The Supreme Court of India, hearing the GAIL Vs IPCL case, has found an action of GAIL “ex facie discriminatory” that runs “contrary to every commercial and common sense and is manifestly arbitrary.” 

The dispute goes back to 2001 – just before the Reliance group took over the then public sector, IPCL – when GAIL signed a gas supply contract with IPCL. Under the contract, IPCL was supposed to lay the pipeline from Hazira to Gandhar in Gujarat, where its plant would extract the C2-C4 fractions and pipe back the ‘lean gas’ to Hazira. IPCL duly laid the pipeline, spending ₹ 354 crore, to feed its ₹ 4,500 crore petrochemical project at Gandhar. 

Transportation charge

The dispute was around a ‘loss of transportation’ charge that GAIL wanted to levy on IPCL, which was like saying, “you must pay me because you laid the pipeline that I could have” -- though, in reality, IPCL was forced to lay the pipeline because of the contract. 

Supreme Court judges, Justice Sanjay Kishan Kaul, Justice Abhay S Oka and Justice Manoj Misra, noticed in their verdict that “GAIL exercised unequal bargaining power at the time of signing the contract” and IPCL, having built a ₹ 4,500-crore petrochemical complex, was “faced with a ‘Hobson’s choice’, where it had to either give up the contract or accept the clauses levying transportation charges.” 

The judges quashed the impugned covenant but restricted the period of relief of refund to a shorter period than IPCL had asked for.