Adani Gas Limited v. Union of India & Ors.
S. RAVINDRA BHAT, J.
1. Special leave granted. These appeals were heard with the
consent of counsel appearing on behalf of the parties. The appea ls are
directed against a judgment of the Gujarat High Court1 rejecting certain
writ petitions.
2. In those proceedings, the main appellant (hereafte r called
“Adani”) challenged the validity of Regulation 18 of the Petroleum and
Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate
or Expand City or Local Natural Gas Distribution Networks) Regulations,
2008 (hereafter called the “CGD Regulations”) as violative of Articles
14 and 19(1)(g) of the Constitution of India, and ultra vires Section 16
of the Petroleum and Natural Gas Regulatory Board Act, 2006 (hereafter
called the “PNGRB Act” or “the Act”). Adani had also challenged the
grant of authorization to the third respondent (hereafter called “Gujarat
Gas”) for laying and maintaining a gas distribution network. Gujarat Gas
had succeeded in securing the authorization in an auction hel d by the
Petroleum and Natural Gas Regulatory Board (hereaft er called
“PNGRB” or “the Board”).
Background
3. The PNGRB Act came into effect on 1.10.2007, and mandated
authorization by the Board for the laying, building, operating or expanding
any city or local natural gas distribution network (collecti vely, “CGD
1 Dated 28.09.2018.
1159
activities” and such a network, “CGD network”). On 30.10.2007, the
Board issued a press note directing entities engaged in CGD activities
with or without authorization of the Central Government, to su bmit
relevant details. After receiving the petitioner’s details, the Board informed
it that recognition and acceptance could be only of a specific and formal
authorization by the Central Government, in accordance with Section 17
of the Act. Accordingly, Adani’s activities were restrained and a direction
was given to obtain authorization from the Central Governmen t. The
Board eventually granted Adani provisional clearance to carry out certain
capital works in the Ahmedabad area, including the disputed ar eas of
Sanand, Bavla, and Dholka (hereafter called “disputed area s”). Adani
also submitted an indemnity in favour of the Board.
4. Section 16, relating to authorization, came into effe ct on
12.07.2010. On 04.02.2013, the Board granted provisional authorization
to Adani’s CGD network in Ahmedabad city and Dascroi area, excluding
18 CNG stations of Hindustan Petroleum Corporation Limited (hereafter
called “HPCL”), subject to certain conditions. The disputed areas were
excluded from this provisional authorization. Under pro test, Adani
accepted the grant of authorization on 09.12.2013, despite certain areas
being excluded. On 1.10.2015, the Board invited bids for development
of CGD networks in those disputed areas in Ahmedabad. Adani submitted
its application-cum-bid documents in respect of these areas.
5. Feeling aggrieved by the exclusion of these areas from the
authorization granted to it, Adani approached the High Court, preferring
a petition under Article 226 of the Constitution, seeking several reliefs.
The principal relief claimed was the quashing of the grant of authorization
to Gujarat Gas, questioning the exclusion of the disputed are as by the
earlier authorization dated 28.11.2013, and challenging the vires of
Regulation 18 framed by the Board under the PNGRB Act. Adani also
contended that by virtue of Section 16 of the PNGRB Act, it was entitled
to be treated as an entity with “deemed authorization”.
6. The PNGRB and Gujarat Gas, who were arrayed as
respondents before the High Court, contended that Adani’s petition was
liable to be dismissed on the ground of delays and laches, and availability
of alternate remedies. They also contended that Adani was disentitled to
claim the reliefs it sought due to its conduct. On merits, PNGRB
contended that its letter dated 31.03.2008 to Adani sought necessary
details. At that stage, Adani did not challenge the validity of Regulation
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
18 and on the contrary, sought authorization under that provision by a
letter dated 09.07.2008 without protest. It was contended that although
Section 16 of the PNGRB Act was brought into force in 2010, a t that
time too, Adani did not challenge the validity of the impugned regulation.
Furthermore, Adani applied for authorization under Section 17(2) of the
PNGRB Act and Regulation 18 without any protest and participated in
the hearings fixed by PNGRB. At that stage too, no objection was raised
with regard to its entitlement as a “deemed authorized” entity, and Adani
furnished the required particulars to PNGRB. The respondents pointed
out that on 04.02.2013, PNGRB issued a provisional authorization letter
on certain terms and conditions in which the disputed areas were
excluded. At that stage too, Regulation 18 was not challenged; Adani, on
the other hand accepted the terms and conditions on 28.10.2013. The
petition was therefore opposed on the grounds of estoppel, applicability
of the principle of approbate-reprobate, as well as delay and on merits.
