The supreme court overruled the Gujarat high court and has allowed GAIL (India) to go ahead with its decision to terminate contract with the state-owned oil and gas exploration company, Gujarat State Petroleum Corporation (GSPL), for providing natural gas imported from Qatar.

According to a news report in The Financial Express, a bench comprising justices GS Singhvi and V Gopala Gowda said that the high court should have relegated GSPL to the remedy of arbitration keeping in view the complex nature of the price fixation mechanism.

The apex court stated that the high court presumed that the negotiations held between the parties were not fair and that GSPL was entitled to the benefit of the policy decision taken by the centre despite the fact that it had not only challenged that decision but had also shown disinclination to accept the offer made by GAIL to supply gas at the pooled price and had insisted on mutually agreed price.

Writing for the bench, justice Singhvi stated that a reading of the draft re-gasified liquefied natural gas (RLNG) contract and price side letter sent by GAIL to the GSPL shows that GAIL had offered to supply gas to GSPL at the pooled price but the latter did not agree and insisted on negotiation for the contract price of RLNG to be effective from 1.10.2009.

GAIL had entered into a long-term gas sale agreement for 15 years in February 2004 with GSPC to provide gas till 2019. As per the contract, the price renewal for the gas to be provided from January 1, 2014, onwards was to be negotiated by the two parties by December 31, 2011.