Delhi HC denies interim relief to ArcelorMittal Nippon Steel in LNG supply dispute case with GAIL

The two companies had entered into an LNG sale and purchase agreement (LSPA) for the sale and delivery of LNG on a ‘take or pay’ basis between 2021 and 2025

The Delhi High Court recently denied interim relief to steel manufacturer ArcelorMittal Nippon Steels (AM/NS India) in its dispute with public sector company GAIL over the termination of a Liquified Natural Gas (LNG) supply contract.

AMNS had filed a petition asking the court to direct GAIL to supply LNG to it for November and told the court that discontinuation in supplying LNG would cause irreparable loss.

"It is held that AMNS is not entitled to mandatory interim relief of directing GAIL to supply the LNG for the month of November 2023," the judgment said.  The judgment authored by Justice Neena Bansal Krishna also noted that non-supply of LNG by  GAIL would not lead to cessation of the AMNS' manufacturing facilities and in these circumstances, default in supply of LNG by the GAIL may lead to the steel manufacturer incurring additional expenditure.

The court also noted that  LNG is a product available in the market and GAIL is not the only source of supply of LNG, AMNS can procure this LNG from the open market.

The dispute

The two companies had entered into an LNG sale and purchase agreement (LSPA) for the sale and delivery of LNG on a ‘take or pay’ basis between 2021 and 2025. According to the LSPA, GAIL was to supply an annual contracted quantity (ACQ) of LNG of 11.87 TBtu during each contract year. The state-run gas distributor, however, stopped LNG supply to AMNS in October 2023 after disputes arose between the companies amid GAIL’s failure to supply LNG in 2022.

AMNS alleged that GAIL did not supply LNG between August 2022 and December 2022, which the latter had claimed was due to a force majeure. AMNS has challenged the existence of the force, citing that GAIL could still have supplied LNG to them considering they have many suppliers.

AMNS invoked the arbitration clause in the agreement and asked the Delhi International Arbitration Centre (DIAC) to adjudicate the dispute. However, GAIL terminated the agreement and refused to continue supplying LNG to AMNS for its steel plant in Hazira, Gujarat.

AMNS moved the Delhi High Court seeking a stay on GAIL’s terminated LNG supply for its steel plant in Hazira, Gujarat and sought directions for the supply of LNG.

In the response dated November 6, GAIL said that the petition deserves to be dismissed and no interim relief, as sought for by the petitioner AMNS ought to be granted.

In May 2022, Russia’s Gazprom Marketing and Trading Singapore (GMTS) halted supplies of natural gas to GAIL citing the war in Ukraine. As a result, the gas distributor had to cut supplies to clients.