrary basis and exploiting the

consumers is wholly unjustified as there can be no justification for a public

enterprise engaged in public utility services to recover such amounts from

consumers and the action of GAIL is an unfair practice and against the consumer

interest.

10. As already mentioned earlier, the petitioners contended that GAIL has

recovered amounts far in excess of the capital cost of the line laid down from

Ranasan T/O to the place of delivery being the premises of Shyam Industries and

an exorbitant amount for operating the said pipeline of 1.278 km. One other

instance of arbitrary action on the part of GAIL as pointed out by the petitioners is

in regard to the discriminatory manner in which GAIL has been recovering the

transportation charges. The gas transportation being charged to Shyam Industries

for 1.278 km gas pipe line is Rs. 3,60,000/- per month for a contracted capacity of

2000 SCMD and for Reliance Industries is only Rs. 309/- per 1000 SCMD having

contracted capacity of about 2,30,000 SCMD and for a distance of 2.5 km. There is

no correlation or rationale in such differential rate charged to different consumers.

The petitioners stated that they have been protesting against the unjustified levy of

the transportation charges by GAIL as the details of the various correspondences

between Shyam Industries and GAIL filed with the Board. However, there has not

been any action taken by GAIL to correct the position or revise the transportation

charges.

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11. The petitioners stated that the Board has been constituted under the

provisions of the PNGRB Act, 2006 (hereinafter referred to as the “Act”) to

regulate various aspects of the petroleum and natural gas sector. It was submitted

that under the provisions of the Act, the Board is vested with the jurisdiction and

mandate to protect the interests of consumers and promote competition and fair

trade amongst the entities in the sector. They also pointed out that the Board is

vested with the jurisdiction to adjudicate upon complaints and disputes raised

against entities relating to various aspects in the sector including transportation of

natural gas. As per the petitioners, in terms of the provisions of Section 11 (a) of

the Petroleum and Natural Gas Regulatory Board Act, 2006 the Board has the

function to protect the interest of consumers by fostering fair trade and competition

amongst the entities. The above functions and consequently the powers of the

Board under Section 11 (a) has been held to be independent of other powers and

functions of the Board and can be exercised even in respect of the products which

are not notified. Therefore, as per the petitioners, the Board has got the powers to

receive complaints and redress the grievance of Shyam Industries in regard to

unfair trade indulged in by GAIL while collecting transportation charges from

petitioner.

12. The petitioners further argued that it is well settled that the power to regulate

is very wide including all ancillary and incidental powers thereto and the power to

regulate is not confined to a mere adjudicatory jurisdiction. As per the petitioners,

the provisions of the Act and in particular Section 11 and 12 of the Act give a very

wide array of powers to the Board to regulate and decide on complaints received

under the mandate of protecting the interest of consumers and to promote fair trade

and competition amongst entities. In this regard, the petitioners pointed to an

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earlier Order of the Board dated 12.12.2008 passed in respect of Complaint No. 4

of 2008 in the matter of Reliance Industries Limited and Others v. Indian Oil

Corporation Ltd and others, which has held as under:

"18. From a plain reading of the above, it may be seen that while section

11(f) of the Act contains specific provisions, whereas section 11(a) of the Act

is more generic in nature, and it is nowhere intended that these provisions

would run concurrently. The obvious distinction between the two is that

provisions of section 11(a) are more holistic and overarching in nature

conferring wide powers on the Board in respect of matters pertaining to

regulatory responsibilities. Both the provisions are clearly independent and

section 11(a) of the Act cannot be deemed to be subservient to section 11(f)

of the Act. The language of section 11(a) of the Act itself makes it clear that

the power and functions of this Board is not confined to notified petroleum

products as given in section 11(f) of the Act. Moreover, in consonance with

the overall objective of the Act as stated in the Preamble, section 11(a) of

the Act makes it obligatory for the Board to look into all the issues which

may be detrimental to fair trade and competition amongst entities in the

sector affecting the overall interests of the consumers.

Therefore, we are unable to find sustainability in the challenge to the

jurisdiction of this Board to adjudicate upon the present compliant for the

lack of notification of the petroleum products. It may not be out of order to

draw reference to observations of the High Court of Gujarat, concerning the

financial markets regulator SEBI, in the matter of Karnawati Fincap Ltd.

and Alka Spinners Ltd vs SEBI (1996) 3 GCD425 (Guj)

It cannot be said that sub-section 2 of section 11 of the SEBI Act,1992

provides an exhaustive list of measures which the Board can take and

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it cannot take other measures which are in consonance with the main

purpose of the statute and consistent with the duty cast on it. It cannot

be said that for protecting the interest of investors, the Board has no

powers to take appropriate measures to prevent and deal with

fraudulent and manipulative transactions. The Board has such

powers, nay duty, to take measures to prohibit, unearth and deal with

fraudulent and manipulative transactions to effectively protect the

interest of investors. This is also necessary in order to promote

healthy, fraud free and manipulative free development of securities

market in the country that effective measures are taken to check and

prevent transactions which tend to artificially affect and manipulate

market conditions to the advantage of a few and to the detriment of

general genuine investors.

13. As per the petitioners, the above findings of the Hon'ble High Court of

Gujarat rightly emphasize that a Regulatory body has wide amplitude of powers

and obligations to take appropriate measures in the overall interests of the

consumers and it is not expected to confine itself to only specific measures

enumerated in certain provisions. Further, the powers of the Board to adjudicate

upon any complaint/dispute have been elaborated in the provisions of Section 12 of

the Act, which are given below:

Section 12: Powers regarding complaints and resolution of disputes by the

Board-

(1) The Board shall have jurisdiction to-

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(b) receive any complaint from any person and conduct any enquiry and

investigation connected with the activities relating to petroleum, petroleum

products and natural gas on contravention of .

(iii) any other provision of this Act or the rules or the regulations or orders

made thereunder.

(2) While deciding a complaint under Section (1), the Board may pass such

orders and issue such directions as it deems fit or refer the matter for

investigation according to the provisions of Chapter V.

14. With regard to the above, the petitioners again pointed to the Order of the

Board dated 12.12.2008 passed in respect of Complaint No. 4 of 2008 in the matter

of Reliance Industries Limited and Others v. Indian Oil Corporation Ltd and

others, which has held as under:

The Counsel for the Complainants has brought out that there were many

Supreme Court pronouncements that give widest amplitude when phrases

like "relating to" are used. The above cited provisions of Section 12 make it

clear that the jurisdiction and power of this Board is not restricted to the

notified petroleum products only and the Board can look into various issues

connected with and related to activities in the sector. In this context, it would

be relevant to point out the observations by High Court of Gujarat in the

same matter relating to SEBI, giving wide amplitude to generic terms in the

SEBI Act:

The words other persons associated with the securities market have

not been defined in the Act. The question then arises whether the

persons associated with the securities markets takes its colour from

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persons enumerated in clause (ba)? If one has to go by the literal

meaning, the interpretation which restricts the meaning of persons

associated with the securities would include all and sundry who have

something to do with the securities market. It is to be noted that the

securities market in the sense is not confined to the stock exchanges

only. The words persons associated with the securities market are of

much wider import than intermediaries. Persons associated with

denotes a person having connection or having a intercourse with the

other. In the present case that other with whom the person is to have

connection or intercourse is the securities market.

We therefore hold that the Board can adjudicate on issues "relating

to" various activities in the sector.

15. As pointed out by the petitioners, in the appeal filed by Indian Oil

Corporation against the above order dated 12.12.2008 passed by the Board, being

Appeal No. 50 of 2009 before the Hon'ble Appellate Tribunal for Electricity, by

judgment dated 5.10.2009, the Hon'ble Tribunal was pleased to dismiss the appeal

and inter-alia hold as under:

26. Under this provision, the Central Government may exercise the power

only under the specific circumstances mentioned therein. If the said power

under Section 2(zc) is to be exercised by the Central Government only when

there is a situation that there should be equitable distribution or adequate

availability or there is need for increasing supplies of petroleum and

petroleum products. It is true that Section 11(f) deals not just with petroleum

products but also deals with "notified petroleum and petroleum products"

which are notified by the Central Government Linder Section 2(zc).

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The reading of the said Section would clearly indicate that Section 11(f) will

only apply when any product is notified by the Central Government with a

limited purpose of improving availability and avoiding shortage of that

product. On the other hand, Section 11(a) which is perennial in application

confers wide jurisdiction to the Board for fostering fair trade and fair

competition amongst the entities.

