Holding

ONGC must recompute the arrears, consider the raised points, and pay interest at the simple rate stipulated in Clause 5, not compoundable.

Summary

The Supreme Court examined applications filed by two drug‑manufacturing companies, Sarabhai Common Services and Alembic Chemicals Ltd, challenging the manner in which ONGC Ltd calculated arrears of gas price differentials and claimed interest. The Court found that ONGC had not properly considered the applicants' demands, including adjustments for payments already made, exclusion of royalty and sales tax on short‑lifted gas, a request to reduce the contracted quantity, and the applicability of the force‑majeure clause. Regarding interest, the Court held that, although the contract’s Clause 5 provides for interest, it must be at the simple rate specified, not compoundable, given the impact of the Court‑ordered price increase on the drug‑price control regime. ONGC was directed to recompute the arrears, incorporate the applicants’ points, and reduce its claim accordingly. The applications were disposed of with these directions.

Issues considered

Whether ONGC duly considered the applicants' contentions while computing arrears of the differential gas price.
Whether interest on the differential amount should be payable at a simple rate or compoundable rate under Clause 5 of the contract.
Whether royalty and sales tax should be excluded from the calculation of damages for short‑liftment.
Whether the applicants' request to reduce the contracted gas quantity from 60,000 m³/day to 50,000 m³/day should be taken into account.
Whether the force‑majeure clause applies to the strike and furnace‑collapse period, affecting the billing on actual usage.

Subjects

natural gasprice fixationinterest calculationshort liftmentroyaltysales taxforce majeurecontract clause 5simple interestdrug price control

Judgment

MIS O.N.G.C. LTD. A
v
ASSN. OF NATURAL GAS CONSUMING INDUSTRIES AND ORS.

APRIL 12, 2004

(S. RAJENDRA BABU, DR. AR. LAKSHMANAN B
AND G.P. MA THUR, JJ.]

Natural gas-Price fixation by ONGC-Upheld by Court-Interest on
differential amount-Two drug manufacturing companies disputing calculation C
of arrears ofprincipal amount-Held, demands made by applicants have not
been considered effectively by ONGC-Interest to be paid by them would be
payable at stipulated rate but at simple rate ofinterest and not compoundable-
<~ ONGC shall also examine the other points raised by applicants-Interest.

Appellant-ONGC increased the price of gas which gave rise to a D
number of writ petitions before the High Court. Pending ,litigation, gas
price was regulated by interim orders of the High Court and the Supreme
Court. Ultimately, the price fixed by ONGC was upheld by the Supreme
Court. As regards the claim of ONGC for interest on the late payment of
differential amount, the Court held that interest would be paid at the rate
and manner specified in the contract. However, it was made clear that E
the case of the two drug manufacturing companies, namely, 'SCS' and
'AL' would be dealt with separately. The two companies filed the present
IAs. disputing the demands raised by the ONGC.

+ It was contended for the applicants that the ONGC while calculating
the arrears of principal amount applied a higher rate of price contrary F
to the decision of the Court. It was contended for applicant 'AL' that
arrears derived on account of short liftment were calculated by ONGC
using rate for actual supply which included the sales tax and royalty on
short-lifted quantity; that ONGC failed to consider their request for
reduction of contracted quantity from 60,000 cubic meters to 50,000 cubic G
meters per day, therefore, ONGC should recompute the demand in this
regard, and that as per the force majeure clause in the contract, ONGC
was required to bill on actual usage quantity during the period of strike
and furnace collapse.

H
2 SUPREME COURT REPORTS (2004] SUPP. I S.C.R.

A Disposing of the I.As, the Court

HELD: 1. In neither of the cases has ONGC considered the demands
made by the applicants effectively, and determined the amount of arrears
due from them without making appropriate adjustments for the money
paid by them. The representations made by both these companies have
•
B been dealt with in usual bureaucratic style without due consideration to
the points raised. The points raised by them both in regard to the payment
of interest and in rega'rd to other aspects are of substantial nature and
cannot be brushed aside but need to be considered by ONGC
appropriately. (5-C-E]
c 2. So far as interest is concerned, though this Court stated in the
order made on 26.7.2001, that interest is payable in terms of clause 5 of
the contract but that was in the normal circumstances arising in the case. ..
The two applicants are drug manufacturing companies and prices at which
they sell their goods are fixed by the Drug Price Control Orders, which ..,
D had taken into consideration the price at which the gas was supplied, which }

now gets enhanced by reason of the orders of this Court. Therefore, in
the totality of the circumstances, interest shall be payable by these two
companies at the rate as stipulated in clause 5 of the contract but at simple
rate of interest and not compoundable. ONGC would reduce their claim
to that extent in the demands made by them. (5-E-H]
E
3. In case of 'AL', ONGC shall also examine the points raised as
regards (i) the exclusion of the royalty and sales tax on the damages for
short liftment; (ii) the effect of their letter seeking for reductfon of supply
from 60,000 cubic meters to 50,000 cubic meters per day; and (iii) claim
made on the basis of force majeure clause; an~ thereafter redetermine the
F
arrears payable by them along with interest. [6-A]

