JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 3748 OF 2011 v. Union of India & Ors.

Order

CGD (domestic and transport), power, LPG, fertilizers. In view of the reduction in KG D^ production, if there is a shortfall in meeting the firm demand of the remaining sectors, pro rata cuts should be imposed on the same. 6 Yours faithfully, Sd/- (Manu Srivastava) Director (GP) Tel: 23381029 Copy to:

1. Secretary, Department of Fertilizers, Shastri Bhawan, New Delhi - w.r.t.a O.M. No. 12014/2009-FPP dated 19.1.2011

2. Secretary, Ministry of Power, Shram Shakti Bhavan, New Delhi.”

4. In response to the letter dated 11th April, 2011 sent by respondent No. 2 RIL to the Ministry of P & NG seeking certain clarifications and directions in respect of the aforesaid letter dated 30th March, 2011, the respondent No. 1 has sent another letter dated 21st April, 2011 addressed to the respondent Nos. 2 and 3 which reads thus: “No.L-12011/2/2011-GP-1 Government of India Ministry of Petroleum & Natural Gas ... Shastri Bhavan, New Delhi Date: 21st April, 2011 To, Sir, (i) M/s Reliance Industries Ltd. (ii) M/s Niko (NECO) Ltd. Subject: Cuts in supply of KG D6 gas. 7 Please refer your letter No. RIL/GAS MKTG/MoPNG/11/04 dated 11.4.2011 wherein it has been stated inter alia that the implications of implementation of disproportionate cuts need to be appropriately addressed.

2. Under the Government's Gas Utilization Policy, allocations for KG D6 fields had initially been made for core sectors and subsequently, taking into account expectation of higher production, allocations had been made for non-core sectors. As the gas production from KG D6 fields has decreased to around 50 mmscmd, it is only natural that the said production be supplied firstly to core sectors and Ministry's direction vide letter of even number dated 30.3.23011 has been issued in this context. The said direction has been issued in pursuance of Government's Gas Utilization Policy under the provisions of the PSC. Hence, the said direction needs to be complied with.

3. The Hon'ble Supreme Court in its order dated 7.5.2010 in the RIL and RNRL case has held that the Government owns the gas till it reaches its ultimate consumer. Further, it has been held that the PSC shall override any other contractual obligation between the contractor and any other party. Yours faithfully, Sd/- (Manu Srivastava) Director (GP) Tel.: 23381029 Copy to:

1. Secretary, Department of Fertilizers,) w.r.t. MoPNG’s Shastri Bhawan, New Delhi. 2. Secretary, Ministry of Power, ) letter of even ) number dated 30th Shram Shakti Bhawan, New Delhi. ) March, 2011.

3. Secretary, Ministry of Steel, Uhoyag Bhawan, New Delhi. 4. Secretary Deptt of Chemical & Petrochemical, Shastri Bhawan, New Delhi. Copy also forwarded to:- As per list enclosed.”

5. In view of the aforesaid directives of the respondent No. 1, the respondent No. 2 in turn addressed letter dated 4th May, 2011 to the petitioners in respect of Gas Sales and Purchase Agreement 8 (GSPA, for short) being Exh. CC to the Petition, informing the petitioners that with effect from 06.00 hours on 9th May, 2011 the available quantities of gas will be apportioned in accordance with the directions of the Government contained in letters dated 30th March, 2011 and 21st April, 2011.

6. Present petition was thereafter filed on 6th May, 2011 and was moved for urgent reliefs before the Division Bench of this Court. The Division Bench expressed prima facie view that a meeting needs to be arranged between the petitioners and the respondent no. 1 to sort out the question of allocation of gas to core sectors and other industries. By subsequent order dated 9th May, 2011 passed in the writ petition it was directed as under: “CORAM- MRS.MRIDULA BHATKAR AND R.G.KETKAR,JJ DATE - 9th MAY, 2011 P.C.

Pursuant to the order dated 6th May, 2011, especially the directions given in paragraph 5 of the said order, the parties are before us. The petitioners agree to go before respondent no.1 who is going

2. to hear the grievance of the petitioners and will take the decision. Learned counsel for respondent no.1 states that on 11th May, 3. 2011 the Jt. Secretary or Additional Secretary, Ministry of Petroleum and Natural Gas will hear the petitioners and other respondents. Respondent no.1 after hearing them on 11th May, 2011 will take the decision in this matter on or before 18th May 2011. Respondent no.1 undertakes to communicate the said decision to the petitioners on or before 19th May, 2011. 9 This arrangement is made without prejudice to the rights and

4. contentions of the parties.