27. Therefore, the submission made on behalf of the Appellants that the

Board will not get the jurisdiction to entertain any complaint until the

petroleum products are notified in view of Section 11(f) cannot be accepted

especially when the words "notified petroleum and petroleum products" as

referred to in Section 11(f) have not been referred to in other relevant

Sections.

The above Section 12 makes it clear that the jurisdiction of the Board is not

restricted to the notified petroleum or petroleum products alone but the

Board can look into various issues connected with and related to activities

in this sector. Section 12(b) clearly provides that the complaint can be

received by the Board to conduct enquiry and investigation connected with

activities relating to the petroleum and petroleum products and on

contravention of the Rules and Regulations. In other words, Section 12 does

not put any bar on the Board from entertaining the complaint in respect of

the petroleum products which are not notified.

This Section as referred to above provides that a complaint may be filed

before the Board by any person in respect of matters relating to entities or

between entities on any matter arising out of the provisions of this Act. The

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words "matters relating to" have a very wide connotation and amplitude as

it includes unfair trade and unfair competition within its scope and meaning

as referred to in Section 11(a). In other words, the words "matters relating

to" as referred to in Section 25 of the Act should be construed to give its

widest amplitude. As pointed out by the Learned Counsel for the

Respondent, unless there is a specific direction under Section 42 given by

the Government to the Board, the Board has all the powers to entertain all

types of complaints or disputes or petitions including the instant complaints.

36. It cannot be disputed that the Board has got powers to take appropriate

measures to prevent and deal with the fraudulent and manipulative

transactions. The Regulatory Body has got the powers to take appropriate

measures in the overall interest of the consumers. In other words, the

jurisdiction of the Board is not restricted to the notified petroleum products

alone and on the other hand the Board can look into various issues

connected with/ related to the activities in this sector.

16. The petitioners also cited various judgments which amplify the nature of the

power to regulate being wide and comprehensive enough in support their

arguments in favour of the Board having regulatory jurisdiction in the instant

matter. The contents of these judgments are re-produced below:-

I. V.S. Rice and Oil Mills v. State of AP (1964) 7 SCR 456 at Page 469

"20. Then it was faintly argued by Mr Setalvad that the power to regulate

conferred on the respondent by Section 3(1) cannot include the power to

increase the tariff rate; it would include the power to reduce the rates. This

argument is entirely misconceived. The word "regulate" is wide enough to

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confer power on the respondent to regulate either by increasing the rate, or

decreasing the rate, the test being what is it that is necessary or expedient to

be done to maintain, increase, or secure supply of the essential articles in

question and to arrange for its equitable distribution and its availability at

fair prices. The concept of fair prices to which Section 3(t) expressly refers

does not mean that the price once fixed must either remain stationary,. or

must be reduced in order to attract the power to regulate. The power to

regulate can be exercised for ensuring the payment of a fair price, and the

fixation of a fair price would inevitably depend upon a consideration of all

relevant and economic factors which contribute to the determination of such

a fair price. If the fair price indicated on a dispassionate consideration of all

relevant factors turns out to be higher than the price fixed and prevailing,

then the power to regulate the price must necessarily include the power to

increase so as to make it fair. That is why we do not think Mr Setalvad is

right in contending that even though the respondent may have the power to

regulate the price to which electrical energy should be supplied by it to the

appellants, it had no power to enhance the said price. We must, therefore,

hold that the challenge to the validity of the impugned notified orders on the

ground that they are outside the purview of Section 3(1)cannot be

sustained."

II. Deepak Theatre v. State of Punjab, 1992 Supp (1) see 684 at Page 687:

"3. It is settled law that the rules validly made under the Act, for all intents

and purposes, be deemed to be part of the statute. The conditions of the

licence issued under the rules form an integral part of the statute. The

question emerges whether the word regulation would encompass the power

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to fix rates of admission and classification of the seats. The power to

regulate may include the power to license or to refuse the licence or to

require taking out a licence and may also include the power to tax or exempt

from taxation, but not the power to impose a tax for the revenue in rule

making power unless there is a valid legislation in that behalf. Therefore,

the power to regulate a particular business or calling implies the power to

prescribe and enforce all such proper and reasonable rules and regulations

as may be deemed necessary to conduct the business in, a proper and

orderly manner. It also includes the authority to prescribe the reasonable

rules, regulations or conditions subject to which the business may be

permitted or conducted. A conjoint reading of Section 5, Section 9, Rule 4

and condition 4-A gives, therefore, the power to the licensing authority to

classify seats and prescribe rates of admission into the cinema theatre."

III. State of U.P. v. Maharaja Dharmander Prasad Singh, (1989) 2 SCC

505, at page 523 :

52. It appears to us that view of the High Court that in the absence of a

directive or authorisation from the Government under Section 41(1), the

Vice-Chairman, acting as the statutory authority dispensing permissions for

development under the Act, cannot revoke or cancel a permission once

granted is clearly erroneous. In this case the grant of permission is part of

or incidental to the statutory power to regulate orderly development of the

"Development Area" under the Act under regulatory laws. The power to

regulate with the obligations and functions that go with and are incidental to

it, are not spent or exhausted with the grant of permission. The power of

regulation which stretches beyond the mere grant of permission, takes

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within its sweep the power, in appropriate cases, to revoke or cancel the

permission as incidental or supplemental to the power to grant. Otherwise

the plenitude of the power to regulate would be whittled down or even

frustrated.

53. It is erroneous to equate the powers under Sections 14 and 15 of the Act

with judicial power which, in the absence of express provisions, could not

enable the review of a judicial order after its exercise on the principle of

functus officio. In Sardul Singh v. District Food and Supplies Controller,

Patiala, a statutory order, promulgated under Section 3 of the Essential

Commodities Act, 1955, contained a provision enabling the cancellation of a

“permit” under certain circumstances. The contention was that Section 3 of

the parent “Act” itself did not delegate to the subordinate legislative

authority to make such a provision for cancellation and, therefore, the

provision for cancellation in the subordinate legislature was ultra vires.

There was no provision in the Act expressly conferring the power to make a

provision for cancellation of the permit. Section 3(2)(d) of the parent Act

merely enabled the government to make orders “for regulating by licences,

permits or otherwise, the storage, transport, distribution, disposal,

acquisition, use or consumption of any essential commodity” and Section

3(2)(j) merely enabled government to make orders for incidental and

supplementary matters (emphasis supplied). The question arose whether

provisions for cancellation of the permits envisaged in para 10 of the

particular statutory order could be said to be relatable to or justified as a

matter incidental or supplementary to regulation. This Court held that the

power to cancel was an “incidental and supplementary” matter. It was held:

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“If a trade in an essential commodity like coal is to be regulated by licences

or permits, it is obvious that the power to grant licences or permits must

include the power to cancel or suspend such licences or permits as an

„incidental or supplementary matter‟; otherwise, the very purpose of Section

3 of the Act would be frustrated.”

54. Indeed, the submissions of Shri Thakur on the point contemplate the

exercise of the power to cancel or revoke the permission in three distinct

situations. The first is where the grant is itself vitiated by fraud or

misrepresentation on the part of the grantee at the time of obtaining the

grant. To the second situation belong the class of cases where the grantee,

after the grant violates the essential terms and conditions subject to which

the grant is made. In these two areas, the power to grant must be held to

include the power to revoke or cancel the permit, even in the absence of any

other express statutory provisions in that behalf. There must, of course be

the compliance with the requirements of natural justice and the grounds

must be such as would justify such drastic action. This cancellation is a

preventive step. The one aspect of the remedial measures is set out in

Section 27 of the Act. There may be cases of third kind where the grant may

be voidable at the instance of the Development Authority or otherwise

entitling the Development Authority to initiate appropriate declaratory or

other action to get rid of the effect of the permission.