7. The High Court, after hearing the parties, by its judgment held
that Adani had applied for and was granted authorization with respect to
Khurja area in Uttar Pradesh in 2012. That authorization was i ssued
under Regulation 18. Adani accepted that authorization and never
protested against it; it also accepted the terms and condi tions of the
letter issued by the PNGRB for Ahmedabad, which excluded the disputed
areas. Thereafter, the performance bank guarantee was also submitted
by the Adani, and ultimately PNGRB issued the final authorization for
Ahmedabad city and Dascroi area, excluding the disputed areas. The
Court noticed that the bid for the disputed area was issued on 01.10.2015
and Adani participated in the bidding process, rather than challenging it.
The petition was filed only after it was unsuccessful in the bid. The High
Court found that the challenge to Regulation 18 of the CGD Regulations
therefore, was only when it suited Adani’s convenience.
8. The impugned judgment then noted that this court, in its judgment
reported as In re Special Reference No. 1 of 2001 2 (hereafter called
“Special Reference”), had ruled that in view of Entry 53, List I of the
Seventh Schedule, the Parliament had exclusive legislative competence,
and the Central Government, exclusive executive competence on t he
subject of natural gas, and that State Governments did not have any
authority to enact such a legislation or to grant any authorization in respect
of the subject of natural gas. The High Court held that:
2 (2004) 4 SCC 489.
1161
“The Parliament has, therefore, made provision with regard
to ‘deemed authorization’ under Section 16 of the P NGRB
Act subject to the provisions of Chapter IV which i ncludes
Section 17 of the PNGRB Act. If the provision contain ed in
Section 17 of the PNGRB Act is seen, it provides for dis tinction
between the entities authorized by the Central Gove rnment
and those not so authorized. Further, the entities aut horized
by the Central Government have to furnish the particulars of
their activities before the appointed day to the
respondent Board, whereas, the other entities have to apply
for authorization under Section 17(2) of the PNGRB Act and
Regulation 18 of Regulations of 2008. Thus, the Parliame nt,
while enacting Section 17(2) of the PNGRB Act, had given a
chance to such entities to apply for authorization to respondent
Board in respect of the areas in which they were active befor e
the appointed day. At this stage, it is also required to be noted
that the petitioner No.1 commenced the work of CGD networ k
in Ahmedabad District on the basis of the interim p olicy of
the Government of Gujarat. The said policy itself p rovides
that as and when the Gas Act or any other relevant regulation
is brought into force, the petitioner No.1 will hav e to meet
with the requirements of the Regulation. Further, t he NOC
granted by the Government of Gujarat is also subjec t to
similar condition. In fact, the Presidential Reference was w ith
regard to the Gujarat Gas Act and ultimately the Ho n’ble
Supreme Court, in the case of Association of Natura l Gas
&Ors. (supra), struck down the constitutional valid ity of
Gujarat Gas Act and held that with respect to natur al gas,
only the Central Government has legislative competence. Thus ,
from the date of coming into force of PNGRB Act i.e ., on
01.10.2007, only the Central Government is having legislativ e
and executive competence and therefore Parliament introduced
‘deemed authorization’ in Section 16 of the PNGRB A ct.
Therefore, when the Parliament introduced the conce pt of
‘deemed authorization’ in Section 16 of the PNGRB Act , it
could only be with respect to entities operating un der an
executive order/authorization from the Central Govern ment.
If section 16 of PNGRB Act is interpreted to mean “deem ed
authorization” even to entities operating without s uch
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
executive order/authorization, such interpretation wo uld run
contrary to the Presidential Reference answered by the
Hon’ble Supreme Court. As observed hereinabove, Sec tion
16 of the PNGRB Act is subject to the provisions of Chapt er
IV which includes Section 17.