5. Learned counsel for respondent no.1 submits that other industries are also affected due to the change in allocation of natural gas and, therefore, they shall hear the other aggrieved parties also on 11th May, 2011. By consent list this petition on 23rd May, 2011.”

7. Accordingly the Joint Secretary to Ministry of P & NG of respondent no.1 granted hearing to the petitioners and other industries/affected parties on 11th May, 2011 and the list of various parties who participated in the said hearing indicates that apart from the petitioners and Essar Steel Limited which is also a sponge iron manufacturer similarly situated as the petitioners; the respondent Nos. 2 to 10 herein and GAIL (India) Limited also attended hearing. Apart from the oral hearing, the petitioner No.1 also filed written submissions/arguments before the Joint Secretary to the Government of India who had heard the parties.

8. On 18th May, 2011, Shri. Apurva Chandra, Joint Secretary to the Government of India, Ministry of P & NG passed a detailed order after considering the contentions of all the parties and the decisions of the Empowered Group of Ministers (EGOM) dated 28th May, 2008 and other subsequent decisions. The Joint Secretary overruled objections of the petitioners and it was held that on 10 account of the shortfall of CNG production in Krishna-Godavari Basin Gas Field No. D6 namely, KG D6 production, the directives contained in the letter dated 30th March, 2011 and 21st April, 2011 were issued in larger public interest. Final conclusion drawn by the Joint Secretary and the operative order can be culled out from the said order, which reads thus: “6.9 Ministry's directions is in furtherance of EGOM's decisions and has been issued to ensure higher supply to those customers who were given high priority by the EGOM in its allocation decisions. In view of the recent shortfall in KG D6 production, the Contractor has been directed vide Ministry's letter dated 30th March 2011 & subsequently dated 21st April 2011, to supply KG D6 gas in full to fertilizers, LPG, power and CGD (domestic and transport) sectors, apart from gas needed for pipeline operation in larger public interest. If there is a shortfall in meeting the firm demand of the remaining sectors pro rata cuts should be imposed on them. It is also made clear that if production from KG D6 fields increases, then the supply to various non-core customers would also increase. So the supply is fully dependent on production.

7. In view of the above facts and the fact that production from KG D6 fields is presently below expectation, the supply of non core sector on whom cut has been imposed cannot be restored at the cost of the core sector.”

9. After the petitioners were served with the aforesaid order dated 18th May, 2011, on an oral application seeking leave to amend the writ petition and challenge the aforesaid order dated 18th May, 2011; by our order dated 9th June, 2011 the petitioners were granted such leave and accordingly, the petitioners have amended the writ petition and have challenged the order dated 18th May, 2011 vide prayer clause (ba) which reads thus: ba. a writ, order or direction from this Hon'ble Court in the nature of 11 certiorari calling for the records pertaining to the impugned Order dated 18th May 2011 passed by Respondent No.1 annexed hereto as Exhibit A-1, pursuant to the hearing held by Respondent No. 1 on 11th May, 2011 and after examining the validity thereof setting aside the impugned order.

10. Various power producers using CNG had filed Civil Application Nos. 1097/11, 1102/11, 1139/11, 1141/11 and 1243/11 for impleadment/intervention and by our order dated 9th June, 2011, the said civil applications were allowed and the said power producers have been impleaded as respondent Nos. 4 to 9. Similarly, the Civil Application No.1244 of 2011 filed by Fertilizer Association of India for being impleaded as party respondent has also been allowed by us by a separate order passed on 22nd June, 2011 and the said Association has been added as 10th respondent. We are informed that Essar Steel Limited has filed a petition in Delhi High Court and the same is pending.