55. It is true that in exercise of powers of revoking or cancelling the

permission is akin to and partakes of a quasi-judicial complexion and that in

exercising of the former power the authority must bring to bear an unbiased

mind, consider impartially the objections raised by the aggrieved party and

decide the matter consistent with the principles of natural justice. The

21

authority cannot permit its decision to be influenced by the dictation of

others as this would amount to abdication and surrender of its discretion. It

would then not be the authority's discretion that is exercised, but someone

else's. If an authority “hands over its discretion to another body it acts ultra

vires”. Such an interference by a person or body extraneous to the power

would plainly be contrary to the nature of the power conferred upon the

authority. De Smith sums up the position thus:

“The relevant principles formulated by the courts may be broadly

summarized as follows. The authority in which a discretion is vested can be

compelled to exercise that discretion, but not to exercise it in any particular

manner. In general, a discretion must be exercised only by the authority to

which it is committed. That authority must genuinely address itself to the

matter before it: it must not act under the dictation of another body or

disable itself from exercising a discretion in each individual case. In the

purported exercise of its discretion it must not do what it has been forbidden

to do, nor must it do what it has not been authorised to do. It must act in

good faith, must have regard to all relevant considerations and must not be

swayed by irrelevant considerations, must not seek to promote purposes

alien to the letter or to the spirit of the legislation that gives it power to act,

and must not act arbitrarily or capriciously. Nor where a judgment must be

made that certain facts exist can a discretion be validly exercised on the

basis of an erroneous assumption about those facts. These several principles

can conveniently be grouped in two main categories: failure to exercise a

discretion, and excess or abuse of discretionary power. The two classes are

not, however, mutually exclusive."

22

IV. Hotel & Restaurant Assn. v. Star India (P) Ltd.,(2006) 13 see 753, at

page 772 :

55. TRAI exercises a broad jurisdiction. Its jurisdiction is not only to fix

tariff but also laying down terms and conditions for providing services.

Prima facie, it can fix norms and the mode and manner in which a consumer

would get the services.

56. The role of a regulator may be varied. A regulation may provide for cost,

supply of service on non-discriminatory basis, the mode and manner of

supply making provisions for fair competition providing for a level playing

field, protection of consumers' interest, prevention of monopoly. The

services to be provided for through the cable operators are also recognised.

While making the regulations, several factors are, thus required to be taken

into account. The interest of one of the players in the field would not be

taken into consideration throwing the interest of others to the wind.

V. K Ramanathan v. State of Tamil Nadu (1985) 2 see 116 page 130 para

18

“The word „regulation‟ cannot have any rigid or inflexible meaning as to

exclude prohibition. The word regulate is difficult to define as having any

precise meaning. It is a word of broad import, having a broad meaning, and

is very comprehensive in scope. There is a diversity of opinion as to its

application to a particular state of facts, some courts giving to the term a

some what restricted and others giving to it a liberal construction. The

different shades of meaning are brought out in Corpus Juris Secundum Vol

76 at p 611:

23

"Regulate" is variously define as meaning to adjust, order or govern by rule

method, or established mode, to adjust or control by rule, method, or

established mode or governing principles or laws, to govern by rule, to

govern by, or subject to certain rules or restrictions, to govern or direct

according to rule, to control govern or direct by rule or regulations.

"Regulate" is also defined as meaning, direct, to direct by rule or restriction,

to direct or manage according to certain standard laws, or rules, to rule, to

conduct, to fixed establish, to restrain to restrict see also Webster‟s Third

New International Dictionary, Vol /I p 1913 and Shorter Oxford Dictionary

Vol /I 3rd Edn p 1784.

19. It has been said that the power to regulate does not necessarily include

the power to prohibit and ordinarily the word regulate is not synonymous

with the word prohibit. This is true in a general sense and in the sense that

mere regulation is not the same as absolute precipitation. At the same time,

the power to regulate carries with it full power over the things, subject to

regulation and in absence of restrictive words, the power must be regarded

as plenary over the entire subject. It implies the power to rule, direct and

control and involves the adoption of a rule or guiding principle to be

followed, or a rule or guiding principle to be followed, or the making of a

rule with respect to the subject to be regulated. The power to regulate

implies the power to check and may imply the power to prohibit under

certain circumstances, as where the best or only efficacious regulation

consists of suppression. It would therefore appear that the word regulation

cannot have any inflexible meaning as to exclude prohibition. It has different

shades of meaning and must take its colour from the contest in which it is

used having regard to the purpose and object of the legislation and the court

24

must necessarily keep in view the mischief which the legislature seeks to

remedy".

17. While concluding their additional affidavit, the petitioners stated that in

terms what has been stated, the present complaint is within the jurisdiction of the

Board under section 11 (a) read with section 12 of the Act as the Board is vested

with wide jurisdiction to protect the interest of consumers and promote fair trade

and competition amongst entities in the sector. Moreover, as per the petitioners, the

arbitrary levy of transportation charges by GAIL exploiting its monopoly position

in the market against the interest of the consumers falls within the jurisdiction of

the Board and therefore in view of the facts and circumstances mentioned above, it

is necessary to declare the levy and recovery of transportation charges by GAIL

from Shyam Industries as amounting to unfair practice, arbitrary and unjustified

with a further direction to GAIL to charge the charges for transportation of gas on

the basis of actual expenditure and further to refund excess transportation charges

recovered from industries in the past with interest.

18. In response to the above, a short reply was filed on behalf of the Respondent

i.e., GAIL on 10.11.2010 stating that the application is liable to be dismissed on

threshold as the basis of the Petition is totally untenable in law and on facts. It was

submitted by GAIL that the Petitioner has suppressed one of the important facts

that the Gas Sales and Transmission Agreement (hereinafter referred to as

“GSTA”) dated 30th March, 2006 between the Petitioner and the Respondent was

amended vide Contract Amendment dated 25.04.2009 and the amendment contains

an arbitration clause for resolution of any dispute arising in connection with the

GSTA which is not resolved by the Parties through amicable settlement shall be

25

settled through a Sole Arbitrator. It was submitted that in view of the above

arbitration clause as agreed between the Petitioner and the Respondent herein and

as per Section 12 (1) (a) of the Act, the Board shall have the jurisdiction to

adjudicate and decide any dispute unless the parties have agreed for arbitration. In

view of the above provision in the Act and the agreed position between the

Petitioner and the Respondent, it was submitted by GAIL that the Board has no

jurisdiction to hear this petition. GAIL also informed that they have already filed

the applicable transmission tariff in respect of the petitioner and the same is

pending with the Board for consideration.

19. In their rejoinder dated 3.01.2011 to the short reply filed by the Respondent

i.e., GAIL, the petitioners pointed out that the reply filed by GAIL is limited to

raising the issue of maintainability of the petition filed by the Petitioner on grounds

of existence of an arbitration clause in the Agreement between the parties and,

therefore, the Board having no jurisdiction to entertain the petition in terms of

Section 12 (1) (a) of the Act. The petitioners stated that, GAIL has chosen not to

deal with the merits of the case. As per the petitioners, in the facts and

circumstances of the case there is no dispute on the terms of the Agreement dated

30.3.2006 read with the Agreement dated 25.4.2009 which can be a subject matter

of arbitration under the Agreement. The arbitration clause contained in the

Agreement dated 25.4.2009 provides for arbitration of dispute or difference

relating to the interpretation and application of the provisions of the Agreement

between the parties. This would cover cases where the parties are in dispute on the

scope and application of the terms of the Agreement and not when the challenge is

to the arbitrary and illegal action on the part of GAIL in stipulating the Contract

Transportation charges contrary to the scheme and purpose of the Act.

26

Furthermore, as per the petitioners, the functions of the Board in terms of Section

11 (a) of the Act cannot be subject to arbitration clause contained in the Agreement

dated 25.4.2009 as the arbitrator cannot exercise jurisdiction to declare levy of

charges specified in the agreement itself being illegal or otherwise invalid. The

petitioners further pointed out that it is well settled that an arbitrator is bound by

the terms of the contract and cannot go beyond the provisions of the contracted

terms. Accordingly, the expression 'unless the parties have agreed for arbitration'

used in Section 12 (1) (a), on which reliance is placed by GAIL, necessarily

applies only if the nature of the dispute can be adjudicated and decided in the

arbitration and not otherwise.

