Background

UP Agro Food Pvt. Ltd. is a Company involved in making of roasted dalia, atta etcm, having its registered office in Kanpur. It is a major supplier to MNCs like Dominos, Pillsbury etc. In 2009, LGL (Lucknow Gas Ltd.), a UP Government entity came into being. LGL was given the mandate to provide natural gas services for industrial use, in the whole of UP. Accordingly, the CEO of LGL identified different industrial zones in the State as per geographical area, and priced the gas differently in each sector.

In March 2010, LGL approached UP Agro Food Pvt. Ltd. to become its client. UP Agro Food Pvt. Ltd. is an old Company that was recently succeeded by Mr. Kalakriti Pandey, a 23 year old, after the death of his father in Jan 2010.

Mr. Bhuwan Pandey, sales representative of LGL shared the benefits of using natural gas, instead of electricity as a medium for heating required at the plant of UP Agro Food Pvt. Ltd. Impressed by the presentation, Kalakriti decided to implement the system of natural gas at his Company’s Plant.

Accordingly a Gas Sharing Agreement was entered into by LGL and UP Agro Food Pvt. Ltd. This Agreement was signed at Kanpur by Mr. Kalakriti Pandey and at Lucknow by CEO of LGL.

It was said by Mr. Bhuwan Pandey that UP Agro Food Pvt. Ltd. would be required to pay only for the amount of gas it used. However, the Agreement had a clause on Minimum Guaranteed Quantity, which meant that UP Agro Food Pvt. Ltd. had to pay minimum for 1000 units of gas per month, irrespective of its actual usage. If actual usage of in upwards of this quantity, then a premium price was to paid per unit.

After the agreement, UP Agro Food Pvt. Ltd. installed the state of the art system compatible with gas for Rs. 1 crore. Till 2013, UP Agro Food Pvt. Ltd. got bills as per actual usage of gas, which was around 500-600 units per month. In March 2013, it got a letter from LGL stating that UP Agro has not paid several bills, to the tune of Rs. 2 crore, calculated as per Minimum Guaranteed Quantity.

This letter was denied by UP Agro Food Pvt. Ltd, stating that it had to pay only for its actual consumption.

Primary negotiations through letters between both sides have failed, and the mood is set for litigation. However, dispute resolution clause in the contract mandates Mediation. Hence, both LGL and UP Agro have agreed for mediation on the aspect of alleged unpaid bills.

Confidential (To be shared with LGL)

LGL knew that UP Agro Food Pvt. Ltd. has no exposure to gas technology, and same has been recorded in one of their note sheets, which can be obtained under RTI. LGL is yet to establish its brand across the state, and any major litigation with its clients is bound to affect its name in the market and not go well with the Government, with elections around the corner.

Confidential (To be shared with UP Agro)

UP Agro is low on cash reserves and cannot pay the amount being claimed by LGL, but can henceforth pay if LGL reduces MGQ to 700 units and decreases the rates of gas. UP Agro has received a secret letter from an unknown source detailing dispute can be settled if they bribe up CEO of LGL.

 

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