11. Briefly stated the case of the petitioners as pleaded in the petition is as under: (a) Both the petitioners are public limited companies and are running sponge iron plants using CNG as feed stock. The petitioner No. 1 runs its plant at Salav, Maharashtra employing about 1,050 people, the petitioner No. 2 is an integrated steel manufacturer and has two manufacturing units of sponge iron plants, one at Dolvi in 12 Raigad District and other at Kalmeshwar near Nagpur and employs about 6000 people. Both petitioners contribute substantial amount to the State and Central Government exchequers in form of taxes. (b) Respondent Nos. 2 and 3 have entered into a PSC dated 12th April, 2000 with respondent No. 1 for extraction of natural gas from KG D6 fields and subsequently entered into Joint Operating Agreement dated 4th October, 2002. The petitioners were being supplied CNG by GAIL and had been allocated 0.90 million standard cubic meters per day (mmscmd, for short) for petitioner No. 1 and 1.35 mmscmd for petitioner No. 2. Subsequently, on account of reduction in the supply of CNG, the supply of petitioner Nos. 1 and 2 was reduced to 0.240 mmscmd and 0.75 mmscmd respectively. On 25/6/2008 the respondent No.1 issued a press note containing the decisions taken by the EGOMs in its meeting dated 28/5/2008. (A detailed reference to the said EGOM minutes and the minutes of the subsequent meetings of EGOMs dated 23/10/2008, 8/1/2009 and 27/10/2009 and the relevant press notes would be made in greater detail at a later stage.) In the press note dated 25/6/2008, guidelines for supply of CNG and order of priority was prescribed and the contractors had marketing freedom in respect of supply of CNG to consumers subject to priorities in the guidelines. The said guidelines were applicable for 5 years. By another press 13 note issued on the basis of the EGOMs meeting dated 23/10/2008 titled as “Decision Regarding Pricing and Commercial Utilization of Natural Gas Under New Exploration Licencing Policy”, various decisions were announced. By clause 10 of the said press note it was provided as under : “10. It has been decided to give priority to the existing natural gas based sponge iron/steel plants after the sectors prioritized earlier. However, the supply would be made from the production beyond the first 40 mmscmd to be produced from RIL's KG-D6 field. By subsequent EGOMs meeting held on 8/1/2009 certain further decisions were taken by the EGOMs. According to the petitioners while confirming the prioritization of the core sectors as decided in its earlier meeting, a decision was taken to give priority for supply of CNG to priority sectors only from the first 40 mmscmd of gas produced from RIL KG D6 field. (c) The Ministry of Steel thereafter assessed the gas requirements of sponge iron / steel plants and issued an office memorandum dated 12th May, 2009 (Exh. D) by which the requirement of CNG for petitioner Nos. 1 and 2 was estimated to be

0.4 mmscmd and 0.59 mmscmd respectively. The Ministry of P & NG thereafter issued letter dated 12th June, 2009 to the respondent Nos. 2 and 3 and the petitioner No. 1 was allotted 0.36 mmscmd, the petitioner No. 2 was allotted 0.53 mmscmd and Essar Steel was allotted 2.86 mmscmd. The petitioners were thereafter directed to 14 enter into GSPAs with respondent Nos. 2 and 3 and accordingly, the respondent Nos. 2 and 3 entered into Gas Sale and Purchase Agreements (GSPAs) dated 24/6/2009 and 22/6/2009 with the petitioner Nos. 1 and 2 respectively. The respondent No.1 thereafter issued another press note dated 16th November, 2009 and policy decision taken by the EGOMs in its meeting dated 27th October, 2009 regarding commercial utilization of gas produced under NELP were published. Along with the said press note a chart showing the allocations to various sectors was also published and the steel sector was given a firm allocation of 4.19 mmscmd. (d) The respondent No. 1 thereafter issued a letter dt. 19th November, 2009, Exh. J to the petition, to the respondent Nos. 2 and 3 contractors and a firm allocation of KG D6 gas was made to the petitioners and M/s. Essar Steel. Based on the above letter, the GSPAs executed between the petitioners and respondent Nos. 2 and 3 were suitably amended. The petitioner No. 1 thereafter made representation to the Ministry of Steel for increasing the allocation, whereupon the Ministry of Steel issued Office Memorandum dated 16/1/2010 suggesting that an additional 0.13 mmscmd should be allotted to the petitioners. The petitioner No.1 thereafter made representations for increase in supply of gas, but there was no response from the Ministry of P & NG. As a result of which, 15 according to the petitioners, the petitioner No. 1 was forced to procure expensive gas on spot basis, which is popularly known as RLNG (Regasified Liquefied Natural Gas). The petitioner No. 1 also installed oxygen injection system in its plant. Respondent No. 1 thereafter issued letter dated 12/7/2010 to respondent Nos. 2 and 3 directing them to impose pro rata cuts on all firm customers on the days that KG D6 production is not sufficient to cater to all the customers. The respondent No. 1 thereafter sent a proposal to the Petitioner No. 1 by its letter dated 29th October, 2010 for replacing the supply from KG D6 field by supply from ONGC and the petitioner No. 1 gave a favourable response to the said proposal. From January, 2011 onwards, on account of substantial reduction in the supply of CNG, the petitioner No. 2 addressed several letters. Ultimately, the respondent No.1 issued the impugned directives contained in the letter dated 30th March, 2011 modifying the earlier directions contained in the letter dated 12/7/2010. Representations dated 31st March, 2011 and dated 7th April, 2011 were made by the Sponge Iron Manufacturers’ Association against the said cuts. However impugned letter dated 21st April, 2011 was issued by the respondent No.1 directing the respondent Nos. 2 and 3 to implement the directives. (e) That the order dated 18th May, 2011, violates the guidelines 16 fixed by the EGOM to the effect that the priority is given to the core sector only for the first 40 mmscmd out put from KG D6 field and in respect of production in excess of 40 mmscmd the priority should be given to the gas based steel plants and the impugned decision of the Ministry of P & NG is contrary to the decision of EGOMs. That the impugned order dated 18th May, 2011 is manifestly arbitrary. No cogent reasons have been given. It is untenable being based on completely extraneous and irrelevant grounds. That the reasons for giving priority to core sectors vis-a-vis non core sectors are not only unreasonable and illegal but are not even reasons which have accrued subsequent to the EGOMs decisions. It is therefore, pleaded that the respondent No. 1 is virtually sitting in appeal over the decisions of the EGOMs and the impugned order suffers from non application of mind.