20. In the meanwhile on 09.12.2010, the Board also received a petition filed on

behalf of five consumers of natural gas namely (i) Haldyn Glass Limited; (ii)

Bharat Glass Tube Limited; (iii) Schott Glass India Private Limited; (iv) Shyam

Industries; and (v) Punjab Steel Rolling Mills (Baroda) Pvt. Limited. The stated

petitioners are consumers of natural gas supplied by GAIL and engaged in

manufacturing activities having their respective industrial units in the State of

Gujarat. On a perusal of the petition, it emerged that the issues raised in the

petition were identical to the issue raised by M/s Shyam Industries in their

independent petition and it was also seen that M/s Shyam Industries is one of the

five consumers in the said petition. Aside from identical issues raised in the

common petition which were also covered in the individual petition of Shyam

Industries, it also emerged while in some of the five cases there was no provision

for an arbitration clause previously, while under the new agreements executed

during the month of December 2010 and which were made effective from

1.1.2011, the arbitration clause has been specifically incorporated which the

27

concerned consumers appear to have signed under protest. Under the said petition,

the five consumers prayed for the following reliefs:-

(a) Initiate proceedings against GAIL regarding the levy and recovery of

transportation charges by GAIL from the petitioners;

(b) Hold that transportation charges levied by GAIL are arbitrary and unjustified

and direct GAIL to charge transportation charges for supply of gas on the

basis of the expenditure actually incurred by GAIL;

(c) Direct GAIL to refund the excess transportation charges recovered from the

consumers together with interest @ 15% per annum;

(d) Pass such other orders as the Board deems fit in the facts and the

circumstances of the case.

21. Since the issues raised in the common petition by the five consumers were

identical to the issues raised in the individual petition of Shyam Industries, with the

consent of the petitioners and the respondents, it was decided to merge the two

petitions and have a common hearing in the matter. All these petitions are being

disposed of by this common order accordingly.

22. In the reply on behalf of the Respondents to the additional affidavit of the

petitioners, GAIL contended that Shyam Industries cannot be permitted to seek the

same relief by filing two petitions one in individual capacity and another along

with other factory owners. GAIL also contended that the Petitioner did not disclose

the Supplementary Agreement dated 25.04.2009 entered into between the parties

modifying the Agreement dated 30.03.2006, which contained the arbitration

clause. GAIL contended that the present petition is also liable to be rejected as

petitioners are challenging the agreements entered between parties for the period

28

before the said Act was brought into force. Further, as per the provisions of Section

25 of the Petroleum and Natural Gas Regulatory Board Act, 2006, a petition has to

be filed within 60 days from the date on which any act or conduct constituting

contravention took place. The Board has power to entertain a complaint / petition

after the expiry of the said period if it is satisfied that there is sufficient cause for

not filing the complaint/petition within that period. However, no application has

been filed for condonation of delay. GAIL further contended that the Petitioner has

falsely stated that the gas is being delivered to the Petitioner through a dedicated

gas pipeline. GAIL also stated that the petitioner failed to show as to for what

period they want the Board to initiate the proceedings regarding alleged levy and

recovery of transportation charges by the Respondent and furthermore, the law

does not permit payment of interest in case there is any refund for excess charges

alleged to have been collected. It was further submitted by GAIL that the

agreement dated 30.03.2006 and the supplementary agreement dated 25.04.2009

stand expired by efflux of time. Further, some other relevant issues raised by GAIL

in their rejoinder are enumerated below:-

(a) Article 12.5 of the agreement signed between the parties clearly brings out

that" in case of any discrepancy/disputes regarding the invoices the Buyer

shall not return the bills or withhold or disallow part or full payment. After

making the full payment the Buyer shall lodge a quantified claim with the

seller within a period of 14 days from the date of receipt of the related

invoice. ...... Failure of the Buyer to put forward any claim within the time

above specified shall be an absolute waiver of any claim".

(b) Natural gas is first transported from Kalol-Ramol gas pipeline and thereafter

29

from Ranasan T-point to the industrial premises of Shyam Industries. The

distance between various premises has no relevance and the gas supply is

not through dedicated line, as alleged or otherwise.

(c) It is specifically denied that laying down of gas pipeline for transmission of

natural gas is a monopoly of the Respondent, as alleged and there are other

players in the market engaged in the laying down and operation of gas

pipelines.

(d) It is submitted that the transportation charges being charged are correct and

in accordance with law. A contract has been entered into between the parties

which are binding on all the parties and the dispute has to be for the entire

contract and cannot be for one single provision of the agreement.

(e) The reference made by the petitioners to the judgment of the Hon'ble

Supreme Court in the case of Ashoka Smokless Coal India (P) Ltd v. Union

of India and others (2007) 2 SCC 640 is a matter of record and the said

Judgment has no applicability whatsoever in the present case as natural gas

is an alternate fuel which is being used by the Petitioner for manufacturing

its products and for the same an Agreement was entered into between the

parties.

(f) It is submitted that there is no dedicated line in the case of the petitioner.

(g) It is specifically denied that the action of the Respondent is discriminatory,

as alleged or otherwise.

(h) The Respondent craves a reference to the Judgment in the order of the Board

dated 12.12.2008 for its true purport, meaning and effect thereof.

23. In response, the petitioners again filed on 1.4.2011, a detailed rejoinder to

the reply filed by the Respondent dated 1.3.2011 which was received by the

30

Petitioners on 10.3.2011. At the outset, the petitioners pointed out that in the

hearing on 6.1.2011, the Board had specifically directed GAIL to deal with the

merits of the complaint filed by the Petitioner and also to deal with the implication

of the Petroleum and Natural Gas Regulatory Board (Protection of Consumer

Interest in Respect of Dedicated Pipelines for Natural Gas) Guidelines, 2010 in

order to amicably settle the matter with the Petitioner in terms of the same for

which no efforts have been made despite considerable passage of time. As per the

petitioners, the reply filed by GAIL mainly relates to the issue of maintainability of

the Petition filed by Petitioner on grounds of existence of an arbitration clause in

the Agreement between the Parties and GAIL.

24. Aside from pointing out that the petitioners are invoking the jurisdiction of

this Board under Section 11(a) of the Act and on grounds of various acts of

arbitrariness, illegality etc including exploitation of the position of GAIL and in

order to protect the interests of consumers such as Petitioner, the Petitioners

pointed to the following issues raised by GAIL in their petition dated 1.3.2011:-

(a) The Petitioner has not disclosed the signing of the new Agreement dated

30.12.2010 by the Parties which contains an arbitration clause and thereby

ousts the jurisdiction of this Board;

(b) The Agreement dated 30.3.2006 between the Parties as amended by

Supplemental Agreement dated 25.04.2009 contained an arbitration clause

and therefore, this Board has no jurisdiction to entertain the Petition;

(c) The Agreement dated 30.3.2006 is binding on both parties and cannot be

questioned by the Petitioner;

(d) The Agreement was entered into in 2006 and the period of limitation of 60

days as specified in Section 25 for the Petition to be filed has expired;

31

(e) The Petitioners have not specified the period for which the recovery of

charges is sought;

(f) The transmission of Gas to the Petitioner by GAIL is not through a dedicated

transmission line and there are no regulations concerning non-dedicated

transmission line;

(g) The reliance placed by the Petitioner on the difference in the distances

between the Ranasan T/O and the Petitioner's premises vis-a-vis the

Reliance Industries Ltd premises is not a correct comparison and

consequently there is no discrimination on part of GAIL as alleged;

(h) Gas is an alternative fuel which is being used by the Petitioner for

manufacturing its product;

25. The petitioners submitted that they had raised specific objection to the

inclusion of an arbitration clause in the Agreement but were forced to sign the

Agreement dated 30.12.2010 inclusive of the arbitration clause in absence of any

other option for transmission of gas. From a perusal of the correspondence between

the parties leading up to the signing of the Agreement dated 30.12.2010, they

stated that it would be clear that the Petitioner signed the Agreement under protest.

In any event, as per the petitioners, the existence of the arbitration clause will not

oust the jurisdiction of the Board in the present case as the arbitration clause in the

Supplementary Agreement dated 25.4.2009 and the Agreement dated 30.12.2010

will only cover cases where parties are in dispute over the scope and application of

the terms of the agreement and not when the challenge is to the manner in which

GAIL is stipulating transportation charges in the Agreements which are contrary to

the scheme and purpose of the Act and the position of GAIL as a public authority.

32

26. The petitioner further contended that it is well settled principle that the

exclusion of jurisdiction of Courts in favour of arbitration would apply only if the

nature of the dispute is arbitrable and is within the ambit of the arbitration

agreement. In this regard, the following judgments of the Hon'ble Courts were

quoted by the petitioners as relevant-

Haryana Telecom Ltd v. Sterlite Industries (India) Ltd (19-99) 5 SCC

688

"6. The claim in a petition for winding up of is not for money. The

petition filed under the Companies Act would be to the effect, in a

matter like this that the company has become commercially insolvent

and, therefore, should be wound up. The power to order winding up of

a company is under the Companies Act and is conferred on the court.

