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PETITIONER: OIL AND NATURAL GAS COMMISSION AND ANR.

       Vs.

RESPONDENT: ASSOCIATION OF NATURAL GAS CONSUMING INDUST-RIES OF GUJARAT

DATE OF JUDGMENT04/05/1990

BENCH: RANGNATHAN, S. BENCH: RANGNATHAN, S. OJHA, N.D. (J) VERMA, JAGDISH SARAN (J)

CITATION:  1990 AIR 1851            1990 SCR  (3) 157  1990 SCC  Supl.  397     JT 1990 (2)   516  1990 SCALE  (1)900

ACT:     Constitution  of  India,  1950:  Articles  14,  32   and 226--OGC--A     statutory     corporation--Whether     State agency--’Public utility’ concern --Obliged to supply gas  at reasonable     rates--Price    fixation--Interference     by Court--Permissibility of.     Oil and Natural Gas Commission Act,  1959: Section  14-- ONGC--Whether ’public utility’ undertaking--Whether  obliged to supply gas for consumption of public.     Words and Phrases: ’Public utility’--’Reasonableness  of rates’ meaning of.

HEADNOTE:     The appellant, Oil & Natural Gas Commission. is a statu- tory corporation constituted by and under the Oil and  Natu- ral  Gas  Commission Act, 1959. In most of  its  oil  fields situated  in Gujarat, gas comes out along with crude oil  as "free gas".     The  appellant  had  agreed to supply this  gas  to  the Gujarat State Electricity Board (GSEB) and the Gujarat State Fertiliser Corporation (GSFC) at a price related to fuel oil price on the basis of thermal value equivalence, without any reference  to the cost of production of gas as such.  Public discontent over the alleged high price charged was expressed and eventually the dispute was referred to the sole arbitra- tion  of Dr. V.K.R.V. Rao who gave his award. Dr.  Rao  made the "cost plus" method the basis of his award in  preference to  the  basis  of thermal  equivalence  of  alternate  fuel (thermal equivalence basis).     In  July 1967, the supply of gas to some of  the  indus- tries in and around Vadodara city was started, on the  basis of individual annual contracts. Aggrieved by the steady rise in  the prices, the respondents Association of  Natural  Gas Consuming Industries and Others--moved the Bombay High Court in March 1979 by way of a writ petition- In the petition  it was, inter alia, prayed that the ONGC be directed (i) to 158 continue  to supply the gas to the respondents  despite  the contracts in their favour having lapsed; (ii) to discuss and negotiate  a fair, reasonable and just price for  supply  of

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gas;  (iii) to stop charging discriminatory prices  for  the supply  of  gas to the respondents in  comparison  with  the price  charged  to public sector undertakings; and  (iv)  to restrict the minimum guaranteed quantity of offtake.     The  High  Court passed an interim order  directing  the ONGC  to continue the supply of gas to the  respondents,  at the existing rate of Rs.504 per unit which was later  raised by the Court to Rs. 1000 per unit.     The  High  Court  held;  (i) The  Oil  and  Natural  Gas Commission is a public Utility Undertaking and has a duty to supply  gas  to anyone who requires it so long as  there  is enough supply available; (ii) Price fixation is generally  a legislative function. But the Oil and Natural Gas Commission being a State instrumentality, is bound to act reasonably in the  matter of fixation of price; such price is bound to  be determined by following any one of the modalities  suggested in  the judgment of the High Court; (iii) There was no  dis- crimination  by the Oil and Natural Gas  Commission  between the  public  sector  undertakings on the one  hand  and  the respondents’ undertakings on the other in charging differen- tial  prices; and (iv) The clause regarding minimum  guaran- teed offtake was valid and enforceable.     Before  this Court. the appellant  primarily  challenged the  finding of the High Court that the ONGC was  a  ’public utility  undertaking’ which was bound to supply gas  at  the request of any member of the public at large. The  appellant also  contested the correctness of the High Court’s  conclu- sion  that the price of gas must be determined on the  basis of  cost  of  production plus a reasonable  return  for  the investment made. The appellant submitted that (i) the prices under  the contracts entered into with the  respondents  had been determined on the basis of a wellknown principle.  viz. the  ruling prices for an alternate fuel and this could  not be said to be either arbitrary or unreasonable  particularly when  a large number of industries were willing to take  the supply of gas at the prices fixed on that basis; (ii)  while public sector units and State instrumentalities ought not to be  allowed to exploit the consumers. it was equally  neces- sary  to ensure that such units and  instrumentalities  were enabled to make reasonable profits; (iii) in the context  of the integrated activity of production of crude oil and  gas. it was almost impossible to work out the cost in respect  of any particular area or of a particular bye-product; (iv) the cost plus basis was fixed by the Award several years ago and that too in the context of supply to certain State 159 undertakings which, in turn, supplied essential  commodities like electricity and fertilizers; and (v) the onus of  show- ing  that the prices charged were unreasonable or  arbitrary was  on  the respondents and they had done nothing  to  dis- charge this onus.     On  behalf  of the respondents it was contended  that  a public utility undertaking could not arbitrarily discontinue its  supply  or  services merely because  the  customer  was unwilling  to pay the price asked for as unconscionable  and unreasonable. It was further contended that the price  fixed must be reasonable and fair so as to give the undertaking  a reasonable  return  on the capital employed and  that  there could  not be any discrimination against industrial  consum- ers. According to the respondents. this was the only reason- able  way  of price fixation and referred to  the  Award  in support  of this proposition- The respondents further  urged that to allow Oil and Natural Gas Commission to sell gas  at a higher price than this merely because. otherwise. but  for the  availability of gas, the consumers would have to  spend

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more  for  their sources of energy. will  really  amount  to introduction  an irrelevant element in the process of  price fixation  and  result in allowing the Oil  and  Natural  Gas Commission  to make unreasonable profits at the  expense  of unhappy consumers. It was argued that these principles  were applicable with greater force in the context of the  consti- tutional  discipline  over  state  instrumentalities   under Article 38 & 39 of the Constitution.      Bolt v. Stennett CJ E.R.__Revised--p. 1572; Allnutt  v. Inglis CIV E.R.--Revised--p. 206; Ira Y. Munn v. People,  24 L.Ed.  77: United Fuel Gas Co. v. Railroad Commission,  73L. Ed. 390; Los Angeles Gas & Electric Corporation v.  Railroad Commission.  77 L.Ed. 1180; Leo Nabbia v. People.  78  L.Ed. 940; Harold E. West v. Chesapeake & Potomac Telephone  Com., 79 L.Ed. 1640; Federal Power Commission v. Hope Natural  Gas Co.,  88 L.Ed. 333; premier Automobiles v. Union,  [1972]  2 S.C.R. 526; Panipat Cooperative Sugar Mills v. Union, [1973] 2  S.C.R.  860;  Shree Meenakshi Mills v.  Union,  [1974]  2 S.C.R. 398; Saraswati Industrial Syndicate v. Union,  [1975] 1  S.C.R.  956; Prag Ice and Oil Mills v.  Union,  [1978]  3 S.C.R. 293; Union of India v. Cynamide India Ltd., [1987]  2 S.C.C. 720, relied upon.      Allowing  the appeals and upholding the prices  charged by the Oil and Natural Gas Commission, this Court,      HELD:  (1) The Oil and Natural Gas Commission does  not satisfy  the primary conditions for being a  public  utility undertaking  as it has not so far held itself out or  under- taken or been obliged by any law to 160 provide  gas supply to the public in general or to any  par- ticular  crosssection of the public. The proviso to  Section 14(1)(e)  of the Act which lays down that the setting up  of industries  to  be  run with the aid of gas was  not  to  be undertaken by the Oil and Natural Gas Commission without the Central Government’s approval also gives an indication  that the  supply of gas to various industries on a general  basis was  not in the immediate contemplation of the Act  but  was envisaged as a future expansion to be initiated with Central Government’s approval. Perhaps a stage in the  developmental activities  of the Oil and Natural Gas Commission will  soon come  when  such  an obligation could be  inferred  but,  at present,  the  Oil and Natural Gas Commission  supplies  gas only to certain selected contractees. [181E-G]     (2) It is however not necessary in this case to  express any final opinion on the issue whether the ONGC was a public utility  undertaking  except to say, prima  facie,  that  it could  not be placed on par with a public utility  undertak- ing. All that the respondents wanted was a declaration  that they  were  entitled to the supply of gas  at  a  reasonable price.  It was sufficient, for disposing of this  claim,  to deal with this aspect of the matter and the larger aspect of Oil and Natural Gas Commission being a public utility under- taking could be left out of account. [183E-F]     (3) The treatment of the Oil and Natural Gas  Commission as  a public utility undertaking for the supply of gas  will raise innumerable basic questions totally inconsistent  with the present system of selective supply which the respondents want to be continued. It will transpose the area of  contro- versy  to  a totally different and wider  plane.  The  Court would then be constrained to hold that the present system of supply  was inconsistent with public law and  the  constitu- tional requirements of a public utility undertaking.  [183C- D]     (4) The main activity of the Oil and Natural Gas Commis- sion  is that of exploration and prospecting  for  petroleum

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and  petroleum  products.  So far as gas,  which  is  a  bye product,  is concerned, the Oil and Natural  Gas  Commission has  not  so  far been able to  voluntarily  or  constrained statutorily  to harness and utilise its production for  con- sumption by the public. [181H; 182A]     (5)  There is no doubt that Dr. Rao made the  cost  plus method the basis of his award in preference to the basis  of thermal  equivalence of alternate fuel (thermal  equivalence basis).  But,  the cost plus basis fixed by Dr. Rao  in  the background  of  the real nature of the  dispute  before  him three  decades ago could not be taken as conclusive  in  the present 161 situation.  Dr.  Rao was concerned primarily with  an  issue raised  by  the  public of Gujarat as against  the  Oil  and Natural Gas Commission. He was really adjudicating upon  the price which the Oil and Natural Gas Commission should charge to  public  sector undertakings catering  to  the  essential needs  of  the State. In that context,  his  objective  was, understandably,  to  fix the price as low as  possible.  The consumer  under consideration by him represented the  public need  of  the State of Gujarat and, as against  such  public interest,  the Oil and Natural Gas Commission’s  profit  re- quirements paled into insignificance. [189C; G; D-E]     (6) Here, the Court is dealing with a price to be  fixed under a contract between the Oil and Natural Gas  Commission and  one set of industries in the State who wish to  make  a change  over  from the furnance oil system to  that  of  gas supply  with a view to increase their own profitability  and gain an advantage, if possible, over other industries in the State.  In this context, Oil and Natural Gas  Commission  is entitled  to a larger latitude and charge a price which  the market can bear. The only restriction is that, being a State instrumentality, it should not be a whimsical or  capricious price but should be one based on relevant considerations and on some recognised basis. [189H; 190A]     (7) Cost plus is not a satisfactory basis in all  situa- tions.  May  be the cost plus is an ideal  basis  where  the commodity  supplied  is the product of a monopoly  vital  to human  needs.  In  that context the price  fixed  should  be minimum  possible as the customer or consumer must have  the commodity  for his survival and cannot afford more than  the minimum. Per Contra, there can be situations where the  need of the consumer is not so vital and the requirements of  the economic  scene  are  such that the needs  of  the  producer should  be given greater consideration. In such  situations, the  "plus"  element  in the cost plus  basis  (namely,  the allowable  profit margin) should not be confined to "a  rea- sonable return on the capital" but should be allowed to have a much larger content depending on the circumstances.  Given a favourable area of operation, commercial profits need  not be either anathema or forbidden fruit even to public  sector enterprises- [191D-E; G-H]      Anakapallee Case, [1973] 2 S.C.R. 882; Venkatachalam v. Deputy Transport Commissioner, [1977] 2 S.C.R. 392, referred to.      (8)  It would not be right to insist that the  Oil  and Natural  Gas Commission should fix oil prices only  on  cost plus basis. Indeed, its policy of pricing should be based on the  several  factors  peculiar to the  industries  and  its current situation. and so long as such a policy is not 162 irrational or whimsical, the court may not interfere. [195D]     (9) Price fixation is generally a legislative  function. But Parliament generally provides for interference only at a

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stage  where in pursuance of social and economic  objectives or  to  discharge duties under the Directive  Principles  of State Policy, control has to be exercised over the distribu- tion and consumption of the material resources of the commu- nity. [195F]     M/s.  Shri Sitaram Sugar Company Ltd. & Anr.  v.  Union, J.T.  1990 (1) S.C. 452; Jagadamba Paper Industries v.  Har- yana  State Electricity Board, [1984] 1 S.C.R.  165;  Kerala State  Electricity Board etc. v. M/s. S.N. Govinda Prabhu  & Bros. & Ors. etc., [1986] 4 S.C.C. 1968, referred to.     (10)  It  cannot be said that the Oil  and  Natural  Gas Commission has acted arbitrarily in fixing the prices on the thermal equivalence basis; the fact that it has not done  it on cost plus basis does not vitiate the price fixation.  The only question to be considered is as to whether the Oil  and Natural  Gas Commission has fixed a price based on  relevant materials and on some known principle. [200C]     (11)  The manufacture, distribution and  consumption  of gas has yet not attained the status of an essential commodi- ty till recently. At present, the industry is in the  penum- bral region where the commodity is free to be distributed at the  manufacturer’s choice, but yet where such  manufacturer being a State instrumentality, has to conform to Articles 14 and 19 of the Constitution. At this stage of development  of the  industry  a much wider latitude is permissible  in  the fixation  of prices than the imposition of a "no profit,  no loss" basis or a "cost plus" basis on the producer. [200E-G]     (12) It is now well settled that a favourable  treatment of public sector organisations, particularly ones dealing in essential commodities or service, would not be discriminato- ry.  No  tangible material has been brought to  the  Court’s notice  which would support the plea of  unfair  discrimina- tion. [203E-F]     (13)  The High Court rightly upheld the Oil and  Natural Gas Commission’s right to insist on a munimum off take guar- antee. [202G]     Amalgamated  Electricity  Co. Ltd.  v.  Jalgaon  Borough Municipality, [1976] 1 S.C.R. 636. 163