12. An Affidavit In Reply has been filed by Shri K.K.Sharma, Under Secretary to the Government of India in the Ministry of P & NG giving particulars of the various decisions taken by EGOM regarding GSPA and the Production Sharing Contract (PSC). An objection regarding maintainability of the writ petition has also been raised by relying upon the provisions of clause 26 (b) (ii) of the GSPA executed between the petitioners and the respondent Nos. 2 17 and 3 and it is contended that since the said agreement contains an arbitration clause, the writ petition is not maintainable on account of existence of an alternate remedy. Charts showing gradual decrease in the production of CNG from KG-D6 field from December, 2010 till 30th May, 2011 and the particulars of distribution are annexed to the said affidavit as Annexure R-1 to R-6 (to which reference would be made at a later stage). Reliance has been placed on the Judgment of the Hon’ble Supreme Court of India delivered on 7th May, 2010 in the case of Reliance Natural Resources Limited v/s. Reliance Industries Limited [(2010) 7 SCC 1] 1 in support of the submissions that (a) CNG vests in the Government of India and its utilization and distribution has to be done keeping in view the best interest of the country and public at large. (b) Till the gas reaches its last consumer it is owned by the Government of India and the PSC over rides any other contractual obligations between the contractor and any other party. (c) The CNG vests in the Government as a matter of trust and the regulations and distribution through allotments and allocations has to be done in national interest and hence in case of reduced availability, the gas has to be supplied to core sectors, fertilizer, power, Liquefied Petroleum Gas (LPG) and City Gas Distribution i.e. CGD (domestic & transport)

1. Reliance Natural Resources Limited v/s. Reliance Industries Limited [(2010) 7 SCC 1] 18 where output prices are controlled. (d) No consumer has any accrued or vested right to get a particular quantity of gas and the allocation made is in accordance with the Government’s GUP. (e) Condition precedent for supply to steel sectors would arise only after earlier priority sectors would get sufficient quantity. At this juncture it is necessary to note specific stand of the respondent No. 1 in respect of allocation of 3.75 mmscmd of gas to the steel sectors by communication dated 12/6/2009. In this regard relevant averments in the affidavit in reply are to be found in paras-10, 11 and 25 part, which read thus: “10. On review of the matter, it was found that there was surplus gas available from City Gas Distribution (CGD) Projects to the extent of 3.75 mmscmd, which could be allocated to a non-core priority sector and, consequently, the EgoM in its meeting held on 09/04/2009 decided that the Ministry of Petroleum and Natural Gas is authorised to the decision regarding the supply of unutilized quantity of natural gas from CGD sector And priority was to be accorded to gas-based steel plants. In pursuance of the said meeting held on 09/04/2009, the 11. Ministry of Petroleum & Natural Gas by its communication dated 12/06/2009 (p- 50 of the petition) made allocation to the steel plants, as detailed in the said communication, requesting the operator to supply quantity of gas as mentioned in the said communication.

