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GAIL to appeal against Essar in the Division Bench of Gujarat High Court

Mumbai, Oct 15, 2005

GAIL (India) Limited has stated that it will challenge Essar’s contention and appeal before the Division Bench of Gujrat High Court for non-fulfillment of contractual obligations relating to transportation of gas through GAIL’s HBJ pipeline. Under the contract and as per ESSAR’s request the Government of India converted ESSAR’s 0.35 MMSCMD gas allocation on fallback basis into firm basis. Accordingly a supplementary contract was signed between GAIL and Essar in 1996 and Essar agreed to pay the transportation charges. 

GAIL on the other hand contended that the conversion of allocation from fall back to firm basis was agreed upon based on the promise that GAIL shall not be deprived of its revenues which it would have earned otherwise by supplying gas to downstream consumers. While Essar later went back on its promise to pay the transportation charges and raised a dispute regarding non-applicability of the HBJ transportation charges for the quantity of 0.35 MMSCMD stating that the transportation charges on the sale of gas was not leviable. 

GAIL issued a demand- cum- disconnection notice to Essar on 1.5.2001 when Essar stopped payment of HBJ transportation charges, which accumulated to about Rs.124 crore plus interest upto 15 April, 2001. Essar approached the Hon’ble Gujarat High Court and took the ex-parte injunction on 4/5/2001, which was later modified by the Hon’ble Court directing Essar to pay the transportation charges for receiving gas. This interim order has been vacated by Gujarat High Court on 4.5.2004. 

Essar filed an appeal against the above order of vacating the injunction to the division bench of Gujarat High Court, which was dismissed at admission stage itself. Essar then filed a Special Leave Petition (SLP) in the Supreme Court. Hon’ble Supreme Court agreeing with GAIL’s contentions, directed Essar to pay Rs. 80 crore to GAIL for continuation of Gas supplies as an interim measure pending outcome of the proceedings before Gujarat High Court.

GAIL continues to maintain that Essar is liable to pay the HBJ transportation charges. The conversion of the allocation from fall back to firm basis was agreed on the promise that GAIL would not be deprived of revenues which it would have earned otherwise by supplying gas to downstream consumers as it involved an opportunity cost for the Government company. GAIL will now take matters to the Division Bench of Gujarat High Court for Essar’s breach of contract.

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