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.  8530-40 of 1983.     Appeals  by  Certificate from the  Judgment  and  Decree dated  30.7.1983 of the Gujarat High Court in Special  Civil Application  Nos.  883 of 1979, 913 of 1979, 1897  of  1981, 2316 of 1982, 2384of 1982, 2445 of 1982, 2470 of 1982,  2977 of 1982, 4194 of 1982, 4520 of 1982 and 2542 of 1982.     K.  Parasaran, Attorney General, B. Sen,  A.K.  Ganguli, Dr.  Y.S. Chitley, T.S. Krishnamurthy Iyer, N. Nettar,  G.S. Narayana,  p. Parameshwaran, T.V.S.N. Chaff and N.N.  Sharma for the Appellants.     Anil  B.  Diwan,  K.J. Kazi, Dr. L.M.  Singhvi,  Ms.  M. Arora, Mrs. B. Chib, M. Singhvi, D.A. Dave, Mrs. M. Karanja- wala,  R.N. Karanjawala, Mr. P.H. Parekh, Mr. C.A. Cazi  and Mrs. H.S. Anand for the Respondents- D.N. Misra for the Intervenor. The Judgment of the Court was delivered by     RANGANATHAN,  J. These are eleven appeals  preferred  by the Oil and Natural Gas Commission (ONGC, for short) from  a judgment  and  order, dated 30th July, 1983, of  a  Division Bench  of the High Court of Gujarat at Ahmedabad in a  batch of writ petitions, since reported in 1983-24(2) Gujarat  Law

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Reporter 1437. The appeals are pursuant to a certificate  of fitness granted by the High Court.      The  ONGC was initially a Department of the  Government of  India  but, in view of its expanding activities  in  the search for strategic and vital materials like oil, petroleum and  its products it was set up as a body corporate.  It  is now a statutory corporation constituted by and under the Oil and  Natural  Gas Commission Act, (Central Act 43  of  1959, hereinafter referred to as ’the Act’). The Act provides  for the  establishment of a Commission "for the  development  of petroleum  and  petroleum products produced by  it  and  for matters  connected therewith". Section 2(f) of the  Act  de- fines  ’petroleum’  as  having the same meaning  as  in  the Petroleum  Act,  1934  (Act 30 of  1934)  and  as  including ’natural gas’. The Commission established under the Act took over  the previously existing organisation with effect  from 18.9.59. Some of the provisions of the Act which are relevant for our 164 present  purposes  may be set out here.  Chapter  III  which deals  with the powers and functions of the Commission  con- sists of Sections 14 and 15. S. 14 reads thus: "14. Functions of the Commission-- (1) Subject to the provisions of this Act, the functions  of the Commission shall generally be to plan, promote, organise and  implement programmes for the development  of  petroleum resources  and  the  production and sale  of  petroleum  and petroleum products produced by it and to perform such  func- tions  as  the Central Government may, from  time  to  time, assign to the Commission. (2) In particular and without prejudice to the generality of the foregoing provision, the Commission may take such  steps as it thinks fit-- (a)  for  the  carrying out of  geological  and  geophysical surveys for exploration of petroleum; (e) for the transport and disposal of natural gas and refin- ery gases produced by the Commission:           Provided  that no industry, which will use any  of these  gases as a raw material, shall be set up by the  Com- mission without the previous approval of the Central Govern- ment. (h)  to  perform any other function which  is  supplemental, incidental  or consequential to any of the functions  afore- said or which may be prescribed." Section  15  empowers the Commission to  exercise  all  such powers  as may be necessary or expedient for the purpose  of carrying  out its functions under the Act. Such  powers  in- clude the disposal of any property, right or privilege,  the original  or book value of which exceeds such amount as  may be prescribed, or where no such amount has been  prescribed, exceeds  ten lakhs of rupees and this power could  be  exer- cised  after obtaining the previous approval of the  Central Government 165 [Clause  (c)I.  Chapter IV of the,Act  deals  with  finance, accounts,  audit and reports. Sections 16 and 17  deal  with the  capital of the Commission and the vesting, in the  Com- mission,  of the previous set up in this regard. Section  23 of the Act requires the Commission to furnish to the Central Government such returns and statements and such  particulars in  regard  to any proposed or existing  programme  for  the development  of petroleum resources and the  production  and sale  of  petroleum and petroleum products produced  by  the Commission as the Central Government may, from time to time, require. Section 24 in Chapter V (Miscellaneous) enacts that

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any  land  required by the Commission for carrying  out  its function  under  the Act shah be deemed to be needed  for  a public purpose and such land can be acquired by the  Commis- sion under the provisions of the Land Acquisition Act, 1894. S. 31 confers rule making powers on the Central  Government, in  pursuance of which have been framed the Oil and  Natural Gas  Commission Rules, 1960. The only rule relevant for  our present  purposes  is rule 25, dealing  with  contracts.  It reads as follows: "25. Contracts: (1) The Commission may enter into contracts for the  purpose of performing its functions under this Act; Provided  that provision therefore exists in the budget  ap- proved by the Government. (2)  Contracts made on behalf of the Commission shah not  be binding  on  it unless they are executed by  a  person  duly authorised by it. (3) A person authorised by the Commission to enter into  any contract  on its behalf shall not be personally  liable  for any assurance or contract made on its behalf and any liabil- ity  arising  out  of such assurance or  contract  shall  be discharged from the Fund." The statute, it may be observed, neither imposes a  specific duty on the O.N.G.C. to supply its products to consumers  at large nor contains any provisions regarding the fixation  of prices  for the commodities made available by  the  O.N.G.C. for sale.      In  the course of its drilling and exploration of  oil, the ONGC discovered oil-bearing fields in Cambay and Ankles- war region in 1969 166 and 1961 respectively. In most of the oil fields situated in Gujarat, gas comes out along with crude oil and is  commonly known as "associated gas". In Cambay area, gas is unaccompa- nied by crude oil and is known as "free gas". This is easily combustible and can be used as domestic as well as industri- al  fuel. We are concerned here with both these  commodities which  are  generally known as ’natural gas’  and  we  shall refer to them compendiously as ’gas’.     In October, 1961 ONGC first thought of the idea of using natural  gas in addition to fuel oil in industries.  It  had detailed  discussions  with the  Gujarat  State  Electricity Board (GSEB) and it was agreed between them that gas  should be supplied to the GSEB at a price related to fuel oil price on the basis of thermal value equivalence. On this basis, an agreement  was  entered  into between them  in  March,  1963 whereunder  the price of fuel oil was fixed at Rs.77.26  per tonne  including rail frieght; and, based on this price  and thermal value equivalence, the price of Cambay gas was fixed at  Rs.80.14 per 1000 cubic metres (hereinafter referred  to as ’the Unit’) and of Ankleshwar gas at Rs. 106.66 per unit, rounded off to Rs.80 and Rs. 100 per unit respectively.  The ONGC began to supply gas from Cambay region of Dhruvan Power Station in 1964 and from Ankleshwar to Uttaran Power Station in  1965.  The ONGC also entered into discussions  with  the Gujarat  State Fertilizer Corporation (GSFC) and  ultimately it  was  agreed, on the footing of the price  of  Rs.76  per tonne  in  respect of Koyali Naphtha,  that  associated  gas should  be supplied to the GSFC at between Rs.88  and  Rs.90 per  unit on the principle of thermal equivalence. This  was in  1966.  It may be mentioned here that the  three  parties concerned  viz.  the ONGC, GSEB and GSFC, had more  or  less agreed  to the principle of determining the price of gas  on the basis of thermal equivalence with an alternative fuel or feedstock emanating from the processing of crude oil.  There

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was no reference to the cost of production of gas as such.     Despite  the  above agreements, however,  the  concerned parties were not all very happy. The GSFC resented the  fact that  discount was not given to them as bulk purchasers  and that  the prices charged for the Trombay fertiliser  factory and power house at Bombay were substantially lower than  the prices  that the ONGC charged them. Eventually, public  dis- content  was expressed over the alleged high price that  was being charged for gas by the ONGC to these organisations. It was  felt  that the ONGC was denying to them  the  advantage they  should  have obtained by the discovery of gas  in  the region of their operation. It was also felt that this treat- ment resulted in discrimination against 167 them  in comparison with advantages enjoyed by other  States due  to the availability of fuel resources such as  coal  or hydro-power within their areas. In view of these expressions of public feeling, the question of fixing a proper price for the  gas was taken up by the Government of Gujarat with  the Government  of India. Eventually, as no agreement  could  be arrived  at, the disputes was referred to the sole  arbitra- tion  of  Dr. V.K.R.V. Rao who gave his  award  (hereinafter referred to as ’the award’) on 23.9.1967. He determined  the price  of  natural gas at Rs.50 per  unit  ex-well-head,  to which  were added royalty, sales-tax, depreciation  and  the transport  charges.  This  award was to be  enforced  for  a period of five years i.e. upto 31.3.1971. Between April 1971 and  December  1975, the well-head price was  increased  and fixed  at Rs.66 per unit, we are all told, on the  interven- tion of the then Gujarat Governor. These prices were revised subsequently. The supply to GSEB was revised to Rs. 155  and the rate of supply to GSFC was revised to Rs.320 per unit.     At  that time, there were very few industries set up  in and around Vadodara and these depended, besides electricity, on other forms of energy generated through coal or  furnance oil. In July 1967, the supply of gas to some of these indus- tries in and around Vadodara city was started, initially  as a temporary measure pending the effective materialisation of the  Gujarat Fertilizer Corporation demand, after which  the industries  were  to  go over to fuel oil if  gas  could  no longer  be  supplied.  After a series  of  discussions,  the Federation of Gujarat Mills and Industries agreed to a price of  Rs. 100 per unit of Ankleswar gas for this  supply.  The charging of ten rupees less per unit supplied to the  Ferti- liser  Corporation  was justified on the  ground  that  such differentiation was consistent with general practice where a petroleum  feed stock is used for chemical  industry.  Among the  industries that thus received gas supply were  the  ten respondents (respondents 2 to 10 in these appeals) who  have formed  themselves, in September, 1978, into an  association called "The Association of Natural Gas-Consuming  Industries of Gujarat", which is respondent No. 1. The supply to  these industries--extended  later  to  a few  more--was  based  on individual  contracts  entered  into with each  one  of  the concerns.  Initially, the ONGC entered into contracts  valid for  a period of five years at a time but,  subsequently--it is  said, due to a fear of possible shortage in  the  avail- ability  of enough gas--this was changed and  the  contracts were,  generally, made annual, except in regard  to  certain public sector undertakings and, it is said, a few companies. The  rates of supply were also slowly stepped up as  can  be seen from the following table: 168 Period                              Price of supply 1.1.1976 to 31.03.1976              Rs.322.63.