25. When the gas production was envisaged to be 40 mmscmd, allotments were made only to fertilizers, LPG, power and CGD (domestic & transport) sectors. It is not correct to say that steel sector was allocated gas within the first 40 mmscmd. In fact, CGD sector (transport & domestic) was not in a position to offtake the entire 5 mmscmd allocated to it by the EgoM, as CGD entities are merely aggregators of demand of CNG-based vehicles & households using Piped Natural Gas (PNG), both of which convert slowly, and, hence, it takes a long time to build up the demand of CGD sector. It is 3.75 mmscmd of unutilized gas by the CGD sector which was transferred to the steel sector.” 19 Along with the affidavit of respondent No.1, 6 charts showing availability of gas from the KG D-6 field, allocation to various sectors including core and non-core sectors, supply to various sectors and the percentage reduction in supply from December, 2010 to May, 2011 have been annexed as Annexure R-1 to R-6 and it would be useful to reproduce the contents of the said charts. Annex. R-1 Dec-10 Allocation* (mmscmd) Average supply (mmscmd) % reduction in supply Name of the sector Fertilizers Power CGD LPG

15.35 29

0.65

2.59

14.05

25.88

0.6

2.3 Total Core Sector

47.59

42.83 Petrochemical Refineries Steel Total Non Core Sector

1.92

3.46

4.19

9.57

1.86

3.33

3.41

8.6 Total

54.16

51.43

8.47%

10.76%

7.69%

11.20%

10.00%

3.12%

3.76%

18.62%

10.14%

10.02% *Allocations pertain only to GSPAs signed by the Contractor. In addition to the above, 0.85 mmscmd has been supplied for pipeline operation. Annex. R-2 Jan-11 Name of the sector Allocation* (mmscmd) Average supply (mmscmd) % reduction in supply 20 Fertilizers Power CGD LPG Total Core Sector Petrochemical Refineries Steel Total Non Core Sector

15.35 29

0.65

2.59

47.59

1.92

3.46

4.19

9.57

13.66

25.35

0.59

2.35

41.95

1.81

3.22

3.66

8.69 Total

57.16

50.64

11.01%

12.59%

9.23%

9.27%

11.85%

5.73%

6.94%

12.65%

9.20%

11.41% *Allocations pertain only to GSPAs signed by the Contractor. In addition to the above, 0.88 mmscmd has been supplied for pipeline operation. Annex. R-3 Feb-11 Allocation* (mmscmd) Average supply (mmscmd) % reduction in supply

15.35 29

0.65

2.59

47.59

1.92

3.46

4.19

9.57

57.16

13.64

24.56

0.59

2.36

41.15

1.81

3.03

3.81

8.65

49.8

11.14%

15.31%

9.23%

8.88%

13.53%

5.73%

12.43%

9.07%

9.61%

12.88% Name of the sector Fertilizers Power CGD LPG Total Core Sector Petrochemical Refineries Steel Total Non Core Sector Total *Allocations pertain only to GSPAs signed by the Contractor. In addition to the above, 0.97 mmscmd has been supplied for pipeline operation. 21 Name of the sector Fertilizers Power CGD LPG Total Core Sector Petrochemical Refineries Steel Total Non Core Sector Annex-R-4 Mar-11 Allocation* (mmscmd) Average supply (mmscmd) % reduction in supply

15.35 29

0.65

2.59

47.59

1.92

3.46

4.19

9.57

12.7

24.74

0.56

2.26

40.26

1.67

3.02

3.64

8.33

17.26%

14.69%

13.85%

12.74%

15.40%

13.02%

12.72%

13.13%

12.96%

14.99% Total

54.16

48.59 *Allocations pertain only to GSPAs signed by the Contractor. In addition to the above, 0.88 mmscmd has been supplied for pipeline operation. Annex. R-5 Apr-11 Allocation* (mmscmd) Average supply (mmscmd) % reduction in supply

15.35 29

0.65

2.59

47.59

1.92

3.46

4.19

9.57

12.19

25.34

0.57

2.25

40.35

1.66

2.95

3.64

8.25

20.59%

12.62%

12.31%

13.13%

15.21%

13.54%

14.74%

13.13%

13.79% Name of the sector Fertilizers Power CGD LPG Total Core Sector Petrochemical Refineries Steel Total Non Core Sector 22 Total

54.16

48.6

14.98% *Allocations pertain only to GSPAs signed by the Contractor. In addition to the above, 0.75 mmscmd has been supplied for pipeline operation. Name of the sector Fertilizers Power CGD LPG Total Core Sector Petrochemical Refineries Steel Total Non Core Sector Annex. R-6 9th May-2011 to 30th May-11 Allocation* (mmscmd) Average supply (mmscmd) % reduction in supply

15.35 29

0.65

2.59

47.59

1.92

3.46

4.19

9.57

13.77

26.87

0.61

2.55

43.8

0.67

1.21

3.35

3.35

10.29%

7.34%

6.15%

1.54%

7.96%

65.10%

65.03%

64.92%

64.99%

17.51% Total

54.16

47.15 *Allocations pertain only to GSPAs signed by the Contractor. In addition to the above, 0.91 mmscmd has been supplied for pipeline operation.”