An arbitrator, notwithstanding any agreement between the parties

would have no jurisdiction to order winding up of a company. The

matter which is pending before the High Court in which the

application was filed by the Petitioner herein was relating to the

winding up of the company. That could obviously not be referred to

the arbitration, and, therefore, the High Court, in our opinion was

right in rejecting the application. "

Sukanya Holdings Pvt. Ltd v. Jayesh H. Pandva and Anr (2003) 5 SCC

531

"15 Therefore, the suit should be in respect of 'a matter' which the

parties have agreed to refer and which comes within the ambit of

arbitration agreement. Where, however, a suit is commenced - 'as to a

matter' which lies outside the arbitration agreement and is also

33

between some of the parties who are not parties to the arbitration

agreement, there is no question of application of Section 8..... "

Natraj Studios (P) Ltd v. Navrang Studios AIR1981 SC 537

"Public Policy requires that contracts to the contrary which nullify

the rights conferred on tenants by the Act cannot be permitted.

Therefore, public policy requires that the parties cannot be permitted

to contract out of the legislative mandate which requires certain kind

of disputes to be settled by Special Courts constituted by the Act. Thus

arbitration agreements between parties whose rights are regulated by

the Bombay Rent Act cannot be recognized by a Court of Law....

Both by reason of Section 28 of the Bombay Rent Act and by reason of

the broadest considerations of public policy, the Court of Small

Causes has and the arbitrator has not the jurisdiction to decide the

question whether the respondent Licensor-Landlord is entitled to seek

premises together with machinery and equipment from the appellant-

Licensee tenant."

Chiranjilal Shrilal Goenka through LRs v. Jagjeet Singh and

Others.,(1993) 2 SCC 507

In this case, the question of probate of will was referred by the consent of

the parties for arbitration and some proceedings with regard to the probate

were also pending in court. The question arose as to whether the arbitrator

could decide on the validity of the will. The Hon'ble Supreme Court held as

under:

"On a conspectus of the above legal scenario we conclude that the

probate court has been conferred with exclusive jurisdiction to grant

probate of the will of the deceased annexed to the petition; on grant

34

or refusal thereof, it has to preserve the original will produced before

it. The grant of probate is final subject to appeal, if any, or revocation

if made in terms of the provisions of the Succession Act. It is a

judgment in rem and conclusive and binds not only the parties but

also the entire world. The award deprives the parties of statutory

appeal provided under section 299. Thus the necessary conclusion is

that the Probate Court has the exclusive jurisdiction and the civil

court on the original side or the arbitrator does not get the

jurisdiction even if consented to by the parties, to adjudicate upon the

proof or the validity of the will propounded by the executrix, the

applicant. From this perspective, we are constrained to conclude that

the arbitrator cannot proceed with the probate suit to decide the

dispute in issues no. 1 and 2 "

Punjab State Electricity Board v. Bassi Cold Storage. Kharar and

Another., 1994 Supp (2) SCC 124

"Though the present dispute would have been referable to arbitration

because of what has been provided in Condition 29, it cannot be done,

in view of the provisions in the Act which would override the

stipulation contained in the aforesaid condition and the Act would

prevail over the general law of arbitration now contained in the

Arbitration Act of 1940. What has been provided in Condition 29 has

to be read along with the provisions of the Act and, in case provisions

of the Act would not permit the reference of the dispute at hand to

arbitration, what has been laid down in the Act has to prevail over the

remedy provided by Condition 29. The dispute of the present nature

35

cannot be subject- matter of arbitration being not covered by any of

the sections of the Act dealing with arbitration. "

M/s Fair Air Engineers Pvt. Ltd. v N K Modi ., AIR 1997 SC 533

"The Legislature intended to provide a remedy in addition to the

consentient arbitration which could be enforced under the Arbitration

Act or the civil action in a suit under the provisions of CPC. Thereby,

as seen, Section 34 of the Act does not confer an automatic right nor

create an automatic embargo on the exercise of power by the judicial

authority under the Act. Considered from this perspective, we hold

that the District Forums, State Commission and National Commission

are judicial authorities for the purposes of the Act, in view 'Of the

object of the Act and the operation of Section 3 thereof, we are of the

considered view that it would be appropriate that these forums

created under the Act are at liberty to proceed with the matter in

accordance

with the provisions of the Act rather than relegating the parties to an

arbitration proceeding pursuant to a contract entered into between

the parties." .

UP State Electricity Board v. Banaras Electric Light and Company Ltd.

, (2001) 7 see 637

"The resultant position is that the special officer appointed by the

State Government is the only competent authority to assess the

amount of purchase money to be paid by the Board to the Company

and such assessment is to be made on the book value of the

undertaking. The arbitrator appointed by the Company has no

36

authority to undertake such exercise. The award, if any, passed by

such arbitrator is non est."

Divisional Engineer. Telephones, Cuttak v. Messrs Behirarlal

Shyamsundar,AIR 1993 Ori. 302.

"I have no hesitation to agree, inasmuch the provisions of the

Arbitration Act will have no application to an arbitration as

contemplated n S.7B of the Indian Telegraph Act, 1885 the general

scheme of the Arbitration Act is not applicable to a statutory

arbitration under the provisions of the India Telegraph Act... .

The jurisdiction of a Civil Court will be ousted only if the dispute

would be covered by S.7B (1) of the Act. But if the dispute is not

covered by S.7B (1) then the civil court's jurisdiction cannot be

ousted. In the instant case, where the plaintiff's telephone connection

was sought to be disconnected for non- payment of arrear dues of

another telephone of which the plaintiff had no connection with it, the

dispute could not be said to be one covered under S.7B (1) of the Act

and, therefore, the jurisdiction of the civil court cannot be ousted. "

Surendra Kumar Dhawan V R. Vir (1977) 47 Comp Cases 277

The Hon'ble High Court of Delhi while interpreting Section 9 of the

Companies Act, 1956 held as under:

"This section shows that even if the articles operate to oust the

jurisdiction of court, they cannot effectively do so, and in fact, the Act

is effective and operative even if anything contrary to the same is

contained in the article ....

The member of· a company has a right to file a winding up petition

under section 433 of the Companies Act, 1956 in certain

37

circumstances. That statutory right cannot be ousted by articles or

any provision of the same. Similarly, the shareholders of a company

have a right to file a petition under section 397 or 398 of the Act if the

provisions of Section 399 are satisfied. This right is a statutory right,

which cannot be ousted by a provision of the article….. "

27. The petitioner further submitted that the nature of the dispute between the

parties is not arbitrable as the arbitrator does not have the jurisdiction to determine

the legality of the action by GAIL or hold that the provisions of the agreement are

arbitrary as the arbitrator can only interpret and apply the provisions of the

Agreement. In any event, the statutory functions to be performed under Section

11(a) of the Act by this Board are over-reaching and cannot be curtailed by the

arbitration proceedings.

28. As far as the allegation regarding the expiry of the Agreement dated

30.3.2006 by efflux of time, as per the petitioners, the same has no bearing on the

facts of this case since the Petitioner has a continuing cause of action and is

entitled to maintain its claim for refund as the gas transportation charges are

onerous and unfair. As regards the issue relating to the period of the claim of

refund by the Petitioner, the petitioner submitted that once the entire capital cost of

the line has been recovered, GAIL should be entitled to only the operating costs

incurred in maintaining the line. With relation to the contention of GAIL that the

pipe-line is not a dedicated line, the petitioner stated that the Ranasan T/O services

two consumers, the Petitioner and Reliance Industries Limited and each consumer

is serviced via a separate transmission line. Going to the issue that in case the

transportation line of the petitioner is not a dedicated line as contended by GAIL,

38

as per the petitioner the same would then be subject to the jurisdiction of the

Board for determination of the transportation tariff and in such circumstances, all

such charges recovered by GAIL would be non-est and without any jurisdiction

since under the Petroleum and Natural Gas Regulatory Board (Determination of

Natural Gas Pipeline Tariff) Regulations, 2008, GAIL is entitled to charge only

such tariff as determined by the Board and therefore GAIL is liable to refund the

entire quantum of charges recovered and only charge such quantum as is

determined by the Board. With regard to the assertion made by GAIL that the

distance from the Ranasan T/O has no relevance to tariff charges for the Petitioner

and Reliance Industries, being in the same region and also being serviced from

Ranasan T/O, the petitioner submitted that being in the same region and also being

serviced from Ranasan T/O the charges can be inferred to be discriminatory. The

petitioner also denied the assertion of GAIL that natural gas is an alternative fuel

for the Petitioner as being irrelevant besides being factually incorrect. The

Petitioner submitted that they are entitled to choose the fuel most suitable to their

purpose and not subject to unreasonable actions of the supplier of such fuel. In any

event, as per Petitioner, natural gas is an essential commodity in the business of the

petitioner who is a food processing unit and they have to exercise utmost

precaution to avoid any contamination of the food and in the circumstances natural

gas is the only fuel which can be used by the Petitioner.