12.1. If we consider the provisions contained in Sections 11 ,
18, 19 and 61 of the PNGRB Act, it is clear that the resp ondent
Board has been empowered under the Act to either in vite
applications and or decide applications moved to it from
interested parties to lay, build, operate or expand such
pipelines or city or local gas distribution network and the
said applications have to be decided in transparent and
objective manner as provided in the regulations. The func tion
of the respondent Board is defined under Section 11(i) of the
PNGRB Act. Further, Section 61 of the PNGRB Act empowers
the respondent Board to frame the regulations which are
consistent with the PNGRB Act and the Rules made
thereunder to carry out the provisions of the PNGRB Act. The
regulations of 2008 were therefore framed. Regulatio n 18(2)
empowers the respondent Board to take into consider ation
various criteria while considering the application f or grant
of authorization to such entities and one of them is in respect
of the actual physical progress made and the financ ial
commitment specifying a physical progress at least twe nty five
percent and a financial commitment of at least twen ty five
percent of the capital expenditure identified for t he CGD
project as per the DFR submitted immediately before the
appointed day, may be considered as adequate. If any e ntity
which is already carrying out work before the appointed da y,
without the authorization of the Central Government , it
becomes incumbent upon the respondent Board to see that
the quantity of the work and financial commitment is sufficient
and therefore the condition as specified in Regulation 18(2) (d)
cannot be said to be ultra vires to the provisions of PNG RB
Act. In fact the impugned regulation is in furtherance o f the
objects of the PNGRB Act.
12.2. Thus, from the combined reading of Sections 16 and 17
of the PNGRB Act and Regulation 18 of the Regulation s of
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2008, it would be clear that other entities can als o claim
authorization from the respondent Board provided they m eet
the test of Regulation 18 of the Regulations of 2008. In fact,
the aforesaid provisions provide a fair opportunity to
unauthorized/other entities also to claim authorizat ion with
respect to work already carried out before the appointed da y
provided the work was completed to a reasonable exten t.”
In view of this reasoning, the High Court dismissed Adani’s writ
petition.
Relevant Provisions of the PNGRB Act and Regulations
9. The PNGRB Act, with the exception of Section 16, came into
force on 1.10.2007 (“appointed day”). Section 16 was, however, brought
into force subsequently, on 12.07.2010. The enactment set up the PNGRB
to regulate refining, processing, storage, transport, marketing, distribution
and sale of petroleum, petroleum products and natural gas in all parts of
the country, and to promote competitive markets. Section 1 (4) of the
Act declares that it applies to “refining, processing, storage,
transportation, distribution, marketing and sale of petroleum,
petroleum products and natural gas excluding productio n of crude
oil and natural gas.” Section 2 (d) defines “authorized entity” as follows:
“(d) “authorised entity” means an entity—
(A) registered by the Board under section 15—
(i) to market any notified petroleum, petroleum pro ducts or
natural gas, or
(ii) to establish and operate liquefied natural gas terminals,
or
(B) authorised by the Board under section 16—
(i) to lay, build, operate or expand a common carri er or
contract carrier, or
(ii) to lay, build, operate or expand a city or loca l natural
gas distribution network;”
Section 2(i) of the Act defines a ‘city or local natural gas
distribution network’ as:
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
“(i)an interconnected network of gas pipelines and the
associated equipment used for transporting natural gas from
a bulk supply high pressure transmission main to the medium
pressure distribution grid and subsequently to the service pi pes
supplying natural gas to domestic, industrial or comm ercial
premises and CNG stations situated in a specified
geographical area.”
Section 2 (l) defines compressed natural gas as follows:
“(l) “compressed natural gas or CNG” means natural gas
used as fuel for vehicles, typically compressed to the pr essure
ranging from 200 to 250 bars in the gaseous state.”
Section 2 (za) defines “natural gas” as follows:
“(za) “natural gas” means gas obtained from bore-holes and
consisting primarily of hydrocarbons and includes—
(i) gas in liquid state, namely, liquefied natural gas and
regasified liquefied natural gas,
(ii) compressed natural gas,
(iii) gas imported through transnational pipelines, incl uding
CNG or liquefied natural gas,
(iv) gas recovered from gas hydrates as natural gas
(v) methane obtained from coal seams, namely, coal bed
methane, but does not include helium occurring in association
with such hydrocarbons;”
10. Section 16 of the PNGRB Act requires authorization by t he
Board for any entity that wishes to lay, build, operate or expand any city
or local natural gas distribution network. Section 17 deals with
authorization, and Section 18 deals with publicity of applications. The
provisions read as follows:
“16. Authorisation. – No entity shall –
(a) lay, build, operate or expand any pipeline as a c ommon
carrier or contract carrier;
(b) lay, build, operate or expand any city or local natural
gas distribution network, without obtaining authori zation
under this Act:
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Provided that an entity, -
(i) laying, building, operating or expanding any pipeli ne as
common carrier or contract carrier’ or
(ii) laying, building, operating or expanding any city or l ocal
natural gas distribution network,
immediately before the appointed day shall be deemed to have
such authorisation subject to the provisions of this Chapter,
but any change in the purpose or usage shall require separ ate
authorization granted by the Board.