13. On behalf of respondent No. 4 NTPC an affidavit in reply has been filed by the Senior Manager of Respondent No. 4 for opposing the writ petition. An affidavit in reply has also been filed on behalf of the respondent No. 8 Ratnagiri Gas and Power Private Limited by the D.G.M. (Commercial). Contents of the affidavits filed on behalf of the NTPC and Ratnagiri Gas & Power Pvt. Ltd. need not be discussed in greater details since they support the impugned 23 orders and the stand taken by the respondent No. 1. They have pleaded that they have to sell the power at subsidized rates which are fixed by the regulatory authorities and any decrease in the supply of CNG would result in corresponding increase in cost of production and the subsidy burden on the State Governments would increase. Added respondent No.10 has however, indicated the figures of huge subsidy which is paid by the Government of India over a year to fertilizer manufacturers on account of the difference between the higher cost of production and substantial lower controlled sale price and its pointed out that if the supply of CNG to the said fertilizer unites, which also use CNG as feed stock is reduced any further; the units would be either be forced to partly shut down or would be forced to use costly alternative feed stock like naptha, oil etc. which would in turn result in to a substantial escalation in the quantum of subsidy which would be required to be given by the Government of India to such fertilizer manufacturers. The other respondents have probably not chosen to file any affidavits since their defense is almost similar. No Rejoinder Affidavit has been filed by the petitioners.

14. On the backdrop of the aforesaid pleadings, we have heard the submissions of Mr. Janak Dwarkadas, learned senior counsel 24 for the petitioners and Mr. Kevic Setalwad, Special Counsel appearing on behalf of the respondent No. 1 at great length. We have also heard submissions of Dr. Milind Sathe, Sr. Advocate appearing on behalf of the respondent No. 2, which were adopted by Mr. Indorkar, learned counsel appearing for respondent No.3. During the course of hearing Dr. Sathe has filed a compilation of 6 letters in respect of the controversy in the petition to which some reference would be made by us in due course. We have heard senior advocate Mr. J.J. Bhat, appearing on behalf of the respondent No. 9, which is a power producer; Mr. V.R. Dhond, learned counsel addressed on behalf of respondent No. 4 NTPC at some length. Mr. Pradeep Rajagopal, learned counsel appearing for respondent No.8 and the learned counsel appearing on behalf of the respondent Nos. 5, 6 and 7 have adopted the arguments advanced on behalf of the respondent No. 1 and 4. We have also heard Mr. Bomi Patel, learned counsel appearing on behalf of the added respondent No. 10 Fertilizer Association.