29. On the petition by the five consumers of natural gas, GAIL in their response

dated 1.3.2011 raised a host of issues. While most of the response could be related

to identical issues as already brought out above, some additional issues were also

raised by GAIL. As per GAIL the Board has not held that the tariffs being charged

by the Respondent are not correct. As such there is no dispute with respect to the

39

transportation charges as the transportation charges are set out in the agreement

entered into between the parties, which are binding on the parties. Further GAIL

specifically denied that they have been undertaking the activities in the natural gas

sector over years, with monopoly. It was submitted by GAIL that especially in

Gujarat besides the Respondent there are other players like GSPCL / GSPL /

GGCL / Adani / Sabarmati Gas / IOCL/ BPCL/ONGC which are supplying gas to

consumers in the state of Gujarat. GAIL also submitted that some of the Petitioners

like Haldyn, Schott etc. are purchasing gas from other sources also.

FINDINGS

30. At the very outset, we have to go into the merits of the grounds raised by the

respondent with regard to the jurisdiction of the Board to entertain these petitions.

These complaints have specifically been filed with reference to the mandate given

to the Board under Section 11(a) of the Act to protect the interest of consumers by

fostering fair trade and competition amongst the entities read with Section 12 of

the Act providing for the powers with regard to complaints and resolution of

disputes by the Board. The mandate under Section 11(a) of the Act is

unambiguous and there cannot be any doubt with regard to the powers of the Board

to intervene in matters where there is a prima facie case of contravention of this

provision. On the contrary, the mandate to the Board is so categorical that it leaves

no scope for any doubt that the Board is obliged to protect the interest of

consumers by fostering fair trade and competition amongst the entities and, if it is

remiss in any way in carrying out this mandate, it would amount to a serious

failure in carrying out its core regulatory functions. The complainants have

referred to an earlier decision of the Board vide order dated 12.12.2008 in the

matter of Reliance Industries Limited and Others Vs. Indian Oil Corporation

40

Limited and Others (complaint no. 4 of 2008) relevant extracts of which have been

reproduced in paras 12 to 15 of this order. The Board has gone into details in

establishing the scope of Section 11(a) vis-à-vis Section 11(f) to the effect that the

Board has got powers to take appropriate measures to prevent and deal with

matters which do not confirm to accepted norms of fair trade and competition

affecting the interest of consumers and that the jurisdiction of the Board in this

regard is not restricted to the notified petroleum products and natural gas alone. In

view of this, we do not feel it necessary to dwell at length on this issue and

reiterate that the Board has the duty and the responsibility to protect the interest of

consumers by ensuring fair trade and competition amongst the entities. This

mandate is core to the effective functioning of the Board as a regulator for carrying

out the basic objectives as laid down in the Preamble and the substantive

provisions of the PNGRB Act, 2006.

31. Another objection raised by the respondent is that the agreement for

transportation and supply of gas with the petitioner Shyam Industries Limited was

entered into in 2006 which was subsequently amended to include an arbitration

clause. It is their contention that since Section 12 providing for power of the

Board with regard to complaints and resolution of disputes cannot be invoked

where the parties have agreed for arbitration, the Board cannot entertain these

complaints. The undisputed facts on record indicate that of the five complaints,

only in one case i.e., Shyam Industries, the parties have entered into a

supplemental agreement well after the appointed day which contains an arbitration

clause to settle disputes with regard to the agreement. It is also the contention of

the complainants who have entered into subsequent agreement on 30.12.2010 that

they were forced to sign this agreement inspite of their protests which has been

41

done by the respondent with the objective of preventing the regulatory Board to

intervene in the matter. The parties have also contended, in support of which they

have cited various case laws, that the mere inclusion of an arbitration clause in the

agreement by itself does not necessarily exclude the jurisdiction of a regulatory

body to intervene in the matter. Their contention is that the scope of the arbitration

clause included in the agreement is limited to the substantive clauses in the

agreement and that complaints such as these relating to fair trade and competition

was beyond the scope of any arbitration. We tend to agree with the contention of

the complainant as the Board is obliged to carry out the mandate under Section

11(a) of the Act which is very broad in its scope. Moreover, any agreement

entered into by the parties has to be in conformity with the specific provisions of

the said Act and as well as provisions under other statutes as may be applicable. In

other words, an agreement by itself cannot justify any act of omission or

commission which is in violation of the provision of Section 11(a) of the Act or,

for that matter, any other provisions of the said Act. We have, therefore, no

hesitation in holding that the provision of arbitration in the

supplemental/subsequent agreements does not in any way restrict the jurisdiction

of the Board in ensuring fair trade and competition amongst the entities for

protecting the interest of consumers.

32. In this context, we are constrained to comment on the behavior of the

respondent which is a public sector undertaking. The complainants have cited

various case laws where the Apex Court has laid down in no uncertain words that

as a public authority coming within the definition of „State‟, it is required to act in

a reasonable and fair manner in the interest of consumers and in public interest.

From the timing of the supplemental/subsequent agreement and the manner in

42

which the complainants, which belong to the category of SME units, were made to

sign these agreements in-spite of their protests, it is obvious that this was a

deliberate ploy to prevent the Board somehow from intervening in the matter. It is

relevant to note here that, as brought out subsequently, the Board had been

receiving a plethora of representations from consumers of the respondent which the

Board had taken up with the respondent for redressal. However, when inspite of

correspondence with the respondent, the issues did not get satisfactorily resolved

and representations continued to be made to the Board, the Board issued guidelines

on charging of transmission tariff for dedicated pipelines for the concerned

transporters to comply with. In this matter also, the Board gave an opportunity to

the respondents in the hearing dated 6.01.2011 to settle these complaints in

accordance with the said guidelines but to no avail. On the contrary, the

respondent acted in a manner deliberately to deny the complainants any relief

under the said Act by making them sign supplemental/subsequent agreements

containing an arbitration clause. The Board has noted with concern this behaviour

as totally unacceptable from any entity, let alone a public sector undertaking which

is duty bound to be fair and reasonable in its treatment of its consumers.

33. The respondents have also raised the issue of the complaints being barred by

limitation of time as these were required by filed within 60 days from the date on

which the act or conduct constituting a contravention took place and that since the

agreement was entered into in 2006, these are time barred. On the other hand, the

complainants have pointed out that this is a continuous contravention and that it

cannot be considered as time barred by counting the period of limitations from the

date of the agreement. We agree with the complainants on this count and hold that

there is no contravention of the time limit for filing a complaint under the Act since

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the alleged violation of the provision of Section 11(a) of the Act continues till date.

In any case, this is only a technical objection and the Board in any case is fully

competent to condone any delay irrespective of the fact whether any formal request

for condonation of the delay was made or not. Since we hold that this is a

continuous contravention as per the complaints, the question of condoning any

delay in filing of complaints does not arise.

34. We now come to the issue of whether these pipelines through which the

respondent supplies natural gas to the complainants are dedicated or common

carrier pipelines. It is the contention of the respondent that these are part of a

common carrier pipeline network for which they have submitted the proposal for

tariff determination which is pending with the Board and that as and when this

tariff is determined, it would be applicable to the petitioners from the date of the

notification of the regulations for tariff determination.