17. Application for authorisation.
(1) An entity which is laying, building, operating or expa nding,
or which proposes to lay, build, operate or expand, a pi peline
as a common carrier or contract carrier shall apply in writing
to the Board for obtaining an authorisation under this Act:
Provided that an entity laying, building, operating or
expanding any pipeline as common carrier or contract carrie r
authorised by the Central Government at any time before th e
appointed day shall furnish the particulars of such activ ities
to the Board within six months from the appointed day.
(2) An entity which is laying, building, operating or expa nding,
or which proposes to lay, build, operate or expand, a cit y or
local natural gas distribution network shall apply in w riting
for obtaining an authorisation under this Act:
Provided that an entity laying, building, operating or
expanding any city or local natural gas distribution network
authorised by the Central Government at any time before th e
appointed day shall furnish the particulars of such activ ities
to the Board within six months from the appointed day.
(3) Every application under sub-section (1) or sub- section
(2) shall be made in such form and in such manner and shall
be accompanied with such fee as the Board may, by
regulations, specify.
(4) Subject to the provisions of this Act and consist ent with
the norms and policy guidelines laid down by the Ce ntral
Government, the Board may either reject or accept a n
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
application made to it, subject to such amendments or
conditions, if any, as it may think fit.
(5) In the case of refusal or conditional acceptanc e of an
application, the Board shall record in writing the grounds for
such rejection or conditional acceptance, as the ca se may
be.
18. Publicity of applications. —When an application for
registration for marketing notified petroleum, petr oleum
products and natural gas, or for establishing and ope rating
a liquefied natural gas terminal, or for establishing storage
facilities for petroleum, petroleum products or nat ural gas
exceeding such capacity as may be specified by regula tions,
is accepted whether absolutely or subject to condit ions or
limitations, the Board shall, as soon as may be, cau se such
acceptance to be known to the public in such form and manner
as may be provided by regulations.”
11. Section 17(2) obliges entities to apply to the PNGRB for
authorization, and its proviso says that such entities which were authorized
by the Central Government at any time before the appointed day, shall
furnish the particulars of such activities to the Board within six months
from the appointed day. Section 19 provides for the grant of authorizations,
and reads as follows:
“19. Grant of authorization.
(1) When, either on the basis of an application for
authorisation for laying, building, operating or expan ding a
common carrier or contract carrier or for laying, bui lding,
operating or expanding a city or local natural gas distribution
network is received or on suo motu basis, the Board forms an
opinion that it is necessary or expedient to lay, build, o perate
or expand a common carrier or contract carrier between two
specified points, or to lay, build, operate or expand a city or
local natural gas distribution network in a specifi ed
geographic area, the Board may give wide publicity of its
intention to do so and may invite applications from interested
parties to lay, build, operate or expand such pipelines or city
or local natural gas distribution network.
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(2) The Board may select an entity in an objective and
transparent manner as specified by regulations for such
activities.”
12. The CGD Regulations apply to any entity which is laying,
building, operating or expanding, or which proposes to lay, build, operate
or expand a CGD network. Regulation 2(c) defines an ‘authorized area’
as:
“(c) “authorised area” means the specified geographical are a
for a city or local natural gas distribution network (hereinaft er
referred to as CGD network) authorized under these
regulations for laying, building, operating or expan ding the
CGD network which may comprise of the following categories,
either individually or in any combination thereof, depe nding
upon the criteria of economic viability and contiguity as stat ed
in Schedule A, namely:-
(i) geographic area, in its entirety or in part thereof, within a
municipal corporation or municipality, any other urban area
notified by the Central or the State Government, village, block,
tehsil, sub-division or district or any combination thereof;
and
(ii) any other area contiguous to the geographical area
mentioned in sub-clause (i);”
Regulation 2(g) defines ‘development of a CGD network’:
“(g) “development of a CGD network” means laying,
building, operating or expanding a city or local natural gas
distribution network;”
Regulation 2(2) provides that:
“(2) Words and expressions used and not defined in these
regulations, but defined in the Act or in the rules or regulations
made thereunder, shall have the meanings respective ly
assigned to them in the Act.”
