ONGC loses Rs200cr textile mill gas supply battle

Vol 17, PW 19 (08 May 14) Midstream & Downstream

Gas retailers across India would do well to scrutinise a landmark Supreme Court ruling barring ONGC from recovering Rs200cr ($33m) from five textile mills for gas supplied more than 20 years ago.

Justices Surinder Singh Nijjar and AK Sikri delivered a 31-page ruling on April 17 throwing out ONGC's plea to be a 'secured creditor' of the bankrupt mills in a case running since 2006. “This is a significant judgment,” says one gas retailer.

“Precautions must be taken when drafting a contract.” ONGC began supplying gas from its Cambay blocks to Calico Mills, Navjivan Mills, Mahendra Mills, Ambica Mills and Calico Mills (Kalol).

But Navjivan Mills and Calico Mills (Kalol) went into liquidation in 1989, Ambica in 1997, Calico in 1998 and Mahendra in 2001. ONGC filed a case in the Gujarat High Court in the 1990s asking to be a ‘secured creditor’ so it could recover its money against the sale of mill assets.

But this was turned down in October 2004 and ONGC appealed to the Supreme Court. ONGC's mistake was failing to ensure its gas supply contracts specified the money was an 'enforceable charge.' This oversight meant that under section 125 of the Companies Act it was deemed an ‘unsecured creditor’ with no rights to recover money.

First the claims of ‘secured creditors’ and factory employees must be processed, says the ruling, allowing more than 15,000 mill workers to finally recover unpaid wages.