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1.4.1976 to 31.12.1976              Rs.341.45 1.1.1977 to 31.03.1977              Rs.351.00 1.4.1977 to 31.12.1977              Rs.371.16 1.1.1978 to 31.03.1978              Rs.382.15 1.4.1978 to 31.03.1979              Rs.504.00     According  to  the ONGC, the price demanded  from  these industries and initially been based on alternative fuel cost i.e., the cost which these industries would have had to  pay for fuel oil if no supply of gas had been available.  Later, upto  December  1975,  the price was based on  the  cost  of production, as determined by the award. After the expiry  of the period of operation of the award, the basis for calcula- tion of price was revised on the basis of the thermal equiv- alence  of  coal price. The rates of supply from  1.4.78  as fixed  above from time to time were also made subject to  an automatic annual escalation at 5%. The contracts, as already mentioned, were annual and contained no term for renewal. On the  expiry  of each contract, a fresh contract  had  to  be entered  into  and, naturally, the new  contract  stipulated prices  for  supply that were prevalent at the time  of  the respective contracts. It may be mentioned that the  existing contracts with the various consumers had lapsed by efflux of time  on 31.3.79 in some cases, 30.1.80 in some other  cases and in 1982 in respect of others.     Aggrieved  by the steady rise in the prices, writ  peti- tion  No.  883 of 1979 was filed by the respondents  in  the Bombay  High Court in March 1979. In this writ  petition  it was prayed that the ONGC should be directed (a) to  continue to  supply  the gas to them despite the contracts  in  their favour  having  lapsed; (b) to supply the break-up  and  the data  on the basis of which the price structure was  arrived at and to fix the price after giving reasonable  opportunity to  the concerned industries or their associations;  (c)  to discuss and negotiate a fair, reasonable and just price  for supply of gas; (d) to restrict the minimum guaranteed  quan- tity  of offtake to 75 per cent of the  contracted  quantity (this was because the ONGC had been insisting on raising the said  guarantee  to 90 per cent) and; (e) to  stop  charging discriminatory  prices for the supply to the respondents  in comparison with the price charged to public sector undertak- ings.  Pending the hearing and final disposal of  the  peti- tion, an interim order was sought restraining the ONGC  from discontinuing  the supply of gas to the petitioners on  such terms as the Court may think fit and proper. 169     On 30.3.1979, the Court passed an interim order  permit- ting  the petitioners to continue to pay "on the same  terms as  at present" ie. at Rs.504 in some cases and  a  slightly different figure in other cases. Subsequently, however, with the  passage of time the price of gas was stepped up by  the ONGC in the following manner: Period                                 Amount 1.4.1981 to 31.12.1981                 Rs. 741.00 01.1.1982 to 31.12.1982                Rs.2095.70 01.1.1983                              Rs.2403.03 15.2.1983                              Rs.2503.03 17.3.1985                              Rs.2878.00 We  are told that the sudden jump in prices w.e.f.  1.1.1982 was  consequent  on the decision of the ONGC to  change  the basis  of  fixation  of price, once again,  to  furnace  oil equivalence. In view of this increase in the prices demanded by  it  from other parties, who according to the  ONGC  were willing to pay the price asked for, an application was  made to  vacate or modify the interim order dated  30.3.1979.  On 5.11.1982,  the  Division  Bench of the  High  Court,  after

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pointing  out the various difficulties and questions  raised by the case thought it would be fit and proper to direct the ONGC not to discontinue the supply of gas but to continue to supply  it at the rate of Rs. 1,000 per unit  till  November 30,  1983 (unless the petition was disposed of in the  mean- while), subject to adjustment being made in case this  Court or  the machinery evolved at the time of final  disposal  of the  petition  determined the price of gas  at  a  different rate.  In  other  words, if, ultimately, the  price  of  gas should be determined at a higher rate, the writ  petitioners would  be  obliged to make good the difference.  In  case  a lower  rate should be determined, the ONGC would be  obliged to  refund the excess amount collected or adjust it  against future  supplies,  as the Court may direct at  the  time  of disposing of the matter finally. A similar order was  passed on 29.12.1982 in another batch of cases. When these  appeals were  filed a Bench of this Court, on  6.10.1983,  continued the interim price of Rs. 1,000 per unit without prejudice to the  rights and contentions of the parties and directed  the appeals to be expedited.      It  has taken six years since then for these  petitions to  come  up for heating and till now the  respondents  have continued  to pay at the rate of Rs. 1,000 per unit. It  has been  stated  before us that some of  the  respondents  have failed to pay even at the rate of Rs. 1,000 as directed 170 by  this  Court and that this Court had to  direct,  by  its orders  dated  15.4.87 and 30.10.87,  that  the  respondents "will  not  charge, encumber or alienate,  except  with  the leave of this Court, any of their immovable assets  included in the respective undertakings and that they will make their immovable  assets available for discharging  the  respective liabilities  on  account of the difference in the  price  of (all)  the  gas supplied to them (and)  further  during  the pendency of the appeals as determined by the orders made  by the Court while disposing of the appeals."     In order to complete the narration of relevant facts, it may  be  mentioned here that, though natural  gas,  being  a "petroleum product" falls within the scope of the  Essential Commodities  Act and though control orders have been  issued under the said Act regulating the supply and distribution of several  petroleum  products, it is only by an  order  dated 30.1.1987  that the price of gas has been fixed by the  Gov- ernment  at  Rs. 1400 per unit which, together  with  taxes, comes  to about Rs. 1848 per unit. It may also be  mentioned that,  while on the one hand the said fixation of price  has been challenged by the petitioners and certain other  indus- tries before the Gujarat High Court, the Government, on  the other  hand, is in the process of revising the prices,  per- haps to a higher figure, in consultation with the Bureau  of Industrial  Costs  and Prices. In the  petitions  which  are pending  before the Gujarat High Court an interim  price  of Rs. 1,000 has been fixed following the orders in the matters now  before us. The result is that, ever since January  1983 and till today, most of the petitioners have been paying for the gas supplied only at the rate of Rs. 1,000 per unit  and some of the industries have defaulted even in doing this.     A  prayer was made by the Union of India to transfer  to this Court the writ petition subsequently filed  challenging the price fixation of 30.1.87 but this request was  declined on  4th August, 1988. This court observed that, after  these appeals  are  disposed  of, the High Court  can  proceed  to dispose  of the said writ petitions in accordance  with  the judgment.  The position, therefore, is that we are not  con- cerned  in  these appeals with the period  beyond  30.1.1987

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when the jurisdiction to fix prices came to be vested in the Central  Government. We are concerned in these matters  only with the period from the date of expiry of the contracts  in favour of each of the respondents to 30.1.1987 and with  the following questions: (a) whether the O.N.G.C. is at  liberty to  fix its own price for the gas or should be  directed  to fix  the  price in any particular manner;  (b)  whether  the O.N.G.C. can be directed to supply data and the break-up for the  price charged and to negotiate the price with the  par- ties concerned; (c) whether the 171 O.N.G.C.  can be compelled to continue to supply gas to  the various petitioners at the interim prices fixed by the court subject  to adjustment on fixation of prices  determined  in accordance with the directions of the court; and (d) whether the  minimum  guarantee of off-take could be raised  by  the O.N.G.C. to 90 per cent instead of 75 per cent.     It  is unnecessary at this stage to set out the  various contentions  raised by the parties before the High Court  as they will have to be discussed in some detail later. Here it may  be  sufficient  to summarise the  effect  of  the  High Court’s  judgment in disposing of these writ petitions.  The High Court held:        (i) The O.N.G.C. is a public utility undertaking  and has  a duty to supply gas to anyone who requires it so  long as there is enough supply available;        (ii) Price fixation is generally a legislative  func- tion.  But the O.N.G.C., being a State  instrumentality,  is bound to act reasonably in the matter of fixation of  price; such price is bound to be determined by following any one of the modalities suggested in the judgment of the High Court;        (iii)  There  was no discrimination by  the  O.N.G.C. between  the public sector undertakings on the one hand  and the  respondents’  undertakings  on the  other  in  charging differential prices;        (iv) The clause regarding minimum guarantee was valid and enforceable. However,  in view of its finding that the ONGC is  a  public utility undertaking, the Court took the view that it  should supply gas to the respondents subject to the availability of gas  supply  and also that such supply should be made  at  a price which was to be determined in one of the four  differ- ent methods set out in paragraph 36 of the judgment. It  was also observed by the Court that, the respondents were agree- able to price fixation by anyone of three of the said  meth- ods. The concluding portion of the judgment, reads thus: "36.  Now we come to the last part of this judgment.  It  is regarding  what  relief should be granted in this  group  of petitions. We have already said above that the action of the ONGC in charging the rate in the respective cases is 172 ex-facie  unreasonable and to that extent their  demand  for the said price is set. aside. The ONGC however, shall be  at liberty  to  get the price for that  period  and  subsequent period fixed according to the reasonable and rational  norms and  for that purpose it is open to the ONGC to  follow  any one of the following three courses: (i)  They  may request the Central Government to  appoint  a Commission  for  the purpose of deciding the prices  of  gas from time to time, including the time for which we have  set aside their demand of price, invoking the provisions of  the Commission of Inquiry Act or any other law; (ii) They may invoke the arbitration of some eminent  econo- mist in consultation with the petitioners; or (iii)  They may themselves decide the price, after  bringing

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to  their  consideration all relevant factors and  for  that purpose they may hear fully and effectively the  petitioners and other persons likely to be affected thereby: If  the  last of the above three courses is adopted  by  the ONGC for deciding the price structure afresh, it would be in their  interest to give hearing to the persons likely to  be affected  so that the possibility of a new round of  litiga- tion is avoided. We reiterate that as far as the petitioners are  concerned, they are amenable to any of the three  modes which the ONGC may choose to adopt. "37.  We  accordingly set aside the prices demanded  by  the ONGC  from  these petitioners in this  group  of  petitions, leaving  it  open to the ONGC to deal with the  question  of price  fixation in any one of the three modes  suggested  by us.  The petitions are accordingly partly allowed.  Rule  is accordingly made absolute in all these petitions with costs. 38.  The civil applications, in view of the final  decision, do not survive and stand disposed of and till the new  price fixation is had, the price charged last from these petition- ers under the respective contracts with them shall  continue to  operate between the parties, subject to  adjustments  in future after prices are fixed as stated above." 173     Shri B. Sen, who appeared for the ONGC, made R clear  at the  outset that he was not disputing the  propositions  (a) that the ONGC is ’State’ within the meaning of Article 12 of the Constitution; and (b) that it has a duty to act reasona- bly  and  fairly  so as not to infringe  the  provisions  of Articles 14 and 19 and also in consonance with the directive principles of State policy set out, inter alia, in  Articles 38  and 39 (b) of the Constitution. His challenge  is,  pri- marily, to the finding of the High Court that the ONGC is  a ’public  utility undertaking’ which was bound to supply  gas at  the request of any member of the public at large and  to its  direction that it should continue to supply gas to  the respondents at an uncertain price till the price is fixed in accordance with the procedure outlined by it,  notwithstand- ing that the contracts under which the respondents  procured such  supplies have expired long ago. He also  contests  the correctness of the High Court’s conclusion that the price of gas  must be determined on the basis of cost  of  production plus a reasonable return for the investments made, (herinaf- ter  referred to broadly as the "cost plus" basis). He  sub- mits  that the prices under the contracts entered into  with the  respondents  have  been determined on the  basis  of  a well-known principle viz. the ruling prices for an alternate fuel  and  this  cannot be said to be  either  arbitrary  or unreasonable particularly when a large number of  industries are  even  today willing to take the supply of  gas  at  the prices fixed on that basis. He also complains that the  High Court  overlooked that the respondents are not domestic  but industrial  consumers. If the ONGC were to be treated  as  a public  utility  bound to supply an essential  commodity  of this nature to any one for the asking subject to availabili- ty, it may be that the price for such supply should be fixed on  a  cost plus basis. But where the supply is  limited  to certain  industries  and other similarly  placed  industries have  to produce similar goods by consuming furnance oil  or other equivalent alternate fuel, it is quite reasonable  for the O.N.G.C. to stipulate--indeed, it would be discriminato- ry, were it not to stipulate--that its prices would be based on  the  cost of alternate fuel which would have to  be  in- curred  by these industries otherwise and which is  in  fact being incurred by other industries engaged in the production of  similar  goods to which the O.N.G.C. is not  making  any

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supplies  at  all. Sri Sen urges that  while  public  sector units  and State instrumentalities should not be allowed  to exploit  the  consumers, it is equally necessary  to  ensure that  such units and instrumentalities are enabled  to  make reasonable  profits and made good as commercial  enterprises by charging prices which the "traffic can bear" so that they can  also contribute substantially to national  development. It  is  submitted that, as against the respondents  who  are receiving supplies at the rate of Rs. 1,000 per unit,  there are 29 industries paying the Govern- 174 ment-fixed price of Rs. 1840 (since 1987), 12 other  parties who have earlier signed contracts at the furnace oil equiva- lent  rate and 65 industries which are willing to sign  con- tracts at the aforesaid Government rates. It should not also be  overlooked that, even if the cost plus basis were to  be contemplated, the prices would require substantial  revision considering the huge expenditure incurred by the  Government of India in recent years in prospecting for oil and the need for  heavy capital investment for meeting which the  Govern- ment  has had to obtain huge loans from the World  Bank  and other  organisations.  In  the context  of  this  integrated activity,  it is almost impossible to work out the costs  in respect  of  any particular area or of the  particular  bye- product  with  which we are here concerned.  The  cost  plus basis was fixed by the award several years ago and that  too in  the  context  of supply to  certain  State  undertakings which,  in turn, supplied essential commodities  like  elec- tricity  and  fertilisers.  Subsequent  enquiry  commissions (such  as the Damle award) do not price commodities  on  the basis  of cost. The ONGC, if it is to  function  effectively and make reasonable profit on the supply of this  commodity, should be allowed the latitude atleast to fix its own  prin- ciple of pricing. So long as such principle is a  recognised one  and  is  not per se unfair or  unreasonable  the  court should  not interfere. Else, Sri Sen submits, a  controversy regarding fixation of price will be raging eternally as  the industries would raise some objection or other to the  price fixation,  whatever it be, and the interests of  the  public will  suffer  if  the ONGC is constrained to  stick  to  the throw-away  prices fixed in outdated contracts until  prices can  be  fixed on a basis agreeable to the  consumer  indus- tries,  as has indeed happened in this case during the  past ten  years.  Sri Sen concluded by urging that  the  onus  of showing that the price charged was unreasonable or arbitrary was  on  the respondents and they had done nothing  to  dis- charge  this onus, except saying that the prices  have  been stepped up from time to time and that the increase in prices has been steep. Rather they have, in their pleadings, sought to  throw  the  onus on the ONGC to prove  that  the  prices charged  by it are fair and reasonable. Even this, says  Sri Sen, the ONGC has done.     The  discussions in the judgment of the High Court  and, to  some  extent,  the discussions before  us  have  touched several  aspects  of the principles to be kept in  mind  for price fixation of essential commodities basic to public need and, in doing so, have, in our opinion, travelled beyond the framework and scope of the questions that arises for consid- eration  in this case. It is necessary to remember that  the writ  petitioners  are  a few industrial  houses  which  had entered into con- 175 tracts  with  the ONGC for supply of natural  or  associated gas.  These were ordinary commercial contracts entered  into by private treaty between the ONGC and these respondents  to