CIVIL APPELLATE JURISDICTION : I.A. Nos. 355-365 of 2002.

IN
G I.A. Nos. 190-200.

IN
..
Civil Appeal, Nos. 8530-40 of 1983.

H From the Judgment and Order dated 30.7.83 of the Gujarat High Court.
O.N.G.C. LTD.'"· ASSN. OF NATIJRAL GAS CONSUMING INDUS. [RAJENDRA BABU,J.] 3
in S.C.A. Nos. 883, 913/79, 1897/81, 2316, 2384, 2445, 2470, 2977, 4194, A
4520, and 2542 of 1982.

With I.A. Nos. 333-343/2002 in I.A. Nos. 190-200 in C.A. Nos. 8530-
40 of 1983.
~
Raju Ramachandran, Additional Solicitor General, Mahendra Anand, B
A.K. Ganguli, R.F. Nariman, P.Krishnamurthy, Collin Gonsalvas, Rajan
Narain, Ms. Puja Sharma, Siddharth Datta, Ms Louleen Bhullar, K.R.
Sasiprabhu, Shahid Rizvi, Manish Garg, Ms. G. Indira, M.K.S. Menon, Rakesh
K. Sharma, Ms. Manik Karanjawala, Arnn K. Sharma, Ms. Vandana Sharma,
V. Pal Singh, Ms. Pratibha Jain, Sushil Kumar Jain, Vinay Garg, Shri Narain,
Sandeep Narain, Ms. Anjali Jha, Ms. B. Vijayalakshmi Menon, A. Deb Kumar,
c
Sudarsh Menon, B.S. Sharma, K.V. Mohan, P.H. Parekh, Ms. Ranjeeta
Rohatgi, Pramod B. Agarwala, Ms. Apama Bhat and Ms. P. Ramesh Kumar
for the appearing parties.

The Judgment of the Court was delivered by D
RAJENDRA BABU, J. A batch of writ petitions was filed in the High
Court of Gujarat challenging the increase in the price of gas and by an
interim order, the High Court directed ONGC to supply gas at the old rate
ofRs.504/- per 1000 M3. Subsequently, by another order made on 29.10.1982,
the price was raised to Rs. 1000 per 1000 M3. By an order made on 30.7.1983, E
the High Court allowed the writ petitions and set aside the price which had
been determined by ONGC. Pursuant to a certificate of fitness, appeals were
filed in this Court and this C~urt continued the interim order granted by the

, High Court and thereby the respondents in the appeals received gas for which
they paid a price of Rs. 1000 per 1000 M3.
F
This Court, on 4.5.1990, by judgment upheld the prices fixed by ONGC
and allowed the appeals. After the appeals were allowed, ONGC became
entitled to receive the difference in the price of gas supplied. ONGC, in
addition to the said principal amount, also demanded interest thereon in
terms of Clause 5.02 of the contract. When payment was not made in
G
accordance with their demands, I.A. Nos.l-1 l and 23-33 were filed lin this
Court and this Court, by an order made on 6.4.1993, passed the orders for
categorising the respondents into three categories. The first category being
-4 where the principal amount was allowed to be paid in instalments. Where
such offer was not made, this Court made it clear that ONGC was entitled to
recover the entire dues. The third category is of such cases where the H
4 SUPREME COURT REPORTS [2004] SUPP. 1 S.C.R.