35. For deciding this issue, it would be important to understand how the natural

gas pipeline transportation dynamics work in the sector. A natural gas pipeline

system would normally have two constituents (i) the main transmission pipeline

which transports natural gas meant for multiple consumers in bulk and (ii) a spur

line originating from the main transmission line and terminating at delivery point

at the premises of specific consumers. The dedicated portion of any pipeline

system would constitute the item in (ii) which is clearly identifiable with a specific

consumer whereas item (i) would constitute a “common or contract carrier” since

natural gas is being transported in bulk in the system intended for multiple

consumers or “more than one entity”. This intent is visible more clearly in the

Policy of the Central Government dated 20.12.2006 which as per the provisions of

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section 17 (4) of the Act the Board is mandated to follow in deciding applications

for grant of authorization, subject of course to the provisions of the said Act and

the Regulations. Para 2.1 covering applicability of the Policy states thus which is

quoted below:

This policy will apply to natural gas pipelines and city or natural gas

distribution networks except for dedicated pipelines laid to supply gas to

specific consumers originating from regulated pipelines provided the same

are for their own use and not for resale.

36. The regulations framed by the Board have reflected the intent of the Policy

of the Central Government which is also evident in the Act which defines a

common or contract carrier pipeline as under:

(j) "common carrier" means such pipelines for transportation of petroleum,

petroleum products and natural gas by more than one entity as the Board

may declare or authorise from time to time on a nondiscriminatory open

access basis under sub-section (3) of section 20, but does not include

pipelines laid to supply-

(i) petroleum products or natural gas to a specific consumer;(emphasis

added) or

(ii) crude oil;

Explanation.- For the purposes of this clause, a contract carrier shall be

treated as a common carrier, if- (i) such contract carrier has surplus

capacity over and above the firm contracts entered into; or

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(ii) the firm contract period has expired.

Further Sub Clause (m) of Section 2 provides for definition of the word

"contract carrier" which reads as under:

(m) "contract carrier" means such pipelines for transportation of

petroleum, petroleum products and natural gas by more than one entity

pursuant to firm contracts for at least one year as may be declared or

authorised by the Board from time to time under subsection (3) of section

20;

37. In the present batch of the complaints, the undisputed facts are that the

pipelines have been laid over short distances for supplying to specific consumers

mainly from isolated/marginal wells. As such, these pipelines fall within the

definition of dedicated pipelines since these are used to service only single

consumers for their own consumption and not for resale. Apart from this, the

GSTA entered into between GAIL & Shyam Industries dated 30.03.06 (para 6

refers) provides for the payment by the consumer of a fixed monthly transmission

charge plus additional charge for supply of gas over and above the quantity

mentioned in the agreement. It further provides that the monthly plus unit rate

transmission charges is exclusive of replacements / modifications of the existing

pipeline and associated facilities (excluding compression facility) wholly / partly

for supply of gas to the consumer at the delivery point. This is being taken as the

standard clause in the agreements with all the complainants which is the admitted

position. Since these pipelines have been laid to supply gas to single consumers

and from the wordings of the clause in the agreement providing for transmission

charges, it is quite evident that the single consumer was required to pay the capital

cost of the pipeline in addition to O&M cost, it is quite clear that these are

46

dedicated pipelines and operated as such by the respondent. In any case, only the

Board can declare a dedicated pipeline to be a common or contract carrier pipeline

in exercise of powers vested in it under Section 20 of the said Act in the public

interest after following the procedure laid down in the Act and the relevant

regulations. It is not open to any entity to assume the conversion of a dedicated

pipeline to a common / contract carrier pipeline and include in it a common carrier

network for the purpose of determination of network tariff. We are again

constrained to observe here that from the date of the submission of the proposal for

determination of tariff by the Board for this network i.e., 20.07.2010, this appears

to be a part of the deliberate strategy of the respondent to continue to deny any

reasonable relief to the consumers through the redressal of their complaints.

38. Even assuming for the sake of argument that these pipelines are considered

as part of a common carrier network, the Board has to be guided by the criteria laid

down in Section 22(2) of the Act in determination of transportation tariff which

includes factors such as competition, efficiency and safeguard of consumer

interest. In accordance with these provisions, the Board has notified that PNGRB

(Determination of Natural Gas Pipelines Tariff) Regulation, 2008 as per which

transmission tariff for the pipelines under implementation or in operation on the

appointed day have to be fixed on the basis of 12% post tax return on the historical

value of capital employed and opex calculated on a normative basis. In view of

this, since the facts as brought out by the complainants are not disputed by the

respondent indicate that the capex of the pipelines have already been recovered

many times over by the respondent, the transporter would in any case be entitled

only to payment of Opex on a normative basis as transmission charges. If we

accept the contention of the respondents that these are part of common carrier

47

pipeline network and that the tariff determined by the Board would be payable by

these complainants, it would amount to making consumers who have already paid

the capex of the pipelines laid to supply them gas many times over, subsidize all

other consumers being serviced by the network. This cannot be accepted as this is

neither fair nor reasonable.

39. As already mentioned, the issue relating to transporters charging exorbitant

transportation charges has been engaging the attention of the Board for quite some

time. As the Board was inundated with similar representations from various

consumers of natural gas in the past, it was thought appropriate to frame necessary

guidelines for these purposes which were fair and reasonable to both the

transporters as well as the consumers. To that end, the Board started an extensive

public consultation process by preparing and placing draft guidelines on the said

subject in the public domain. After receipt of comments from various

stakeholders, in conformity with its commitment to ensure transparency in the

regulatory process, the Board had extensive consultations with the stakeholders

who gave their comments by conducting an Open House after which the Board

finalized guidelines in the matter after taking into consideration all the comments

and suggestions received from various stakeholders which included the respondent

i.e., GAIL. The text of the guidelines which were uploaded on the website of the

Board on 02.12.2010 are quoted below:-

PETROLEUM AND NATURAL GAS REGULATORY BOARD

1. These guidelines shall be called “Petroleum and Natural Gas Regulatory Board

(Protection of Consumer Interest in respect of Dedicated Pipelines for Natural

Gas) Guidelines 2010”.

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2. These guidelines are being issued in the interests of the consumers receiving

supplies of natural gas by dedicated pipelines in furtherance of the mandate

prescribed under section 11 (a) of the Act which requires the Board to protect

the interest of consumers by fostering fair trade and competition amongst the

entities.

3. Definitions.

(1) In these guidelines, unless the context otherwise requires,-

(a) “Act” means the Petroleum and Natural Gas Regulatory Board Act,

2006;

(b) “Board” means the Petroleum and Natural Gas Regulatory Board

established under sub-section (1) of section 3 of the Act;

(c) “dedicated pipeline for natural gas” means a pipeline as specified under

regulation 2 (f) (i) of the Petroleum and Natural Gas Regulatory Board

(Authorizing Entities to Lay, Build, Operate or Expand Natural Gas

Pipelines) Regulations, 2008;

(2) Words and expressions used and not defined in these guidelines, but

defined in the Act or in the rules or regulations made there under, shall have

the meanings respectively assigned to them in the Act or in the rules or

regulations, as the case may be.

4. Applicability.

These guidelines shall apply to a dedicated natural gas pipeline coming under

the purview of regulation 19 of the Petroleum and Natural Gas Regulatory Board

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(Authorizing Entities to Lay, Build, Operate or Expand Natural Gas Pipelines)

Regulations, 2008.

5. Objectives for issuing these guidelines.

(a) Section 2 (j) of the Act defines "common carrier" as such pipelines for

transportation of petroleum, petroleum products and natural gas by more

than one entity as the Board may declare or authorize from time to time on a

nondiscriminatory open access basis under sub-section (3) of section 20, but

does not include pipelines laid to supply- (i) petroleum products or natural

gas to a specific consumer; or (ii) crude oil.

(b) The functions of the Board pertaining to “common or contract carrier” given in

section 11 (c), (d) and (e) of the Act relate to authorization, access and tariff

determination thereof. But:

i. Section 1 (4) of the Act states that it applies to refining, processing,

storage, transportation, distribution, marketing and sale of petroleum,

petroleum products and natural gas excluding production of crude oil

and natural gas.

ii. Section 11 (a) of the Act confers a wide mandate to the Board wherein

the Board shall protect the interest of consumers by fostering fair trade

and competition amongst the entities

(c) From a conjoint reading of the above provisions of the Act, it is evident that

the legislative intent is clearly in favour of regulatory oversight when wider

issues of consumers interests are involved even in case of dedicated

pipelines. In particular, a huge demand-supply gap, the monopolistic /

dominant position of the marketers / transporters and the absence of a

competitive gas market have created a situation where the Board necessarily

50

has to play a pro-active role to carry out the legislative mandate under

section 11 (a) of the Act to protect the legitimate interests of consumers.