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sell  and  buy  certain goods produced by the  ONGC  at  the prices  stipulated in the contracts. Looked at  purely  from the contractual angle, the ONGC was perfectly at liberty  to stop  the supply on the expiry of the relevant contract  and refuse  to supply further unless a fresh contract  could  be entered into agreeing upon a price for such supply. Assuming that  the  ONGC  is a State instrumentality  and  the  price demanded by it is susceptible to judicial review, the  court may,  where a contract has been entered into,  consider  the sustainability of the price agreed upon or where no contract has  been  entered into, injunct the ONGC from  demanding  a price  for supply which is found unreasonable. But we  doubt whether  it is open to the Court to direct the ONGC to  con- tinue the supply indefinitely without a contract and without any price fixation.     It  is  clear that, in giving directions as  above,  the Court  was considerably weighed by its conclusion  that  the ONGC  is  a  public utility undertaking which  is  bound  to supply gas to all who demand such supply subject only to the availability  of enough gas. Dr. Chitale, for  the  respond- ents, strongly supported this viewpoint. He urged that it is well  settled law that a public utility  cannot  arbitrarily discontinue  its supply or services merely because the  cus- tomer is unwilling to pay the price asked for as unconscion- able  and unreasonable. He submitted that this,  indeed,  is not a modern rule of constitutional law but an ancient  rule of  public  law. He referred in this context  to  the  early decisions of the King’s Bench Division in Bolt v.  Stennett, CI E.R.-Revised--p. 1572 followed in Allnutt v. Inglis,  CIV E.R.--Revised-p.  206 as laying down the basic principle  in this regard. This principle, he said, has also been  applied by  the American Courts in Ira Y. Munn v. People,  24  L.Ed. 77;  United  Fuel Gas Co. v. Railroad Commission,  73  L.Ed. 390;  Los  Angeles Gas & Electric  Corporation  v.  Railroad Commission,  77 L.Ed. 1180; Leo Nebbia v. People,  78  L.Ed. 940;  Harold E. West v. Chesapeake & Potomac Telephone  Co., 79  L.Ed. 1640 and Federal Power Commission v. Hope  Natural Gas  Co., 88 L.Ed. 333). These decisions clearly  lay  down, according  to him, that the price fixed must  be  reasonable and  fair, that the price should be so fixed as to give  the undertaking a reasonable return on the capital employed  and that  there cannot be any discrimination against  industrial consumers. These principles, he argued, are applicable  with greater  force in the context of the  Constitutional  disci- pline over State Instrumentalities under Articles 38 and  39 of the Constitution which mandate the State to direct  their policy towards securing "that the 176 ownership and control of material resources of the community are so distributed as to subserve the common good."     As already stated, the ONGC does not dispute the  propo- sition  that  it  is a State instrumentality  and  that  its actions  are subject to review under Articles 14 and  19  of the Constitution; it only refutes the suggestion that it has become  a public utility undertaking with an  obligation  to supply  gas to any consumer on reasonable conditions  as  to price  etc. It is contended by Sri K. Parasaran and  Sri  B. Sen that the ONGC is not a ’public utility’ under a duty  to supply  gas to members of the public. It is argued  that  in English  common law, the expression has a specific  connota- tion; it refers to an entity dealing in a commodity which is commonly used by the members of the public and under a duty, in  terms of a statute, licence or franchise obliging it  to supply  the  commodity  to the public at  large.  Thus,  for example,  in England the Public Health Act, 1936, the  Elec-

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tricity Act, 1947 and the Gas Act, 1948 provide examples  of a  duty cast on suppliers of water, electricity or  gas.  So also, in India, the Indian Electricity Act spells out a duty on the part of the licensee to supply electricity to members of the public. There are also other public utility undertak- ings providing for water, sewage connections, transport  and the  like which are under a statutory obligation  to  supply goods  and  services  to members of the  society  at  large, subject  to  the fulfilment of  reasonable  conditions  pre- scribed  therefore.  The supply of gas by the  ONGC,  it  is urged, has not attained this "status" yet.     As far as we have been able to see, there is no statuto- ry  definition  of ’public utility’ in the  context  of  any Indian  enactment that may be relevant for our present  pro- pose.  There is a definition of "public utility service"  in s.  2(n) of the Industrial Disputes Act, 1947  which,  inter alia,  covers "any industry which supplies power,  light  or water to the public" and certain notified industries. It  is arguable  whether supply of natural gas is included in  this definition  for, though ’power’ connotes generally any  form of  energy available for doing work, it is normally  related to  such energy made available by mechanical  or  electrical means  (vide, Webster Comprehensive, Vol. 2, p. 990). It  is also  a moot question whether that definition can be  appro- priate in the context with which we are concerned.     Dr. Chitale cited profusely from American  Jurisprudence (2nd  Edition, Vol. 64) on the subject of public  utilities. Some of these passages may be usefully quoted. At page  549, it discusses the definition and nature of a public  utility. The passage runs thus: 177 1. Definition and nature     A  "public  utility" is a business or service  which  is engaged in regularly supplying the public with some commodi- ty  or service of public consequence, such  as  electricity, gas, water, transportation, or telephone or telegraph  serv- ice.  Publicly  owned utilities are those  owned  by  public corporations such as municipal public utility districts  and public  utility districts. Apart from statutes which  define the  public utilities which are within the purview  of  such statutes, it would be difficult to construct a definition of a public utility which would fit every conceivable case, but there  are certain considerations that are of aid in  deter- mining  whether  a specific organization or  business  is  a public  utility.  As its name indicates,  the  term  "public utility" implies a public use and service to the public, and indeed,  the  principal determinative  characteristic  of  a public utility is that of service to, or readiness to serve, an  indefinite  public (or portion of the  public  as  such) which  has a legal right to demand and receive its  services or commodities." There must be a dedication or holding  out, either  express  or implied, of produce or services  to  the public  as a class. The term precludes the idea  of  service which is private in its nature and is not to be obtained  by the  public, although a public utility may perform  acts  in its private, as distinguished from the public, capacity,  in which  case  it is subject to the same rules  as  any  other private  person so acting. Some courts, however, reject  the notion  that  in  order to be a public  utility  subject  to governmental  regulation the nature of the service  must  be such  that  all members of the public  have  an  enforceable right to demand it, and declare that business to be a public utility which in fact serves such a substantial part of  the public as to make its operations a matter of public concern. This  view is in close accord with what has been termed  the

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historic  basis  of  classification of  some  businesses  as public callings, that is, economic conditions, or the impor- tance of the business to the public. While the terms "public service corporation" and "quasipublic corporation" are  used to  describe  public  utility  corporations,  and  the  term "public service commission" to describe the body  regulating such  utilities,  some courts distinguish between  a  public sector  corporation and a public utility on the  basis  that the latter is required to serve the 178 public  generally,  whereas the former may  be  required  to serve members only.          The mere fact that a corporation declares itself to be  a public utility does not make it such.  In  determining whether or not a company is a public utility, the law  looks at what is being done, not what it asserts it is doing.  Nor will  the  legislative declaration that a  certain  business shall  be deemed a public utility make it such if, in  fact, the business as conducted is not impressed with a public use or carried on for the public benefit, since it is beyond the power  of  the  state by legislative edict to  make  that  a public  utility  which in fact is not, and to  take  private property  for  public use by its fiat that the  property  is being  devoted to public use. Furthermore, a  dedication  of private  property  to  public utility service  will  not  be presumed  from the fact that the product and service of  the use of such property is the usual subject matter of  utility service;  neither does such presumption arise from the  sale by  private contract of such product and service to  utility corporations  for  purposes of resale.  Such  dedication  is never presumed without evidence of unequivocal intention.           A business affected with a public interest is  not necessarily  a public utility or public service  commission. The fact that a business is affected with a public  interest means that it may be regulated for the public good but  does not imply that is under a duty to service the public." Black’s  Law  Dictionary (Fifth Edition) defines  a  "public utility" thus at p. 1108: "Public  Utility:  A privately owned and  operated  business whose services are so essential to the general public as  to justify  the  grant  of special franchises for  the  use  of public  property or of the right of eminent domain, in  con- sideration  of which the owners must serve all  persons  who apply, without discrimination. It is always a virtual monop- oly. A business or service which is engaged in regularly  supply- ing  the public with some commodity or service which  is  of public  consequence  and  need, such  as  electricity,  gas, water, transportation or telephone or telegraph service. 179 Gulf States Utilities Co. v. State, Tex. Civ. App., 46  S.W. 2d 1018, 1021. Any agency, instrumentality, business, indus- try or service which is used or conducted in such manner  as to  affect  the community at large, that is,  which  is  not limited or restricted to any particular class of the  commu- nity.  The  test for determining if a concern  is  a  public utility is whether it has held itself out as ready, able and willing to serve the public. A term implies a public use  of an  article, product, or service, carrying with it the  duty of  the producer or manufacturer, or one attempting to  fur- nish the service, to serve the public and treat all  persons alike, without discrimination. It is synonymous with "public use", and refers to persons or corporations charged with the duty to supply the public with the use of property or facil- ities  owned or furnished by them. Euder v. First Nat.  Bank

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in St. Louis, C.C.A. Mo., 16 F. 2d 990, 992. To constitute a true "public utility", the devotion to public use must be of such character that the public generally, or that part of it which  has been served and which has accepted  the  service, has  the  legal right to demand that that service  shall  be conducted,  so  long  as it is  continued,  with  reasonable efficiency under reasonable charges. The devotion to  public use  must be of such character that the product and  service is  available to the public generally and  indiscriminately, or  there  must be the acceptance by the utility  of  public franchises  or  calling to its aid the police power  of  the State - ’ ’ The  Corpus  Juris Secundum (Vol. 73, p- 990)  also  carries like definitions.     Once a concern is found to be a public utility, at least two  consequences  follow. One is a general  duty  to  serve which is described in American Jurisprudence thus: "16. General duty to serve The primary duty of a public utility is to serve on reasona- ble  terms all those who desire the service it renders,  and it may not choose to serve only the portion of the territory covered  by its franchise which is presently profitable  for it  to serve. Upon the dedication of a public utility  to  a public  use  and in return for the grant to it of  a  public franchise, 180 the  public  utility is under a legal obligation  to  render adequate  and  reasonably  efficient  service   impartially, without  unjust discrimination, and at reasonable rates,  to all  members of the public to whom its public use and  scope of  operation extend who apply for such service  and  comply with  the  reasonable rules and regulations  of  the  public utility.  This obligation is one implied at common  law  and need  not  be expressed by statute or contract,  or  in  the charter of the public utility. The fact that the  franchises granted  to the company do not expressly impose upon it  the obligation  to  serve all persons in the locality  does  not relieve  the  company,  nor does the fact  that  the  person applying  for  gas is already supplied with gas  by  another company. The fact that a pipe laid by a water company  along a street in the exercise of its franchise was laid under  an agreement, with certain persons who paid the expenses,  that they  should have the exclusive use of water, and  that  the company should not tap the pipe without their consent unless it  first  repaid them for the pipe, does  not  relieve  the company  from its obligation to supply water, on  reasonable terms,  to all persons living on such street who  may  apply for it. A provision in an ordinance granting a franchise  to an electric light company, that the city should not  require the company to make "extensions" except upon certain  condi- tions  does not affect the right of a resident in an  estab- lished  service  zone  to invoke the aid of  the  courts  to compel  the company to connect his premises with  its  line. This  duty  to serve all applicants  without  discrimination cannot be evaded by a natural gas company on the ground that the  gas pressure has fallen so low that existing  customers cannot  be adequately supplied, new applicants are  entitled to  share equally in such supply as can be  furnished.  Fur- thermore, the obligation of a public utility, such as a gas, water,  or electric company, to supply a given  district  is inclusive  of  the duty, under  reasonable  limitations,  to carry  the mains or lines of the utility to a point  on  the consumer’s  premises where use can be made of  the  service. However,  neither by common law nor by statute is  a  public utility required to serve all; the conduct prohibited on the