15. We would now note the submissions advanced by the learned counsel for the respective parties. (A) The learned senior counsel Mr. Janak Dwarkadas advanced 25 following submissions: (a) The policy laid down by EGOMs in its meeting dated 28th May, 2008 as further modified in the meeting dated 23/10/2008 is completely overhauled, mauled and given a complete go bye by the Ministry of P & NG which the Ministry is not at all authorized to do. (b) That a completely new policy contrary to the decision of EGOMs has been framed and is being implemented with effect from 9/5/2011. This action of the Ministry of P & NG is completely without jurisdiction, without any authority of law, contrary to the policy fixed by the EGOMs and hence impugned directions are arbitrary, illegal, irrational and without authority of law. The Ministry of P & NG is confusing between the words “allocation” and “priority”. Clause 10 of the EGOMs decision dated 23/10/2008 clearly gives priority to the existing natural gas based sponge iron / steel plants after the sectors prioritized earlier (core sectors like fertilizers, independent power producers, CGD (domestic and transport) and LPG). Thus, the priority to the core sector was restricted to the supply of first 40 mmscmd to be produced from KG D6 fields and the moment the production exceeded beyond first 40 mmscmd, CNG based sponge iron plants like the petitioners were given immediate next priority in respect of production beyond the 26 first 40 mmscmd. The Ministry of P & NG was therefore not justified in overruling the said decision taken vide clause 10 of the EGOMs meeting dated 23/10/2008. Once a firm allocation of CNG was made to the petitioners and the other sponge iron manufacturer (M/s. Essar Steel) by the Ministry of P & NG the order dated 12th June, 2009 with direction that the respondent Nos. 2 and 3 shall execute GSPAs with the sponge iron steel manufacturers for the quantities indicated therein namely, which was further enhanced by the order of Ministry of P& NG dated 19th November, 2009 increasing the firm allocation to the steel sector; the GSPAs executed between the petitioners and the respondent Nos. 2 and 3 must be treated as binding on the respondent Nos. 1 to 3 and the respondent Nos. 1 to 3 are therefore, bound to supply the aforementioned quantities since the same are firm allocations. Once the sponge iron manufacturers are given firm allocation up to 4.19 mmscmd per day read with clause 10 of the EGOMs decision dated 23/10/2008, unless and until the production from KG D6 fields failed below 40 mmscmd there was absolutely no justification and question of imposing any cuts in the supply of CNG to the sponge iron manufacturers. The word “allocation” connotes firm allocation and as far as priority is concerned, for the first 40 mmscmd though the core sectors may get priority, no such priority can be given to 27 the core sectors in respect of the production beyond the first 40 mmscmd of CNG. The stand taken by the respondent No. 1 in the impugned orders is thus contrary to the decisions of the EGOMs. The Ministry of P & NG is virtually trying to rewrite the Gas Utilization Policy. That the following contention raised in paragraph- 3.4 (page 21) of the affidavit in reply filed by the respondent No. 1 is completely erroneous, shows complete non- application of mind and is contrary to the EGOMs decisions. “Para 3.4 ..... Thus, it is evident that priorities are vertical and claim of a sector which is low in priority arises only if the allocation to the sector which is higher in priority is met. The priority given to the core sectors was never restricted to any quantity of gas nor was the same restricted to the first 40 mmscmd of gas produced from the KG D-6 field. The intention has always been that the core sectors should receive their full requirement and maximum possible allocation.” The Ministry of P&NG is having only the residual power and authority to reduce the supply of CNG to the steel sector only in so far as the first 40 mmscmd production is concerned and does not have any such power of reduction till production is in excess of 40 mmscmd. The provisions of clause 8 of EGOMs decision dated 23/10/2008 cannot override the clauses 7 and 10. CNG being a scarce natural resource, the Public Trust doctrine must be applied and the State cannot distribute the natural resources in an arbitrary manner leading to a situation where one sector of industries suffers 28 substantial financial loss and prejudice whereas the other sectors benefit at the cost of the sector whose supply is reduced. In fact, the Ministry of P & NG had itself issued directives contained in its letter dated 12/7/2010 and the following directions contained in paragraph-2 and 3 of the said letter dated 12th July, 2010 were just, proper, legal and in accordance with the decisions of the EGOMs. “2. The issue raised in the letter has been examined in the Ministry. The considered view of the Ministry is that the decision taken by the Empowered Group of Ministers EgoM) are to be implemented in toto. Hence, GSPAs have to be signed with all the customers, who have been allocated KG D-6 gas and are presently ready to take KG D-6 gas. GSPAs should be signed with all such customers expeditiously, as there has been considerable delay already. In order to address the issue raised in the above mentioned