(d) Of late, the Board has started receiving a large number of complaints from

consumers drawing supplies of natural gas from dedicated pipelines alleging

primarily that transporters:

i. are charging exorbitant transportation charges in respect of dedicated

pipelines.

ii. do not let the consumers exercise their choice for laying and operating

the pipelines themselves.

(e) Establishing guidelines that will serve as a benchmark is essential for

facilitating fair trade and competition in furtherance with the mandate

prescribed under section 11 (a) of the Act in the interests of the consumers.

6. Details of the guidelines.

(a) The laying, building, operating or expanding of a dedicated pipeline would

be solely dependent on the choice to be exercised by the consumers either

by themselves or by an entity laying, building, operating or expanding a

common or contract carrier pipeline or by a third party entity, subject to

compliance with the provisions of the PNGRB (Technical Standards and

Specifications including Safety Standards for Natural Gas Pipelines)

Regulations, 2009.

(b) In case the dedicated pipeline is maintained by a third party entity or by an

entity laying, building, operating or expanding a common or contract carrier

pipeline, then such entity will ensure determination of reasonable level of

tariff for dedicated pipelines by following a transparent process which shall

inter alia facilitate access of consumers to the basis for arriving at the

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determined tariffs.

(c) The methodology for arriving at the reasonable level of tariff shall ensure

that the tariff shall not exceed the level as calculated in accordance with the

provisions of the PNGRB (Determination of Natural Gas Pipeline Tariff)

Regulations, 2008.

Provided that in case the estimated life of source of the dedicated pipeline is

shorter than the economic life of the pipeline envisaged under the provisions

of the PNGRB (Determination of Natural Gas Pipeline Tariff) Regulations,

2008, then the tariff shall be suitably moderated to account for such shorter

period.

Provided further that if the life of the source is further extended from that

earlier estimated during tariff fixation and no further investments are made,

then only reasonable operation/maintenance expenditure and compensation

for residual value of the asset shall be allowed through the tariff during such

further period.

(d) The entity shall establish an effective complaint handling system in

accordance with the provisions specified in Regulation 11 of the Petroleum

and Natural Gas Regulatory Board (code of Practice for Quality of Service for

City or Local Natural Gas Distribution Networks) Regulations, 2010.

(e) All contracts or agreements executed with the consumers drawing supplies

from dedicated pipelines shall be suitably modified to ensure consonance

with these Guidelines.

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7. Miscellaneous.

If any dispute arises with regards to the implementation of any of the provisions of

these guidelines, the decision of the Board shall be final.

40. As may be observed, the guidelines incorporate the following principles in

respect of dedicated pipelines which are relevant to this matter:-

(a) Ensuring determination of reasonable level of tariff for dedicated pipelines

by following a transparent process.

(b) The tariff shall not exceed the level as calculated in accordance with the

provisions of the PNGRB (Determination of Natural Gas Pipeline Tariff)

Regulations, 2008.

(c) After recoupment of the capital expenditure, if no further investments are

made, then only reasonable operation/maintenance expenditure i.e., Opex

shall be allowed through the tariff during such further period.

41. The respondent also contested the claim of the complainants that it had

abused its monopoly position on the ground that it did not have a monopoly

position. In support of its contention, it has put forward the argument that natural

gas is a part of the energy basket and that the complainants are free to choose any

alternative fuel. The second ground taken is that there are other transporters such

as GSPC through whom the complainants can access gas. For a public sector

undertaking, we are again constrained to observe, it is astounding that such

facetious arguments are actually put forward. First of all, once the consumer has

invested in a unit designed to run on natural gas, for all practical purposes it

becomes a captive consumer. Secondly, the respondents have omitted to mention

the fact that these SME units came up at the specific request of ONGC/GAIL near

53

isolated/marginal wells so that the gas need not be flared in the absence of a

network and consumed by units coming up nearby. Thirdly, there is no denying of

the fact that the policy followed by the Government for the allocation of gas and its

transportation for delivery to the consumer to whom it was allocated ensured a

monopoly for the respondent. The competition that has come subsequently is

because of the coming into force of the PNGRB Act, 2006 and the constitution of

the statutory independent regulator in the form of PNGRB which has notified such

regulations as Access Code and Affiliate Code of Conduct to provide the

foundation of a competitive gas market in India. In spite of the provisions of the

said Act and these regulations, in view of the large number of complaints of

consumers being delivered gas through dedicated pipelines by the respondent as

mentioned earlier, the Board had to lay down further guidelines for determination

of transmission tariff in case of supply of gas through dedicated pipelines and for

giving choice to the consumers in the matter of deciding who should implement

and operate such pipelines. Before these developments, there is undoubtedly no

ground to consider that a monopoly position did not exist. Even subsequently, it

would not be out of place to state that the respondent‟s claim that the sector is no

longer a monopoly but there are other competing pipelines from which the

complainant can draw gas is factually misleading, mischievous and erroneous. It

needs to be emphasized that delivery of natural gas to the premises of the

consumer is contingent upon the existence of pipeline and connectivity

infrastructure. Since this infrastructure has already been created by GAIL, to

suggest that the consumer can resort to alternate suppliers without using the

infrastructure already created would require the consumer to duplicate the

infrastructure the cost of which he has paid many times over which is not only cost

54

additive, but also an infructuous investment that is neither in the interest of the

consumers nor in the national interest.

42. It is quite clear, therefore, that the respondents have to be fair and reasonable

in charging transmission tariff even in case of dedicated pipelines for which the

Board is not required to determine tariff. Since in the present case, as brought out

by the complainants and not disputed by the respondent, the capital cost of the

pipelines has long been recovered, the respondent is entitled to charge only opex

on a normative basis and nothing more. The question that arises as to from which

date this would become operative. The respondent have, in fact raised the issue

that the complainants have failed to indicate as to from which date the tariff

modification was to become operative. This again appears to be a deliberate

dilatory tactics adopted by the respondent which does not behove a public sector

undertaking. In the case of tariff determined by the Board under the said

regulations, the transporters are obliged to calculate and charge tariff as per the

formula in the said regulation which is subject to adjustments as and when the

Board determines the tariff. The tariff as determined by the Board is operative

from the date of the notification of the said regulations or from date of

commencement of commercial operation, whichever is later. In this case, the date

of commencement of these pipelines is prior to the appointed day i.e. 01.10.2007.

The guidelines for dedicated pipelines have been issued on 02.12.2010. The

question arises as to from which of these two dates the tariff as directed in this

order is to be charged by the respondent. It is relevant to bear in mind in this

regard that the complaints have been made on the ground of contravention of

Section 11(a) of the Act which mandates the Board for ensuring fair trade and

competition amongst the entities to protect the interest of consumers. In these

55

cases, as our findings indicate, the respondent has been levying transmission

charges which have remained unchanged even after the capex employed had been

paid by the consumer many times over. There is also the complaint of obvious

discrimination as per the petition of M/s Shyam Industries which alleges that it is

being charged far more for transmission of natural gas over a shorter distance as

compared to supply of gas from the same source over a longer distance to Reliance

Industries. These facts have not been denied by the respondent except to justify

the obvious discrimination against the complainant although we have not gone in

to the issue of discrimination as it is not germane to the matter under consideration.

Taking all these factors in to account, we are of the opinion it is just, fair and

reasonable that the respondent shall be entitled to charge only the Opex on a

normative basis after it had recovered the Capex on the pipeline. The dates in

these cases pre-date the coming into force of the provisions of the Act and

constitution of the Board. In view of this, the Board is legally not in a position to

extend its jurisdiction prior to the appointed day even though it is conscious of the

fact that as per the established case law, the respondent as a public sector entity

should act in a reasonable and fair manner and not indulge in unfair trade practice

in abuse of the monopoly power given to it by the Government irrespective of

whether there was a specific statutory provision to regulate this or not. The

guidelines in this regard reproduced at para 39 of this order were issued on

02.12.2010. However, these guidelines did not give effect to the provision of

section 11 (a) of the Act which had come into force on 01.10.2007. The guidelines

had to be issued, as indicated earlier, as large number of complaints had been made

to the Board and these were intended to facilitate compliance with the provision. It

cannot, therefore, be construed that the fair and reasonable conduct has to

commence only from the date of the guidelines as this would condone a specific