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part  of a public utility is unjust  discrimination,  unfair rates or practices, or unreasonable rules." The second constraint is in regard to the rates that can  be charged by such an undertaking: 181 A  public utility may, in the absence of a legislative  pre- scription  or limitation of rates, fix and exact  reasonable rates for services furnished, in which respect the  reasona- bleness  of the rate is to be considered in relation to  the value  of  the property used by the utility  in  the  public service.  Thus, in the absence of legislation, carriers  are ordinarily  entitled  to establish such rates and  to  adopt such  policy of ratemaking as they may deem best.  They  may voluntarily  render  service  for less than  they  could  be compelled to accept.          The right of a public utility or carrier to set its own rates is subject to the limitation that such rates  must be nondiscriminatory and reasonable. xxx                                                      xxx xxx This obligation to furnish service at a reasonable price  is implied  by law and is incurred by acceptance of  the  fran- chise and privilege to serve the public. Furthermore,  there is authority to the effect that a public utility must give a consumer the benefit of the most favourable rate which he is entitled to receive."     We  do not think that ONGC satisfies the primary  condi- tions enunciated above for being a public utility  undertak- ing  as it has not so far held itself out or  undertaken  or been obliged by any law to provide gas supply to the  public in general or to any particular cross-section of the public. The proviso to sec. 14(1)(e) of the Act which lays down that the  setting up of industries to be run with the aid of  gas was  not  to be undertaken by the ONGC without  the  Central Government’s  approval  also gives an  indication  that  the supply  of gas to various industries on a general basis  was not in the immediate contemplation of the Act but was envis- aged  as  a further expansion to be initiated  with  Central Government’s approval. Perhaps a stage in the  developmental activities  of the ONGC will soon come when such an  obliga- tion can be inferred but, at present, the O.N.G.C.  supplies gas only to certain selected contractees. It does not supply gas  to the public either in the sense that  any  individual member  of the public or any identifiable  cross-section  of the public is entitled to demand and receive such supply due to various limitations we shah now touch upon. The main activity of the ONGC is that of exploration and 182 prospecting for petroleum and petroleum products. So tar  as gas,  which is a bye product, is concerned the ONGC has  not so  far been able voluntarily or constrained statutorily  to harness  and utilise its production for consumption  by  the public. Even as per the information placed on record by  the respondents  about  3,000 million cubic metres of  gas  were burnt in 1985-86 due to the inability of the ONGC to harness it for industrial or domestic use. Such large scale utilisa- tion  will involve capital outlay to a  considerable  extent particularly for the laying of pipe lines to convey the  gas to  sites of its user. The quantity of gas which is  put  to such use at present is an insignificant part of the gas that is being produced and so far the Government does not  appear to  have  called upon the ONGC to draw up or submit  to  the Government  under s. 23 of the Act any programme of sale  of natural gas to the public generally or even to some  catego- ries of public consumers. There is no doubt that the  expan-

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sion of the oil sector in recent years, including the recent construction  of the HBJ pipeline, will  eventually  require the  ONGC  to  set up and devise a  rational  and  equitable scheme of distribution and supply of gas to various types of consumers situate over various parts of India. But, as  yet, the  ONGC has not embarked on any such scheme. It  has  been supplying gas to certain consumers on the basis of individu- al  contracts and it is in regard to these  consumers  alone that the question of price has been raised before us.     We  do not, however, think that it is at  all  necessary for  us to delve further into the above concept  or  express any final opinion as to whether the ONGC is a public utility or not because the claim of the respondents is for a contin- uance of the present system followed by the ONGC of  supply- ing  gas to select customers on the basis of  contracts  en- tered  into with them. They only want the price to be  regu- lated  by  the  court; they do not  challenge,  for  obvious reasons, the system of distribution thus far adopted by  the ONGC.  If the argument that the ONGC is a public utility  is accepted, then the first consequence to follow will be  that gas  should be made available by it to all persons who  need it for use. It cannot be supplied by the ONGC to only a  few public sector undertakings like the GSEB and GSFC or only to a few industries like those of the respondents or only to  a few municipalities like the Vadodara Municipality for domes- tic supply, at its sweet will and pleasure. It would then be open to all undertakings, industries and domestic  consumers in  Bombay, Gujarat and perhaps elsewhere in the country  to demand  that steps should be taken for the supply of gas  to them  also. We are unable to agree with the  observation  of the High Court that, even if the ONGC is treated as a public utility, the respon- 183 dents,  merely because they had entered into temporary  con- tracts  for supply of gas with the ONGC, could still  insist on continued supply to themselves on "the first come,  first served"  basis,  to the exclusion of later arrivals  on  the scene.  If, as suggested by the respondents, the ONGC is  to be treated as a public utility and the price of gas is bound to  be on cost plus basis, it may be that quite a few  other industries  would like to avail themselves of  such  supply. They  have perhaps kept out so far only because  the  supply price  based on alternative fuel price is not acceptable  to them.  They are keeping out only because they are under  the impression  that the ONGC is entitled to supply gas to  per- sons with whom it has entered into commercial contracts  and on  the  terms of supply envisaged in those  contracts.  The treatment  of the ONGC as a public utility  undertaking  for the  supply  of gas will raise innumerable  basic  questions totally  inconsistent with the present system  of  selective supply  which the respondents want to be continued. It  will transpose the area of controversy to a totally different and wider plane. We cannot say that the ONGC is a public utility undertaking and yet direct that it should supply gas to  the respondents  and  a few other industries with which  it  has entered into contracts. The court would then be  constrained to  hold that the present system of supply  is  inconsistent with  public  law and the constitutional requirements  of  a public utility undertaking and direct the ONGC to completely overhaul  its system of public distribution on  sound  lines qua types of consumers to be catered to, areas of supply  to be covered, price for supply and all other matters. That  is not the relief sought by the respondents. All that they want is a declaration that they are entitled to the supply of gas at  a reasonable price. It is sufficient, for  disposing  of

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this  claim, to deal with this aspect of the matter and  the larger  aspect  of ONGC being a public  utility  undertaking should be left out of account. We, therefore, do not express any  final opinion on the issue except to say, prima  facie, that it cannot be placed on par with a public utility under- taking.     In this context, we should like to point out once  again that the ONGC does not dispute that the price to be  charged by  it  for  gas supply should have some basis  and  not  be arbitrary  or  unconscionable. Their stand before  the  High Court (vide para 29 of the judgment) and before us has  been that  the  prices are fixed by them from time to time  on  a well-recognised principle viz. on the basis of the  alterna- tive  fuel  cost which the consumers may have to  incur  had they not been in receipt of gas supply. Assuming this to  be correct, is there any illegality in the procedure adopted by them?--that  is the question. The respondents  contend,  and the High Court has held, that there is. 184 According  to them, a public sector undertaking must  supply its  goods at a price which will cover their cost and  leave them a reasonable margin of profit and no more. Dr.  Chitale says that this is the only reasonable way of price  fixation and  refers to the award in support of this proposition.  He points  out that this is the basis incorporated  in  several statutory  instruments, such as the Sugarcane Price  Control order  or  the  Drug Prices Control order  or  other  orders passed  under  the Essential Commodities Act. He  cites  the following  decisions  of  this Court  in.  relation  to  the fixation  of  such  prices: Premier  Automobiles  v.  Union, [1972] 2 SCR 526; Panipat Cooperative Sugar Mills v.  Union, [1973]  2 SCR 860; Shree Meenakshi Mills v. Union, [1974]  2 SCR  398; Saraswati Industrial Syndicate v. Union, [1975]  1 SCR  956; Prag Ice and Oil Mills v. Union, [1978]  3  S.C.R. 293  and  Union of India v. Cynamide India  Ltd.,  [1987]  2 S.C.C. 720. He urges that, to allow the ONGC to sell gas  at a higher price than this merely because, otherwise, but  for the  availability of gas, the consumers would nave to  spend more  for  their sources of energy, will  really  amount  to introducing  an  irrelevant element i the process  of  price fixation and result in allowing the ONGC to make  unreasona- ble  profits at the expense of unhappy consumers. The  ques- tion for consideration is whether this argument is  correct. Is  the  ONGC  bound to adopt only the cost  plus  basis  in fixing its prices or can it also invoke any other well-known and reasonable, if commercial, formula in fixing its prices?     We  shall first consider the findings in the award.  Dr. V.K.R.V.  Rao was arbitrating on a dispute between the  ONGC and  the Gujarat State Government as to the price  at  which gas was to be supplied by the ONGC. Though the dispute arose as a result of the dissatisfaction of the GSEB and the  GSFC with the prices charged by the ONGC, the terms of  reference to Dr. Rao were very much wider. They read: "The  point at issue is the price that should be charged  by the  ONGC  for gas that may be supplied  after  taking  into consideration the volume and pressure of gas supplied to any particular  party  and the distance to which it  has  to  be carried.  You  may also indicate if ONGC  should  offer  any differential rates in respect of gas supplied to: (a) Undertakings for the generation of power (b) Fertiliser plants (c) State projects 185 (d) Private sector industries (e) Domestic fuel"

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The contentions urged by the two parties arrayed before  the arbitrator  and  set out in sections IV and V of  the  award also  covered  a very wide ground. The award starts  with  a discussion of certain general considerations and while doing so,  dealing with a contention comparing the price  fixation in Assam and Gujarat, the award says: "The  Gujarat contention that in fixing the price of gas  in Gujarat,  note  should be taken of the price  fixed  by  Oil India  for  the sale of Assam gas to the  Assam  Electricity Board  at  25 paise per cubic foot cannot  be  dismissed  as lightly  as  the O.N.G.C. seem to have done. Nor can  it  be contended by Gujarat that if a mistake has been made once in one  area,  that therefore it should be  extended  to  other areas. It must be added also that the price of gas in  Assam and  in Gujarat is not on all fours for the reasons  that  I shall  mention  later. All the same, one cannot  ignore  the relevance of the Assam gas price, even though the  remedical action  required is perhaps more on the Assam side  than  on the ONGC attitude in Gujarat. I shall have something to  say on  the question later on in this report, though it  is  not strictly within the terms of reference given to the arbitra- tor.           I  am not prepared to accept the  ONGC  contention that because they are All India agency expected to  function as  a commercial undertaking in the public sector, they  are entitled  to  take no account of the fact that the  cost  of power generation is high in Gujarat, that this has  hampered the possible development of some industries for which  Guja- rat has natural resources and that public opinion in Gujarat has  a  natural expectation of a reduction in  the  cost  of power production on account of the discovery of gas in their area.  After  all the ONGC is an enterprise  in  the  public sector and is expected to take public interest into  account and not be exclusively concerned with commercial  considera- tions  that  would be more appropriate to a  private  enter- prise.  Moreover,  there, as in the United States,  the  gas industry is in the private sector, there is also  governmen- tal  regulation through the Federal Power Authority  in  the public interest. I believe that Gujarat has a valid point in 186 urging  that  advantages  that accrue  to  the  coal-bearing provinces  by  way of low cost in fuel or  power  generation should also apply to Gujarat because of the discovery of gas in  its area and its protected use for power  generation.  I propose therefore to take into account the pit-head price of Bengal coal and its thermal equivalence with Gujarat gas  in determining  my award on the price of gas. I must  add  that this  will not be the primary basis for my award, though  it will certainly be treated as a relevant consideration. At p. 16 the report deals with the contention that the price of  gas should be based on the price of substitute  products in the following words: "As regards the ONGC contention that the price of gas should be  based on the price of substitute products and that  this is the practice generally followed in the oil industry, I am not prepared to accept the ONGC constention. While the price of substitutes undoubtedly would determine the demand  price for  gas,  the position becomes different  when  prices  are sought to be fixed and not left to market forces; and prices have to be fixed because the ONGC is virtually a monopoly at least  as  far as Gujarat is concerned; there is  no  market price in the normally understood sense of the term as emerg- ing  from sales by competing sellers; the ONGC is  a  public sector  enterprise,  and  considerations  of  public  policy cannot  be considered irrelevant in the fixation of  prices.