A companies concerned have become sick and proceedings were pending before
BIFR under the SICA. Subsequently, it was directed that these IAs will
remain pending and would be listed for hearing for directions regarding
payment of interest after the principal amount is paid. But in some of the
cases, there is no dispute that the payment of principal amount has been
made in terms of this Court's order.
B
Thereafter, applications in I.A.Nos. 190-200 were filed by ONGC
claiming inerest on the balance principal amount in terms of this Court's
order dated 4.5.1990. This Court, after examining the matter, held as under:

" ......... ONGC was under an obligation by virtue of the interim orders
c to comply with the terms of the earlier contracts and to supply gas in
the manner· provided thereunder. This part of the contract was
performed by the ONGC who thus became entitled to ·recover from
the industries the price which had originally been charged by them.
For the late payment of the amount, the contract in clause 5 had
D contemplated payment of interest at the rate and the manner specified
therein ......... "

However, it was made clear therein that the cases of Sarabhai Common
Services and Alembic Chemicals Ltd. [now known as 'Alembic Ltd.'] will be
dealt with separately and now these applications have come up for
E consideration. ·

There is a serious dispute between ONGC and the applicants as regards
the demands raised by ONGC. It is contended that the ONGC while calculating
the arrears of principal amount has applied for a higher price contrary to the ~· (
decision of this Court and hence the arrears of principal amount had to be
F recalculated by applying the correct rate/price in accordance with the order
of this Court; that the arrears claimed on account of short-liftment have been
calculated by ONGC · using the rates for actual supply which include the
element of sales tax' and royalty on the short-lifted quantities; thatthe money
payable for short!liftment of gas less than the minimum quantity of gas
G agreed to be purchased is neither delivered nor supplied and hence cannot be
treated as sale and in such a case neither royalty nor tax_ is leviable and,
therefore, they contend that the statement of arrears which cont~ined the
·element of royalty and sales tax will have to be recalculated by excluding the
same; that they had made a request by a letter dated 24.6.1985 for reduction ~
in the contracted quantity from 60000 cubic meters per day to 50,000 cubic .
H meters per day; that since the matter was sub-judice before this Court, the
O.N.G.C. LTD.'" ASSN. OF NATIJRAL GAS CONSUMING INDUS. [RAJENDRA BABU, J.) 5
change in the contracted quantity could not be done. Therefore, they claim A
that this aspect has to be considered now that the matters have been dispo~ed
of by ONGC and thereafter to re-compute the demands. In addition, it is also
contended that the contract provides for force majeure and strike by workmen
and furnace collapse are covered by this clause and ONGC is required to bill
on actual usage quantity during the period of strike arld furance collapse.
Again on the plea that the matter was pendint before /his Court, this aspect B
was not examined by ONGC. In these circumstances, it is submitted that the
applicant is entitled to relief.

A similar application has also been made by Mis Sarabhai Common
Services contending that the interest payable by them on the amounts due C
will have to be taken note of and. there have been representations made by
both M/s Sarabhai Common Services and also by Alembic Ltd. However, in
neither of the cases has ONGC considered the demands made by them
> effectively and thereafter determined the amount of arrears due from them
without making apropriate adjustments for the money paid by them pursuant
to the orders of the Court or further claims arising therefrom. The D
representations made by both these companies have been dealt with in usua:l
bureaucratic style without due consideration to the points raised. We find that
the points raised by them both in regard to the payment of interest and in
regard to other aspects are of substantial nature and cannot be brushed aside
as has been done now but needs to be considered by ONGC appropriately. E
So far as interest is concerned, though this Court stated in the order
made on 26. 7.200 I, that interest is payable in terms of clause 5 of the contra~t
as contract continued to be in force till the matters were finally disposed of
) by this Court, but that was in the normal circumstances arising in this c :ise.
We may notice that these two cases where Sarabhai Common Services and F
Alembic Chemicals Ltd. [now known as 'Alembic Ltd.'] are drug
manufacturing companies and prices at which they sell their g~ods are fixed
by the Drug Price Control Order, which had taken into consideration the
price at which the gas was supplied, which now gets enhanced by reason of
the orders of this Court.
G
Th~refore, in the totality of the circumstances, we think, interest shall
be payable by these two companies at the rate as stipulated in clause 5 of the
contract but not compoundable but simple rate of interest. To that extent, we
allow the applications filed by Sarabhai Common Services and direct ONGC
to reduce their claim to th extent in the demands made by them. In case of H
6 SUPREME COURT REPORTS [2004] SUPP. I S.C.R.

A Mis Alembic Ltd. ONGC shall examine other points raised by them as regards:
(i) the exclusion of the royalty and sales tax on the damages for shortliftment;
(ii) the' effect of their letter seeking for reduction of supply from .60000 cubic
meters per day to 50,000 cubic meters per day; and (iii) claim made on the
basis of force majeure clause and thereafter redetermine the arrears payable
B by them along with interest.

The applications accordingly stand disposed of in terms of the aforesaid
directions.

R.P. I.As. disposed of.