3. letter, the following directors should be compiled with : - KG D6 gas should be supplied to customers against their a) fallback quantitites only after all customers, who have executed GSPAs with the Contractor, are offered gas up to the level of their firm quantities. b) On the days that KG D6 production is not sufficient to cater to all the customers with firm allocations, pro rata cuts should be imposed on all firm customers. Sd/- (Manu Srivastava) Director (GP)” In accordance with the said directives dated 12/7/2010 in fact pro rata cuts were being imposed on all the customers from December, 2010, but without any justification and authority, the Ministry of P & NG suddenly issued the impugned letters dated 30th March, 2011 and 21st April, 2011. By referring to averments on pages 23, 24 and 29 33 of the petition, it was contended that on account of the cuts in supply of CNG, there will be huge additional financial burdens on the petitioners as they would be forced to meet their requirements by purchasing spot cargoes of RNLG at much higher rate and since the GSPAs contain an assurance, the respondents are estopped from reducing the supply. It is contended that the entire capital of the petitioners would be wiped out and they would be incurring losses. (c) The impugned order dated 18th May, 2011 is completely erroneous, the author of the order has failed to consider relevant facts, the reasons given in the order are irrational and disclose a complete non-application of mind. The reasons given namely, the requirement of fertilizers in Kharif season and requirement of additional power due to intense heat calling for higher power production were factors which were always in existence being recurring events and must be deemed to have been taken into consideration by the EGOMs before arriving at the decision dated 23/10/2008 and hence, the Ministry of P & NG could not have passed the impugned order. (B) Mr. Kevic Setalwad, learned counsel for the respondent No.1 advanced the following submissions. (a) A careful perusal of decisions taken by the EGOMs on 30 28/5/2008 as reflected in the clause 2, 3 and 4 of the press note dated 25/6/2008 clearly shows that the marketing priorities were fixed in the following order: (i) Urea Fertilizer Plants, (ii) Gas Based LPG plants, (iii) Gas Based Power Plants and (iv) City Gas Distribution (Household And Transport). (b) That any additional gas was to be supplied to existing gas based power plants. (c) Vide clause 2(d) of the Minutes of EGOMs dated 28/5/2008, it was decided that supply of CNG to the fertilizer sector to meet the demand which would be generated in future would be given highest priority and this was the governing clause of the policy. (d) Decision to give priority to core sector as reflected from the EGOMs decision dated 23/10/2008 was not only for the first 40 mmscmd but the entire incremental production was to go to the priority/core sector. The entire incremental production of gas had to be essentially allocated to the priority sectors up to their firm requirements. (e) Clause 2 of the EGOMs Minutes dated 23/10/2008 has to be read in its entirety and the same indicates that clause 10 of the press note will have to be interpreted to mean that priority to steel sector can be given only after the first 4 prioritized core sectors get 31 their entire allocation. Even the initial allocation of 3.75 mmscmd made on 12th June, 2009 was on account of the availability of unutilized CNG allocated to the CGD sector which is clear from EGOMs decision dated 27/10/2009. Referring to paragraph- 29 of the affidavit in reply, it is pointed out that there is no rejoinder/ denial. EGOMs decision dated 27/10/2009 incorporated in press note on 6th November, 2009 and the chart annexed thereto show that on the assumption that the total confirmed availability of the gas would 61.611 mmscmd; after making firm allocations of 31.165,

15.508, 0.83 and 3 mmscmd to power, fertilizer, CGD and LPG sectors; 4.19 mmscmd from the balance quantity was the firm allocation to the steel sector. The total firm allocation to the core sector was 50.503 mmscmd and hence only after meeting the said demand, question of making allocation to the steel sector would arise. (f) The charts for production, supply and distribution of CNG from December 2010 to May, 2011 clearly show the gradual fall in production and in fact even the reduced firm allocation of

47.59 mmscmd to the core sector based on GSPAs executed by the core sector consumers, which is their firm full requirement is not being fulfilled and there is also a reduction in the supply made to them. According to the GUP, since the core sector had to be given 32 preference; on account of substantial decrease in the production, the Ministry was justified in issuing the impugned directives which were issued in the larger public interest. (g) The petitioners are operating their plants much prior to the KG D6 fields was found and came into operation. Merely because on account of increased supply from the said field for some time, cheaper CNG was allocated to them, they cannot claim any estoppel or equity. The core sector has to operate with fixed sale price and any reduction in gas supply to the core sector would have serious financial implications and results in huge financial losses to the Central Government and the State Government on account of enhanced burden of subsidy if the core sector is required to use costly alternate fuel. Some consumers from core sector will have to completely shut down the operations if supply of CNG is reduced. (h) In view of the law laid down by the Hon'ble Supreme Court of India in the case of RNRL v.s RIL (supra) and particularly the observations in various paragraphs and the conclusions recorded in paragraph- 218 it was submitted that the decision of Ministry of P & NG was legal, valid and in consonance with the law laid down by the Apex Court. Referring to various paragraphs of the order dt.

18.5.2011 it was submitted that the order is just, reasonable and all relevant factors are considered. 33 (i) Reliance was also placed on the following judgments of the Hon'ble Supreme Court - (i) Shrijee Sales Corporation and Anr. v/s Union of India and Ors. (1997) 3 SCC 398 2 at page 402 to support the submission that estoppal cannot be pleaded against public interest. (ii) Kasinka Traders and Anr. v/s Union of India (2007) 1 SCC 274 3 at page 283 to support the submission that the doctrine of promissory estoppal cannot be pressed into aid to compel the Government or the public authority to carry out a representation or promise if it is contrary to law and while considering the applicability of the doctrine courts have to do equity. (iii) M. P. Mathur & ors vs. D.T.C. & ors. (2006) 13 SCC 706 4 at page 715 in support of the submission that promissory estoppel is based on equity and the Court has to strike a balance between individual rights and larger public interest. (iv) State of West Bengal and ors. vs. Niranjan Singha (2001) 2 SCC 326 5 at page 329 in support of the submission