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Above  all  it has always been the practice in  India,  when prices are fixed. to base it on the cost of production  plus a  reasonable profit and this has been what the Tariff  Com- mission  has  been doing all these yeas in regard  to  other commodities.  Under  the circumstances, while the  price  of substitutes  is  undoubtedly  a relevant  (factor?)  in  the fixation of the price of gas, I have no doubt that it cannot be  treated as the primary factor under the  Indian  circum- stances referred to earlier." Again, at p. 18, the basic formula is expounded as follows: "I  have  already  indicated my  thinking  on  the  question of  .....   prices of substitute materials on the  basis  of thermal  equivalence in the concluding para of the  previous section. Gas pricing in relation to the prices of substitute materials 187     understandable in foreign countries, where gas has  been deliberately pushed into the fuel market by pipe line compa- nies  which have constructed long and expensive  pipe  lines and sold gas at a price lower than that of alternative fuels in  order  to capture and retain the market.  In  fact,  the price of gas in the initial stage was much less than that of competing  alternative  fuels  and not  on  par  with  their prices.  With the growing recognition of the special  advan- tages obtained by the use of gas in manufacturing  operation where close control of heat and cleanliness of operation are essential and worth paying for or in commercial and residen- tial  cooking, water heating and space heating,  gas  prices have  been  steadily rising over the last  few  years.  Thus while  crude oil wholesale prices have moved downward  since 1957, gas prices have recorded a steady rise throughout  the post-war period. At the same time, drilling of gas wells  is increasing  and so is the place of gas in world energy  con- sumption.  It is therefore not correct to suggest  that  the oil companies were selling gas on the basis of the price and thermal  equivalence of alternative fuels. Gas was  sold  at the  price  which  it could fetch and not on  the  basis  of either  cost of production or parity with substitute  fuels. As  regard the price of gas in the field, Prof. Adleman  has pointed out that it is not correct to expect any  particular ceiling  for this price. He adds "if the  special  advantage uses could generate enough effective demand, the field price of  gas in the United States or elsewhere could  conceivably equal  or surpass the thermal- equivalent of the crude  oil; otherwise it will not". In actualfact, the principal use  of gas  is till not (now?) in its field of special  advantages. There  is  validity therefore for his view that  "Since  gas costs  roughly  three times to deliver, per BTU as  oil  the price of gas in the producing area could not possibly  equal the  price  of oil. Scarce resources are best used  of  this fuel expensive to transport, is used to the maximum, nearest its source of supply, whiles the transport--cheap oil  moves greater  distances".  Thermal  equivalence  with  substitute fuels  and a price based thereon could therefore only  be  a ceiling  on the price of gas rather than a parity basis  for its  price fixation. Moreover, in the case of  Gujarat,  the substitute  fuel  comes from long distance and  bears  heavy frieght charges, while the gas is found within the State. It must  also be remembered that unlike in the case of  foreign oil companies, cost 188 data  are more readily available in the case of ONGC, as  it is a public sector enterprise and subject to the control  of Parliament  and the scrutiny of its Public Accounts  Commit- tee. All cost data have been made available to the  Arbitra-

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tor  by the ONGC. Under the circumstances, it is my  consid- ered judgment that formula of fixing the price of gas on the basis  of  the thermal equivalence and price  of  substitute fuel  or feedstock should not be accepted, though the  price resulting  from such a formula certainly is a relevant  con- sideration  as indicating the ceiling below which the  price of gas should be fixed by the Arbitrator. I would  therefore reject  the ONGC proposal that "the formula to be  used  for the price of gas should be based on the price of the  avail- able alternative fuels or feedstock."          The only other basic formula is the one advanced by the  Gujarat  Government, namely, "that  the  only  rational approach to the pricing of gas is via the cost plus  profits formula".  And  it is the cost plus profit  formula  that  I propose  to  adopt as the primary base  for  determining  my award  on the price of gas in Gujarat. Having said  this,  I must  hasten  to add that this does not mean  my  acceptance either of the connotation that the Gujarat Government  gives to  this formula in terms of the content postulated for  the cost  of production and profit or the figures they have  put forward for the price of gas on the basis of their interpre- tation of the content of cost of production and profit. What I accept is the principle of cost of production plus reason- able profit and not the interpretation that is sought to  be given to this principle by the Gujarat Government". The second part of the issue referred to the arbitration was disposed of summarily by the award, in a few words: "Finally,  on the question whether there should be any  dif- ferentiation  between  the prices to be  charged  for  power generation,  fertilisers, and other industries, I am not  in favour of any such differentiation, as it would only  intro- duce  an unnecessary complication in the  pricing  machinery and my award is primarily based on estimated cost of produc- tion plus reasonable profit. If, however, in order to  regu- late  supplies  in adjustment to  different  intensities  of demand from the different users of gas, some premium or 189 discount  becomes  necessary on the price suggested  by  me, this  would not be inconsistent with my award  provided  the total  receipts do not exceed the amount that  would  accrue from the application of my award on the price of gas. Dr.  Chitale naturally placed considerable reliance on  this award.  He  contended  that the reasoning of  the  award  is impeccable and that the considerations that impelled Dr. Rao to  adopt  the cost plus basis are more weighty  in  today’s context  and in the background of the State’s  duties  under Articles 38 and 39(b) of the Constitution.     There is no doubt that Dr. Rao made the cost plus method the basis of his award in preference to the basis of thermal equivalence  of alternate fuel (which we shall refer  to  as thermal  equivalence  basis).  But at  least  two  important aspects have to be kept in mind in assessing the applicabil- ity  of  the same principle in the present context.  In  the first  place,  as explained earlier, Dr. Rao  was  concerned primarily  with an issue raised by the public of Gujarat  as against the ONGC. He was really adjudicating upon the  price which  the ONGC should charge to public  sector  undertaking catering  to the essential needs of the State. In  the  con- text, his objective was, understandably, to fix the price as low  as possible. The consumers under consideration  by  him represented the public need of the State of Gujarat and,  as against such public interest, the ONGC’s profit requirements paled  into insignificance. He proceeded, more or  less,  on the  footing  that the ONGC was obliged to  supply  gas  for meeting  those  essential purposes. Secondly, Dr.  Rao  also

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agrees  that the thermal equivalence basis is  a  recognised method  for fixation of price, that it has a  relevance  and that  it  has to be taken into account  in  determining  the price for gas supply. We also wonder whether, in the present set up of the ONGC with a vast expansion of its  exploratory activities, enough data are available to work out a price on the  cost  plus  basis. Any such computation  will  have  to provide  adequately  for  future  explorations,  infructuous expenditure,  expenditure on modern uptodate  machinery  and research and above all expenditure that will be necessary to reach the gas to the consumers. In these circumstances,  the cost  plus basis fixed by Shri Rao in the background of  the real  nature  of the dispute before him  three  decades  ago cannot be taken as conclusive in the present situation. Here we  are  dealing with a price to be fixed under  a  contract between the ONGC and one set of industries in the State  who wish  to make a change over from the furnace oil  system  to that  of gas supply with a view to increase their own  prof- itability  and  gain an advantage, if possible,  over  other industries in the State. In this context, we think, ONGC  is entitled to a 190 larger  latitude  and charge a price which  the  market  can bear.  The only restrictions is that, being a State  instru- mentality, it should not be a whimsical or capricious  price but  should be one based on relevant considerations  and  on some recognised basis.     While  the  cost plus basis is a  recognised  basis  for fixation  of  prices  of essential commodities  or  for  the services rendered by a public utility undertaking, it  would not, in our view, be correct to treat it as the only permis- sible basis in all situations. On behalf of the ONGC it  has been  pointed  out that even in the fixation  of  prices  of essential  commodities like levy sugar, the concept of  cost plus is not necessarily the only method of fixing the  price for  the commodity. In considering the question whether  the price  fixation in that case was based on proper  principles and by following correct methods in accordance with  section 3(3C) of the Essential Commodities Act, this Court  observed in the Anakapallee case, [1973] 2 SCR 882 at p. 899: "While  examining question No. 3 learned  Solicitor  General has reminded us that ’cost plus’ cannot always be the proper basis for price fixation. Even if there is no price  control each unit will have to compete in the market and those units which are uneconomic and whose cost is unduly high will have to compete with others which are more efficient and the cost of which is much lower. It may be that uneconomic units  may suffer  losses  but  what they cannot achieve  in  the  open market they cannot insist on where price has to be fixed  by the  government.  The Sugar Enquiry Commission in  its  1965 report  expressed the view that ’cost-plus’ basis for  price fixation  perpetuates inefficiency in the industry  and  is, therefore, against the longterm interest of the country.     The Court quoted from a study prepared in  collaboration with the Institute of Chartered Accountants of India. "Costs  alone do not determine the prices. Cost is only  one of the many complex factors which together determine prices. The only general principle that can be stated is that in the end there must be some margin in prices over total costs, if capital is to be unimpaired and production maximised by  the utilisation of internal surpluses  ..... while the cost plus pricing method is the most common, it may be argued that  it is not the best available method 191 because  it ignores ’demand or fails to  adequately  reflect

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competition or is based upon a concept of cost which is  not solely  relevant for pricing decision in all cases. What  is essential is not so much of current of past costs but  fore- cast of future cost with accuracy  .....  Generally  pricing should  be  such  as to increase production  and  sales  and secure an adequate return on capital employed." Again,  in  a somewhat different context in  relation  K,  a State transport undertaking, this Court observed, in  Venka- tachalam v. Deputy Transport Commissioner, [1977] 2 SCR 392: "  .....  the special status of a Government owned transport undertaking  is obvious  .....  Its functional motto is  not more profits at any cost but service to citizens first  and, in a far larger measure than private companies and individu- als, although profitability is also a factor even in  public utilities.                         (emphasis added)     These  passages indicate that cost plus is not a  satis- factory  basis in all situations. The basis may need  to  be made more stringent in some situations and more  broad-based in others. May be the cost plus is an ideal basis where  the commodity  supplied is the product of a monopoly  vital’  to human  needs.  In  that context the price  fixed  should  be minimum  possible as the customer or consumer must have  the commodity  for his survival and cannot afford more than  the minimum.  The producer should not, therefore, be allowed  to get  back  more than a minimum profit.  Indeed,  in  certain situations, it may even be inequitable to fix varying prices on the basis of the cost of each individual manufacturer and thus encourage inefficiency; it may be necessary to base  it uniformly  for  a  whole industry on the cost  of  the  most efficient manufacturer as has been done in the case of drugs (vide:  Cynamide case, [1987] 2 S.C.C. 720. It was so  vital that  the goods should be available to the common  man  that the  prices were statutorily fixed so low as to  drive  away inefficient producers and so as to make it possible only for the  most  efficient manufacturers to survive.  Per  contra, there  can be situations where the need of the  consumer  is not so vital and the requirements of the economic scene  are such that the needs of the producer should be given  greater consideration. In such situations, the "plus" element in the cost plus basis (namely, the allowable profit margin, should not be confined to "a reasonable return on the capital"  but should be allowed to have a much larger content depending on the circumstances. 192     The  notion  that the cost plus basis can  be  the  only criterion  for  fixation  of prices in the  case  of  public enterprises stems basically from a concept that such  enter- prises  should function either on a no profit-no loss  basis or  on  a minimum profit basis. This is not  a  correct  ap- proach. In the case of vital commodities or services,  while private concerns must be allowed a minimial return on  capi- tal invested, public undertakings or utilities may even have to  run at losses, if need be and even a minimal return  may not be assured. In the case of less vital, but still  basic, commodities,  they may be required to cater to needs with  a minimal profit margin for themselves. But given a favourable area  of operation, "commercial profits" need not be  either anathema  or  forbidden fruit even to public  sector  enter- prises.     A  publication  on "Public Enterprises"  by  the  Indian Institute  of  Public  Administration,  produced  before  us elaborates on the above aspects. It also gives an  interest- ing  analysis  of  pricing policies adopted  in  respect  of various commodities. It is unnecessary to touch upon all the

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details. It is sufficient, for our present purposes, to  say that the monograph points out, a propos such pricing policy, that several state undertakings are already earning  profits and  the general policy has been accepted that  the  maximum economic  returns should be secured from all  public  enter- prises,  whether these are operated by the Central or  State Governments directly or through corporation or companies and that the surplus of public enterprises will have to play  an increasing part in financing economic development under  the various National Plans. It proceeds to say (at p. 173): "A growing source of governmental revenue in many  countries is  the  profits of public undertaking. In  under  developed countries public enterprises fostered on public revenues are expected  to  play  a more positive role  in  financing  the countries’  development than similar enterprises do  in  de- veloped  economies.  In determining the  price  policies  of these undertakings considerations of maximising revenue will not play as important a part as profits do in private enter- prises, but within the limits set by the necessity to foster economic  development, their price policies are designed  to bring  in some profits to the countries’  general  revenues. Public enterprises in the under-developed areas are to break ground  in  projects which are the core of  development.  If such projects are to be financed on an increasing scale, the price  policies  have  to be so  designed  that  significant surpluses are left with the projects 193 to  be employed either for their own expansion or  for  financing the expansion of other projects. In other words, there should  be an  element of profit in the prices of their products or  in  the cost of their services to the public."     The  Krishna  Menon  Committee  on  State   undertakings (November 1959), the booklet proceeds. to point out, enunci- ated the following pricing policy for public enterprises: "We have stressed in these pages the importance of incentive and healthy competition and emphasised that concerns must be able  to  stand on their own legs for efficient  and  proper conduct  of business  .....  The considerations that  should govern  prices appear to be the following.  Consumer  prices nave  to be based upon general market prices and other  fac- tors as well. The decision as to what economy in cost has to be  passed  on  to the consumer on the one  hand  or  should benefit  the  taxpayer on the other and  the  likelihood  of non-availabilities and, therefore, of scarcities in the near future has also to be considered. The principle of ’what the traffic can bear’ has also to be taken into account. ’ ’ Dr. V.K.R.V. Rao has been quoted again as saying: "As regards profits, it should be pointed out that  contrary to  some  popular notions on the subject,  profits  have  an important  place  in  a socialist  society,  the  difference between  the  economic price and the social price  would  be what may be called the planned profit and this would largely correspond  to  the excise duties and sales  tax  and  other indirect  taxes  that are imposed in a  capitalist  society. These planned profits being no more than a way of mobilising resources  and  making them available to the  community  for purposes  both  of investment and  maintenance  expenditure. Profits  also have another important role to play in so  far as  they relate to the economic price itself.  The  economic price  fixed at any particular moment of time  is  obviously based  on  the capital, technique and  productivity  of  the given base period when this price is fixed; any  improvement in  productivity is bound to lead to a decrease in the  cost production and in turn this would lead to the emergence of a surplus within the economic price itself and that would be a