13. Regulation 18 of the CGD Regulations pertains to entities not
authorized by the Central Government, and provides as follows:
“18. Entity not authorized by the Central Government for
laying, building, operating or expanding CGD network before
the appointed day.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
(1) An entity laying, building, operating or expandin g CGD
network at any time before the appointed day but no t duly
authorized to do so by the Central Government shall app ly
immediately for obtaining an authorization in the form as at
Schedule I.
(2) The Board may take into consideration the follo wing
criteria while considering the application for gran t of
authorization, namely: -
(a) the entity meets the minimum eligibility criter ia as
specified in clauses (a) to (e) and (i) of sub regulation (6 )
of regulation 5 before the appointed date and is possessing
all necessary statutory clearances, permissions, no
objection certificates from the Central and State
Governments and other statutory authorities;
(b) an entity which is not registered under the Companies
Act, 1956 at the time of submitting the application for gran t
of authorization shall undertake to become a compan y
registered under the Companies Act, 1956:
Provided that the Board may exempt an entity to register
under the Companies Act, 1956 on such conditions as it
may deem appropriate;
(c) a satisfactory assessment of the actual physical progr ess
made and the financial commitment thereof till immediately
before the appointed day in comparison with the enti ty’s
DFR appraised by the financial institution funding the
project. In case the project has not been funded by any
financial institution, the Board may appraise the DFR. The
DFR of the entity should clearly indicate the speci fied
geographical area of the project and also specify t he
coverage proposed for CNG and PNG. In case upon
scrutiny of the DFR by the board by taking into accou nt
the geographical area, customer segments, infrastruc ture
requirements, etc. proposed by the entity, the DFR is found
to be sub-optimal and unacceptable, the Board may n ot
consider the case of the entity for issuing the authorizati on;
(d) in respect of the actual physical progress made and t he
financial commitment thereof referred to in clause ( c), a
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physical progress of at least twenty five percent a nd a
financial commitment of at least twenty five percent of the
capital expenditure identified for the CGD project as p er
the DFR immediately before the appointed day may be
considered as adequate;
(e) the entity should have arranged, by way of acquisition
or lease, land for CGS and procured the necessary
equipment for erecting the CGS before the appointed day;
(f) the Board reserves the right to get the actual phy sical
progress and the financial commitment certified and
depending upon the progress achieved, the Board may
consider authorizing the entity for the authorized area –
i) as per the geographical area in its DFR;
ii) as per the geographical area actually covered u nder
implementation till the appointed day; or
ii) the geographical area as specified by the Board;
(g) in relation to laying, building, operating or expanding
the CGD network, it is for the entity to satisfy the Board
on the adequacy of its ability to meet the applicab le
technical standards, specifications and safety stan dards
as specified in the relevant regulations for techni cal
standards and specifications, including safety stan dards
and the quality-of-service standards as specified i n
regulation 15;
(h) assessment of the financial position of the entity in timely
and adequately meeting the financial commitments in
developing the CGD network project as appraised by a
financial institution and an examination of the aud ited
books of accounts of the entity;
(i) firm arrangement for supply of natural gas to meet the
demand in the authorized area to be covered by the CGD
network;
(j) any other criteria considered as relevant by the Bo ard
based on the examination of the application.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
(3) The evaluation of the application in terms of the clauses
(a) to (j) shall be done in totality considering the com posite
nature and the inter-linkages of the criteria.
(4) The Board, after examining the application in terms of the
criteria under sub-regulation (2) and also taking into account
the requirements in other regulations, may form a prima-facie
view as to whether the case should be considered fo r
authorization.
(5) In case of prima-facie consideration, the Board shall is sue
a public notice in one national and one vernacular daily
newspaper (including web-hosting) giving brief details of the
project and seek comments and objections, if any, within thirty
days from any person on the proposal.
(6) The Board, after examining the comments and objections ,
if any, under sub-regulation (5), may either consider or reject
the case for grant of authorization for the CGD network .
(7) In case it is decided to grant authorization, the same shall
be in the form at Schedule D.
(8) In case of rejection of the application, the Bo ard shall
pass a speaking order after giving a reasonable oppo rtunity
to the concerned party to explain its case and proc eed to
select an appropriate entity for the project in ter ms of
Regulation 6.
