Madras HC confirms interim injunction against GAIL

Last Updated: Sat, Apr 19, 2014 00:40 hrs

A division bench of Madras High Court has confirmed  interim injunction by the Single Judge restraining GAIL India Ltd from enforcing their claim for amount to be collected from five power generation firms, related to the Administered Price Mechanism (APM) implemented by the government for the period between June 2006 and May 2010.

The order is on an original side appeal filed by the power firms, seeking exemption from the condition for security put forward by the Single Judge. The Single Judge had directed the firms to furnish the necessary security, while granting the interim reliefs, which according to them, would have a serious effect on the power generating units.

“While confirming the order passed by the learned Single Judge, dated December 6,2013, we find it appropriate to make a modification in the said order by stating that the appellants (power generation firms) concerned in the originals side appeals are not required to furnish any security, apart from the undertaking given by them in their affidavits filed before this court stating that the assets mentioned therein would not be alienated until the awards are passed in the pending arbitral proceedings,” said Justice M Jaichandren and Justice M Venugopal in the order.

The development is on a dispute related to an action initiated by GAIL to raise debit notes from these firms following the report of Comptroller and Auditor General of India on “Undue benefit extended to power purchasers relating to GAIL” pointed out the pricing mechanism of Administered Price Mechanism (APM) for a certain category of consumers to whom it was supposed to be calculated in terms of market related price.

The draft paragraph of CAG said the extension of the benefit of APM price resulted in under-recovery of Rs 227.37 crore from seven consumers during April 2006 to March 2010. This benefit, according to the CAG, had increased to Rs 246.16 crore by March 2011.

With the CAG stating the reply of GAIL as unconvincing, the Centre had asked the company on November, 2011, to take action for the recovery of dues from the customers. In the individual communication sent to the applicants (the companies which approached court against the move), GAIL pointed out the APM gas price would be applicable only for the quantity of gas used for generating electricity, which is supplied to the grid for distribution to the consumers through the public utilities or licensed distribution companies.

Receiving the debit notes, five companies - OPG Energy Pvt Ltd, Saheli Exports Pvt Ltd, Kaveri Gas Power Limited, Coromandel Electric Co Ltd and Arkay Energy (Rameswaram) Ltd – approached the court seeking interim orders of injunction to restrain GAIL India from issuing or raising fresh invoices for the natural gas supplied to them in terms of agreement, or from enforcing the payment of amounts as demanded under the debit notes, or from discontinuing supply of agreed quantity of gas to their power plants.

The Single Judge ordered earlier, “There will be an interim order of injunction restraining the respondent from enforcing their claim for the difference between the APM price and the non-APM price only in respect of the period from June 2006 to October 2011.” However, it was based on a condition that the power firms should furnish security.

In the case of the power generating firms, the passing of the conditional order for the furnishing of security would have serious implications, which may lead to the closing down of the business of the companies, they argued. As a consequence the financial status of the appellants would be in serious jeopardy. It had been further submitted that a number of arbitral proceedings had been initiated relating to the disputes, that had arisen in respect of the revision of the price of the natural gas supplied by the Gas Authority of India Limited to the applicants.

However, GAIL Ltd argued that the financial condition of these companies are not sound and the security is required. It also said that fixing of price is not under the control of GAIL and since the decision was to come from the Government of India and the concerned ministry, the companies should have made them as parties to the case. The Division Bench, which has partly allowed the appeal of the companies, has dismissed the cross appeals filed by the GAIL Ltd.

The arbitral proceedings at the proper platforms are in progress and is in final stage and the interim relief from the Court granted in favour of the power firms have been in vogue for a substantial period of time, added the Court.

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