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194 surplus  which  will  represent a measure  of  the  nation’s increase  in  productivity  this surplus would  not  be  the result of the policies laid down at national level as in the case of difference between the economic price and the social price. On the contrary, it would represent the result of the motivations  and efforts of a larger number of  persons  en- gaged  in productive activity. Hence the importance  of  ar- ranging  for proper incentive to stimulate the  creation  of this  kind of surplus. That is the reason why  in  socialist societies now-adays, individual enterprises are permitted to retain  a larger share of such surpluses as they may  create by an increase in productivity, this larger share to be used by  them partly for increasing individual incomes  of  those engaged in the enterprises and partly for giving an opportu- nity  to the enterprises in question to build up the  finan- cial  resources  needed to following their  own  independent investment policies. Public enterprise must be carried on  a profitmaking basis, not only in the sense that public enter- prise must yield an economic price in the terms described in a  previous  section  but must also get  for  the  community sufficient resources for financing a part of the  investment and maintenance expenditure of government. Increasingly, the share of the profits of public enterprises in financing  the investment  and maintenance expenditure of  government  must keep  on increasing. It is not only the expenditure  on  the public  sector as such that will indicate the march  of  the economy  towards its socialist goal. Even more important  is the  increasing  role that the public sector must  play  for finding  the resources needed for meeting both  the  mainte- nance  and  investment expenditure of government.  This  in- volves a price and profit policy in regard to public  enter- prise  which goes against accepted opinion so far in  regard to  public  enterprise. The theory ’no profit, no  loss’  in public  enterprise is particularly inconsistent with  a  so- cialist  economy, and if pursued in a mixed economy it  will hamper  the evolution of the mixed economy into a  socialist society. The sooner, therefore, this theory of ’no profit no loss’  in public enterprise is given up and the  policy  ac- cepted of having a price and profit policy for public enter- prise  such as will make the State increasingly  reliant  on its own resources (as distinguished from taxing the personal incomes of its citizens), the quicker will be the  evolution of a socialist society". 195     In  another  article on "The Public  sector  in  India", quoted  in "Issues in Public Enterprise" by Sri K.R.  Gupta, Dr. Rao is quoted as saying (at p. 84): "   .....  the pricing policy should be such as  to  promote the  growth  of  national  income  and  the  rate  of   this growth   .....public enterprises must make profits  and  the larger  the share of public enterprises in all  enterprises, the  greater is their need for making profits. Profits  con- stitute the surplus available for savings and investment  on the  one  hand and contribution to national  social  welfare programme  on  the other; and if public enterprises  do  not make profits the national surplus available for stepping  up the  rate of investment and the increase of  social  welfare will suffer a corresponding reduction;  ....  Hence the need for  giving up the irrational belief that public  enterprise should, by definition, be run on a no-profit basis."     In  the  light of the foregoing discussion,  we  are  of opinion  that it would not be right to insist that the  ONGC should  fix oil prices only on cost plus basis. Indeed,  its policy  of  pricing should be based on the  several  factors

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peculiar  to the industry and its current situation  and  so long  as such a policy is not irrational or  whimsical,  the court may not interfere.     The question of fixation of a fair and reasonable  price for goods placed on the market has come up for consideration of Parliament and Courts in different contexts. Price  fixa- tion, it is common ground, is generally a legislative  func- tion.  But  Parliament generally provides  for  interference only  at a stage where in pursuance of social  and  economic objectives or to discharge duties under the Directive  Prin- ciples of State Policy, control has to be exercised over the distribution  and consumption of the material  resources  of the community. Thus while Parliament has enacted the  Essen- tial  Commodities Act, it has left it to the  discretion  of the  Executive to take concrete steps for fixing the  prices of  essential commodities as and when necessity  arises,  by promulgating Control Orders in exercise of the powers vested in the Act. Various types of foodgrains, sugarcane and drugs have  come under the purview of such control orders and  the modalities  of fixation of fair prices thereunder have  also come up for consideration of the Courts. There has also been such  fixation of price under the Industries (Development  & Regulation)  Act, 1951, vide: Premier Automobiles v.  Union, [1972] 2 SCR 726. In all these cases, the primary concern of 196 Government  and  Parliament has been that  the  articles  in question should be available to the members of the  consumer public at the minimum prices possible and, in that  context, these legislations no doubt adopt the "cost plus  reasonable return on investment" test in the fixation of prices.  That, even in respect of such commodities, the "cost plus"  method is  not  the only reasonable method has been  recognised  in judicial  decisions. The cases on this topic have  been  re- viewed  and  the  limitations on judicial  review  of  price fixations  fully discussed recently by a Constitution  Bench of  this  Court  in M/s Shri Sitaram Sugar  Company  Ltd.  & Another  v.  Union,  JT 19901 SC 462. It  is,  however,  not necessary  here to enter into a discussion of this  and  the earlier  cases because those cases were primarily  concerned with  the question whether the price fixation had been  made in consonance with the requirements of the relevant legisla- tion fixing prices of essential commodities in the interests of  the general public and also because ONGC does  not  deny that, as a State instrumentality, its price fixation  should be based on relevant material and should be fair and reason- able. None of these decisions hold that the cost plus method is  the only relevant method for fixation of prices. On  the contrary,  there are indications in some judgments to  indi- cate  that not a minimum but a reasonable profit  margin  is permissible. Even in relation to a public utility  undertak- ing like the State Electricity Boards where the duty not  to make undue profits by abusing its monopoly position is clear (vide: Jagadamba Paper Industries v. Haryana State Electric- ity  Board,  [1984] 1 SCR 165, this Court  said,  in  Kerala State  Electricity Board etc. v. M/s. S.N. Govinda Prabhu  & Bros. and Ors. etc, [1986] 4 S.C.C. 1988: "Now, a State Electricity Board created under the provisions of  the Electricity Supply Act is an instrumentality of  the State  subject  to the same constitutional  and  public  law limitations  as are applicable to the  government  including the principle of law which inhibits arbitrary action by  the government (See Rohtas Industries v. Bihar State Electricity Board,  [1984]  3 SCR 59). It is a public  utility  monopoly undertaking   which  may  not  be  driven  by  pure   profit motive--not  that profit is to be shunned but  that  service

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and  not  profit should inform its actions. It  is  not  the function  of the Board to so manage its affairs as  to  earn the maximum profit; even as a private corporate body may  be inspired  to earn huge profits with a view to  paying  large dividends  to its shareholders. But it does not follow  that the Board may not and need not earn profits for the 197 purpose of performing its duties and discharging its obliga- tions under the statute. It stands to common sense that  the Board must manage its affairs on sound economic  principles. Having ventured into the field of commerce, no public  serv- ice  undertaking can afford to say it will  ignore  business principles  which are an essential to public service  under- takings  as  to commercial ventures.  (See Lord  Scarman  in Bromely v. Greater London Council, [1982] 1 All ER 129).  If the  Board borrows sums either from the government  or  from other  sources  or  by the issue of  debentures  and  bonds, surely the Board must of necessity make provision year after year  for the payment of interest on the loans taken  by  it and  for the repayment of the capital amounts of the  loans. If the Board is unable to pay interest in any year for  want of  sufficient revenue receipts, the Board must make  provi- sion  for payment of such arrears of interest in  succeeding years.  The Board is not expected to run on a bare  year-to- year survival basis. It must have its feet firmly planted on the earth. It must be able to pay the interest on the  loans taken by it must be able to discharge its debts; it must  be able to give efficient and economic service; it must be able to continue the due performance of its services by providing for depreciation etc.; it must provide for the expansion  of its services, for no one can pretend the country is  already well supplied with electricity. Sufficient surplus has to be generated  for  this purpose. That we take it  is  what  the Board would necessarily do if it was an ordinary  commercial undertaking properly and prudently managed on sound  commer- cial lines. Is the position any different because the  Board is  a public utility undertakings or because of  the  provi- sions  of the Electricity Supply Act? We do not  think  that either the character of Electricity Board as a Public Utili- ty  Undertaking or the provisions of the Electricity  Supply Act  preclude the Board from managing its affairs  on  sound commercial lines though not with a profit-thirst. 7. A plain reading of Section 59 (as amended in 1978) plain- ly  indicates that it is the mandate of Parliament that  the Board  should adjust its tariffs so that after  meeting  the various expenses properly required to be met a surplus is 198 left.  The original negative approach of functioning  so  as not to suffer a loss is replaced by the positive approach of requiring a surplus to be created.           Under  the above provision, the Board is  under  a statutory  obligation to carry on its operations and  adjust its tariffs in such a way to ensure that the total  revenues earned  in  any  year of account shall,  after  meeting  all expenses  chargeable  to revenue leave such surplus  as  the State Government may, from time to time, specify. The tariff fixation  has, therefore, to be so made as to  raise  suffi- cient revenue which will not merely avoid any net loss being incurred during the financial year but will ensure a  profit being earned, the rate of minimum profit to be earned  being such as may be specified by the State Government. 8.  Shri  Potti, learned counsel for  the  consumers  placed great  reliance on the observations of this Court in  Kerala State  Electricity Board v. Indian Aluminium Co.,  [1976]  1 SCR 552; Bihar State Electricity Board v. Workmen, [1976]  2

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SCR  42 and P. Nalla Thampy Thera v. Union of India to  con- tend  that the Electricity Board was barred from  conducting its operations on commercial lines so as to earn a profit. We  do not think that any of these observations is  in  con- flict  with what we have said. Pure profit motive,  unjusti- fiable according to us even in the case of a private trading concern, can never be the sole guiding factor in the case of a public enterprise. If profit is made not for profit’s sake but  for the purpose of fulfilling, better and  more  exten- sively, the obligation of the services expected of it cannot be  said  that  the  public  enterprise  acted  beyond   its authority.  The  observations in the first case  which  were refined to us merely emphasised the fact that the Electrici- ty Board is not an ordinary trading corporation and that  as a public utility 199 undertaking its emphasis should be on service and not  prof- it. In the second case, for example, the Court said that  it is not expected to make any profit and proceeded to  explain why it is not expected to make a profit by saying that it is expected  to  extend the supply of electricity  to  unserved areas without reference to considerations of loss. It is  of interest that in the second case, dealing with the  question whether interest cannot be taken into account in working out profits, the Court observed, (SCC p. 235, para 5):     ’The facile assumption by the Tribunal that the interest should not be taken into account in working out the  profits is not borne out by the provisions of the statute’. In the third case, the court appeared to take the view  that the  railway  rate and fares should  cover  operational  ex- penses, interest on investment, depreciation and payment  of public  obligations. It was stated more than once  that  the total  operational  cost would include the interest  on  the capital  outlay  out of the national  exchequer.  While  the court expressed the view that there was no justification  to run a public utility monopoly service undertaking merely  as a commercial venture with a view to make profits, the  court did  not rule out but refrained from expressing any  opinion on  the question whether a public utility  monopoly  service undertaking should ever be geared to earn profits to support the general revenue of the State. We  are  of the view that the failure of the  government  to specify  the  surplus which may be generated  by  the  Board cannot  prevent  the Board from generating a  surplus  after meeting the expenses required to be met. Perhaps, the  quan- tum of surplus may not exceed what a prudent public  service undertaking may be expected to generate without  sacrificing the  interests  it is expected to serve  and  without  being obsessed by the pure profit motive of the private  enterpre- neur.  The  Board may not allow its character  as  a  public utility  undertaking  to be changed into that  of  a  profit motivated  private trading or manufacturing  house.  Neither the tariffs nor the resulting surplus may reach such heights as  to lead to the inevitable conclusion that the  Bard  has shed  its  public utility character. When that  happens  the court may strike down the revision of tariffs as plainly 200 arbitrary. But not until then. Not merely because a  surplus has been generated, a surplus which can by no means be  said to be extravagant. The court will then refrain from touching the tariffs. After all, as has been said by this Court often enough  "price fixation" is neither the forte nor the  func- tion of the court."     We  are  not called upon here, in the view we  take,  to decide  whether the cost plus basis or the  thermal  equiva-