(9) In case the entity is selected for grant of authorizati on for
CGD network-
(a) the network tariff and the compression charge fo r CNG
shall be determined under the Petroleum and Natural Gas
Regulatory Board (Determination of Network Tariff for City
or Local natural Gas Distribution Networks and
compression charge for CNG) Regulations 2008;
(b) the Board may consider grant of exclusivity on such ter ms
and conditions as specified in the Petroleum and Natural Gas
Regulatory Board (Exclusivity for City or Local Natural Ga s
Distribution Networks) Regulations, 2008;
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(c) the entity shall abide by the technical standar ds,
specifications including safety standards as specif ied under
relevant regulations for technical standards and specification s,
including safety standards;
(d) the provisions under regulations 9, 13, 14, 15 and 16
shall apply to the entity.”
Contentions of the appellants
14. Mr Harish Salve, learned senior counsel contended that the
impugned judgement erroneously interpreted Section 16 of the PNGRB
Act and its proviso. Referring to the sequence of events, it was highlighted
that the initial proposal for setting-up of the gas pipel ine was by the
invitation of the Gujarat Government. Adani made the propos al on
20.08.2001. The State Government framed its policy with effect from
18.07.2002, and Adani applied under that policy. It was after considering
commercial and technical feasibility that the Gujarat Government issued
the no objection certificate (hereafter called “NOC”) dated 27.04.2003.
Soon thereafter, Adani took steps to develop the three areas in question.
15. Mr. Salve submitted that the issue as to whether the St ates
have the legislative competence and executive authority in r espect of
natural gas became the subject matter of a referenc e under
Article 143. By its opinion in Special Reference (supra), this Court
answered the reference and held that it was only the Parliament which
could, having regard to Entry 53 of List I of the Seventh Schedule to the
Constitution, legislate in respect of natural gas and petroleum products,
and the Central Government alone could frame suitable policies. It was
to give effect to this opinion that the PNGRB Act was enacted. The Act
was brought into force on 01.10.2007. Mr. Salve drew the attention of
the Court to a Press Note dated 31.10.2007 seeking applications from
interested parties. He then submitted that on 31.03.2008, having regard
to the fact that Adani had received state authorization in the pas t, the
PNGRB asked it to apply under Section 17(2) which it did on 26.02.2008.
16. It was argued that though the provisions of the PNGRB Act
were brought into force, the Central Government advisedly did not bring
into force Section 16 of the Act. This led to a proceeding be fore the
Delhi High Court3, which directed the provision to be brought into force.
It was as a consequence of these proceedings that t he Central
3 Voice of India v. Union of India W.P.(C) 8415/2009, decided on 20.01.2010.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
Government ultimately notified Section 16. Mr Salve urged t hat the
proviso to Section 16 of the PNGRB Act was enacted with the intent to
deem authorization, and by that, save and permit the functioni ng of
networks and facilities of all entities who were functioning in the sector,
and not only entities authorized by the Central Government. He urged
that a narrow interpretation of the proviso, confining benefit of “deemed
authorization” to entities that were permitted to oper ate before the
enactment of PNGRB, and who were granted authorization by the
Central Government, would be reading something new into the statute
that does not exist. It was argued that the proviso to Sec tion 16 of the
PNGRB Act was plain and unambiguous and referred to entities which
were involved in various activities listed in it before the appointed day
and not only entities authorized by the Central Government.
17. It was submitted that Section 17 of the PNGRB Act did not
distinguish between entities authorized by the Central Government and
others, and merely required entities which did not have central
authorization to apply in writing for authorization in terms spelt out by
the regulations framed by the PNGRB. The procedural requirement for
entities authorized by the Central Government was (as per Section 17
(2) of the PNGRB Act), to intimate relevant details. Therefore Section
16 of the PNGRB Act did not create an artificial distincti on between
entities authorized by the Central Government and other entities. It was
submitted that Parliament was well aware of the debate which took
place before the coming into force of the PNGRB Act, especi ally the
fact that several States had authorized entities to cons truct and lay
pipelines and networks, which had come up in the meanwhile. It was
urged in this context that the Preamble to the PNGRB Act and the
proviso to Section 16 referred to “entities” and not “entities authorized
by Central Government”. The proviso to Section16 emphasized on the
physical activity of laying, building, operating or expanding any city or
local natural gas distribution network and not the factum as to whether
authorization for such activity was previously granted by th e Central
Government or not. It was urged that the lone exception carved o ut in
the proviso to Section 16 was that a separate authorization was required
for change in the purpose or usage. Unless there was a change in the
purpose or usage, an entity laying, building, operating or expanding any
city or local natural gas distribution network before the appointed day
(i.e., irrespective of prior authorization by Central Government) shall be
deemed to have the authorization under Section16.