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lence basis is more appropriate. All that we wish to say  is that, having regard to the basis on which the claims of  the respondents  have  proceeded thus far, our task  is  a  very limited one. We cannot say, for reasons set out below,  that the  ONGC has acted arbitrarily in fixing the prices on  the thermal equivalence basis; the fact that it has not done  it on cost plus basis does not vitiate the price fixation.  The only  question  we  have to address ourselves to  is  as  to whether  the  O.N.G.C. has fixed a price based  on  relevant materials  and on some known principle. At the  outset,  one must notice that the price is not directly and  specifically related  to or based on any unreasonable margin  of  profit. There is nothing to indicate that the ONGC was prompted,  in fixing  its  prices, on the one and  only  consideration  of deriving  maximum profits for itself. On the other hand,  it appears  to have been guided by the needs of  the  situation and the nature of the distribution system that is in  opera- tion. As we said earlier, the manufacture, distribution  and consumption  of  gas has yet not attained the status  of  an essential  commodity till recently. It is still at  a  stage where  the  goods are being distributed under  private  con- tracts.  Whether  this is any longer justified  and  whether there  should  not be a greater amount of control  over  the modes  of,  as  well as price for such,  distribution  is  a larger  question  with which we are not  now  concerned.  At present, we are in the penumbral region where the  commodity is free to be distributed at the manufacturer’s choice,  but yet  where such manufacturer being a State  instrumentality, has to conform to Articles 14 and 19 of the Constitution.     At this stage of development of the industry, we think a much wider latitude is permissible in the fixation of prices than  the  imposition of a "no profit, no loss" basis  or  a "cost plus" basis on the producer. In fixing the prices,  it is legitimate for the O.N.G.C. to take into account the fact that  its supplies are restricted only to a  few  industries that  have entered into contracts with it. Like  industries, producing  the same or similar commodities, are carrying  on business  with other sources of energy such as coal or  fur- nace  oil  and the supply of gas is intended  to  supplement that source of energy. The supply of 201 gas  to  a few chosen industries at a much lower  rate  than what  the companies may have to pay for an alternative  fuel may  indeed lead to cries of discrimination as the  O.N.G.C. is  scarcely in a position to supply gas to  all  industries and  replace furnace oil as a source of  energy  altogether. Also,  it  must be kept in mind that exploration of  oil  is capital-intensive and money-consuming and the ONGC would  be well justified in supplying gas to voluntary contractors  at a  price  which several parties are willing  to  accept  and which will enable the ONGC to build up a surplus to meet its manifold  requirements-The  surpluses, it should  be  remem- bered, are not to fatten the coffers of a private individual but  only  to strengthen the backbone of the  public  enter- prise.  To fix its prices on the basis of  alternative  fuel cannot,  therefore, be described, in the present  situation, as irrational or arbitrary. Our attention has been drawn  to a  passage  from Joan Mitchell on "Price  Determination  and Price  Policy" where, dealing with the basis of fixation  of gas price by negotiation between the British Gas  Commission and companies producing North Sea gas, it is pointed out hat the  price is set by the nearest alternative  fuel,  usually fuel oil. This was also the basis, it will be remembered, on which  initially  the GSEB and GSFC had  agreed  to  receive supplies from the ONGC. Thus this is a basis of fixation  of

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price that is recognised in this field. Fixation of price on this  basis is, therefore, a logical and appropriate one  in the circumstances-      We  should once again like to emphasise that  different considerations may perhaps have to prevail if the  treatment of ONGC as a public utility is taken to its logical  conclu- sion  but  that is not the basis on which the  present  writ petitions  can be decided. Even at present the ONGC is  sup- plying to public sector undertakings at a much lower  price. That has not been challenged by those organisations and  the differentiation  has also been upheld, in principle, by  the High  Court, rightly in our opinion. Fortunately,  with  the discovery of more and more oil wells in various parts of the country the economy of the country is booming and gas supply may  also  become more plentifully available  in  course  of time.  The time will perhaps soon come for the evolution  of proper schemes of distribution and price control. We are now concerned, however, with the price fixation regarding supply to  a few parties who considered it all right to enter  into contractual  agreements  for supply of gas to  them  on  the basis  of the price fixed by the ONGC. So far as the  scheme of  supply is concerned; the respondents also stand  by  the existing contract scheme as they want the supply to  contin- ue-  It  is  certainly not their prayer  that  the  existing supply of gas, such as it is, should be considered a  public utility and rationed to meet the needs of all industries and consumers in Bombay or Vadodara or 202 elsewhere. Nor is there any complaint today from any  indus- try  not receiving gas supply that they are being  discrimi- nated  against and that the supply to  selective  industries should stop. There is, therefore, no justification to strike down  the  scheme of supply on the basis of  contracts.  The only  objection that survives, therefore, is that the  price for  the supply should be reasonable and fair. It should  be based  on principle, not caprice. We have pointed out  that, though  the ONGC has stepped up the prices considerably,  it has claimed to have done so on a principle and the  correct- ness  of  this  has not been challenged. The  claim  of  the respondents only is that prices should not be fixed on  that basis  but should, instead, be fixed on the basis  of  "cost plus".  For reasons indicated earlier, we do not think  that the  respondents are justified in challenging this basis  of fixation.  The basis on which the ONGC has fixed the  prices is  a  known basis and, as pointed out by us, also  a  basis permissible  at this stage of the industry where  a  certain amount  of freedom is permitted to the organisation in  sup- plying  the gas produced by it. The situation really is  one where the choice is between making the limited supply of gas available to a few chosen individuals at rock-bottom  prices so  that  they can make huge profits and  making  the  price higher but competitive so that it subserves the common  good and does not benefit only a chosen few. The ONGC has rightly chosen  the  second alternative. We would,  therefore,  hold that  the  respondents can insist on a supply only  if  they agree to pay the prices fixed by the ONGC. They are also not entitled  to demand supply as of right,  without  contracts. But,  as they have in fact had the benefit of  the  supplies under  interim orders of the Court, this question  does  not survive  and  all  that we can declare is  that  the  prices demanded by the ONGC are not unreasonable or capricious  and are binding on the respondents.     Having dealt with the principal issue, we may now  refer to certain subsidiary matters touched upon in the course  of arguments:

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(i)  A point was made about the ONGC’s right to insist on  a minimum  offtake  guarantee to the extent of 90%.  This  has been  upheld by the High Court and there is no  appeal  (the crossappeals  having been dismissed as time barred)  by  the respondents.  There can, however, be no doubt that the  High Court  was  right in its conclusion on this  issue.  If  any authority  regarding  the  rationale of  such  a  clause  is needed,  it is to be found in the decision of this Court  in Amalgamated Electricity Co. Ltd. v. Jalgaon Borough  Munici- pality, [1976] 1 SCR 636. 203 (ii)  A  statement was filed before us to show that  if  the prices  had  been  determined on the basis  of  the  thermal equivalence of coal, they would have been much smaller. This statement  has been filed before us for the first  time  and its  correctness  would need verification. It  is,  however, unnecessary  to go into this question. The acceptability  of this  argument  may depend, inter alia on how far  the  coal basis  is  relevant for the industries located  in  Vadodara where the principal alternate fuel is fuel oil. It is possi- ble  that this is one alternative that may be available  and it  was  open  to the petitioners to have  had  discuss  and mediations  with  the ONGC for alteration of the  prices  on that footing. The ONGC has fixed prices on the basis of  the thermal equivalence of furnance oil which, by an large,  was the  source of energy tapped by the local industries.  There being  no  irrationality in adopting this basis, it  is  not open  to us to say that the basis of thermal equivalence  of coal  should  be adopted rather than that of  furnance  oil, particularly  in the absence of fuller material and  discus- sion.     (iii) A point was made that the ONGC is charging differ- ent  prices to different industries. The answer of the  ONGC is  that, save in the case of certain public  sector  enter- prises,  their prices are fixed on the basis of  the  prices prevalent on the thermal equivalence of fuel oil basis as on the date the relevant contract is entered into. This has not been shown to be wrong. The only discrimination urged at the stage of the High Court was in regard to the disparities  in prices  between  supply to public  sector  undertakings  and private  industries.  Though  the award,  towards  the  end, suggested  that there should be no such differentiation,  it is  now well settled that a favourable treatment  of  public sector organisations, particularly ones dealing in essential commodities or services, would not be discriminatory.  Also, this  differentiation,  as  already pointed  out,  has  been upheld  by  the High Court, we think  rightly.  No  tangible material has been brought to our notice which would  support the plea of unfair discrimination. (iv) A point has been made that the ONGC had entered into  a contract  for  a  ten year period with the  Amul  dairy  for supply  of  gas at Rs.741 per unit  which  demonstrates  the unreasonableness  of the prices charged to the  respondents. We  do not agree. We have already pointed out that the  ONGC is  supplying gas, to certain public sector undertakings  at much  lower  rates and that this  differentiation  has  been upheld.  Though the Amul Dairy is a cooperative  society  it deals with a basic need of society and 204 stands  on no different footing from Electricity  Boards  or Fertiliser  Corporations  or  Municipal  Corporations.   The instance of the Amul Dairy cannot, therefore, be treated  as an  index of the unreasonableness of the price charged  from the respondents, particularly when the basis of fixation has been explained and is an intelligible and rational one.

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     (v)  Reference  has been made to the price of  gas  in Assam and U.S.A. So far as the former is concerned, the High Court has, rightly in our view, discarded the comparison. So far  as the latter is concerned, the point made by the  ONGC was that Dr. Rao had fixed the price of gas in India in 1967 at 15% below the then U.S. price and that on the same  basis the price of Rs.2000 per unit today could not be said to  be unreasonable  as  prices in U.S.A. have also shot  up  about thirty  fold in the meantime. We find no effective reply  to this  argument. The High Court has just brushed it aside  by reiterating  that  the well-head prices alone would  be  the reasonable basis for fixation of price. (vi) The High Court in its judgment has observed: "if  the ONGC were acting fairly and reasonably,  there  was nothing to prevent them from placing all their cards on  the table  of  the court. They did not put the  price  structure that possibly be worked out on the lines similar or akin  to those  suggested by Dr. V.K.R.V. Rao in his award.  Nor  did they  put  forward any other reasonable criteria  for  price fixation. All throughout they harped on the thermal  equiva- lence  and furnace oil equivalance and the prices in  U.S.A. and the prices of crude, but did not allow the Court to have the  bare  glimpse of what could possibly be  the  well-head price of gas, by making allowances for amortisation and  all other conceivable factors, having their sway in the ultimate price fixation. This also is indicative of the unreasonable- ness  on  their part and we would say that Mr.  Singhvi  was justified  in complaining that the return filed by the  ONGC in  this group of petitions was far from being  satisfactory and,  therefore,  was  liable to be brandished  as  no  real return at all" We  think this criticism is not justified. The stand of  the ONGC was that it had fixed the prices on the thermal equiva- lence  basis  and this has not been  controverted  or  found against. It was the 205 respondents’  case that the cost plus price would  work  out much  cheaper and the onus was on them to prove it. We  fail to  see how the blame for not allowing the court to  have  a glimpse of what could possibly be the well-head price of gas can be put at the doors of the ONGC. However, this aspect is irrelevant  as  the  case throughout has  proceeded  on  the assumption  that the cost plus basis would yield lower  fig- ures  and  the question debated was whether the  ONGC  could discard this and adopt the thermal equivalence basis. (vii)  Turning  now to para 36 of the judgment of  the  High Court,  we may observe that these directions do not  survive in  view of the conclusion we have reached that  the  prices demanded by ONGC are based on proper and relevant  criteria. However, we may observe that directions (i) and (ii) in this paragraph  virtually throw open the entire issue  for  fresh discussion. It may have been helpful if such a direction had been given before the hearing of the writ petitions but  the exercises would not be futile. Having reached the conclusion that the cost plus was the only proper basis of fixation  of price, the High Court should perhaps have directed the  ONGC to  charge prices on that basis and given a reasonable  time to  work  out the said price and  implement  the  direction. Instead,  the High Court appears to have, by its  directions in para 36, left the matter at large for it asks the ONGC to get the price fixed "according to the reasonable and ration- al norms". We do not also see any justification for  provid- ing  that the price fixation should be done in  consultation with, or after giving an opportunity to the respondents.  It is  for the ONGC to fix the prices and there can be  no  re-

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quirement of a prior consultation with the present  respond- ents  or with prospective customers. In such cases of  price fixation,  as in the case of price fixations  by  Government (see  Cynamide case, [1987] 2 SCC 720), the only  remedy  of aggrieved  consumers  can perhaps be to have  some  sort  of post-decisional  reconsideration by the ONGC  after  heating the  view points of those affected. But this  question  does not arise now in the view we have taken to the ONGC’s  obli- gations in this regard. We should also like to add that, now that  the  prices have been fixed by  the  Government  since 30.1.1987 and gas has already been supplied to the  respond- ents till then on the basis of interim prices, the implemen- tation  of the directions contained in this paragraph  would be  a prolonged and unmeaningful exercise and it would  have been much better to fix some ad hoc price, for this  period, after heating both parties. In fact, Sri B. 206 Sen  who appeared for the ONGC very fairly stated before  us that,  so  far as this period was concerned,  the  ONGC  was prepared  to  leave  it to this Court to fix  the  price  of supply at any figure that the Court might consider  reasona- ble. We also suggested to the respondents, keeping the price fixed  by the order dated 30.3.1987 in mind, a figure  which we  thought  was  reasonable but the  respondents  were  not agreeable to the course suggested. They put forward  certain alternative proposals which were not acceptable to the ONGC. In these circumstances, we have been constrained to hear the appeals on merits. (viii) On behalf of the ONGC, it has been pointed out that a sum  of Rs. 14.35 crores is outstanding for the period  from December 1982 to August 1989 from eighteen concerns, even on the  basis of the interim prices at which the ONGC has  been supplying them gas under the orders of this Court, primarily due  to shortfalls in the guaranteed off-take and that  four concerns,  who  have stopped taking supply of  gas,  are  in arrears  to the tune of about Rs. 12 lakhs. We  need  hardly say that the ONGC will be at liberty to take immediate steps to recover the charges due from the respondents in the light of this judgment. (ix)  We wish to add that we are not called upon to, and  do not,  express any opinion regarding the  notification  dated 30.1.87  of  the Government issued subsequently  fixing  the price at Rs. 1,400 plus. We do not know the circumstances or the statutory authority or the basis on which the said price fixation was made and that is totally outside the purview of these appeals.     This  concludes  a discussion of all  the  points  urged before  us. For the reasons detailed above, we  allow  these appeals and uphold the prices charged by the ONGC for supply of  gas  to the various respondents. We,  however,  make  no order regarding costs. R.S.S.                                               Appeals allowed. ?207