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18. Learned counsel submitted that in terms of Section 17(2) of
the PNGRB Act, all entities had to apply in writing for authorization in
such form and manner as specified in regulation made under Section17(3).
In terms of Section 17(4), consideration of applications (made under
Section 17(2)) was subject to the provisions of the PNGRB Act, which
would include Section 16. Thus, all entities, regardless of past authorization
by the Central Government, who were carrying out CGD activ ities
immediately before the appointed day were deemed to have
authorization qua the entire area. It was urged that in the absence of
any norms and policy guidelines by the Central Government, the reference
made to “norms and policy guidelines laid down by the Centr al
Government” in Section 17(4) was rendered insignificant. Adani also
disputed the contention that Section16 granted deemed authorisation only
to entities authorised by the Central Government. It was ur ged that
accepting that argument would involve reading something new into a
statutory provision which was otherwise plain and unambiguous. Learned
counsel cited Pallavi Resources Ltd. vs. Protos Engineering Company
Pvt. Ltd. 4
19. The appellants disputed that the provisions of the Petroleum
Act, 1934 read with the Petroleum Rules framed under it were applicable,
and certain authorizations and approvals were necessary before the
enactment of the PNGRB Act. It was asserted that those pr ovisions
only required approval on the design and route of the pipeline from the
Chief Controller of Explosives. It was urged that the authorities under
the Petroleum Rules had no powers to authorize or prohibit a particular
entity from transporting petroleum through pipelines as long a s the
appropriate design/route was adopted.
20. Learned senior counsel further contended that PNGR B’s
justification for Regulation 18was without foundation. Mr Salve placed
reliance upon the opinion rendered by this Court in Association of
Natural Gas & Ors v Union of India 5 which stated that the States
lacked legislative competence to enact laws on the subje ct of natural
gas, and therefore, under the PNGRB Act, entities au thorized by
the Central Government stood on a different footing as compar ed to
their entities. It was urged that Section 16 of the PNGRB Act read with
Section 17 covered only entities authorized by the Central Government
4 (2010) 5 SCC 196.
5 (2004) 4 SCC 489.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
to seek a different kind of clearance. The PNGRB Act was ena cted
two years after the decision rendered by this Court in Special Reference
(supra). When it enacted the PNGRB Act, Parliament did not
differentiate between entities authorized by the Central Government and
other entities, but in fact covered all entities carrying out activities which
were the subject matter of the Act before the appointed day under
Section16 of the PNGRB Act, subject to the provisions of Chapter IV of
the Act.
21. Learned counsel cited Adani Gas Ltd. vs. Union of India 6,
and stressed that this recognized the applicability of the provi sion of
“deemed authorization” under Section 16 of the PNGRB Act, even in
respect of an entity not previously authorized by the Central Government.
It was pointed out that Adani, in the present case, had started work from
21.4.2003 in Ahmedabad District in terms of the NOC issued b y the
State Government. The appellant would therefore be deemed to possess
authorization in terms of Section 16.
22. It was next argued that Section 17(4) empowered the Board
to accept or reject the application, subject to the provisions o f the Act
and consistent with the norms and policy guidelines laid down by the
Central Government. The PNGRB evaluated applications in term s of
Regulation 18(2), on behalf of deemed authorized entities under Section
16 of the PNGRB Act. Regulation 18(2) prescribed eligibility criteria
and/or statutory obligations for entities which were deemed to be
authorised under Section 16 of the Act. Regulation 18(2)(1) conferred
omnibus power to the PNGRB to evolve any other criteria deemed
relevant by it. This empowered the Board to conjure up criteria, defeating
the parliamentary intent in Section 16.
23. It was urged that the regulation framing power under Section
61(1) was a general power to carry out the provisions of the Act. Reliance
was placed on three decisions of this court, viz. Global Energy Ltd v.
Central Electricity Regulatory Commission 7, Petroleum & Natural
Gas Regulatory Board v. Indraprastha Gas Limited & Ors 8 and Kunj
Behari Lal Butail v. State of Himachal Pradesh 9, where it was held
that the rule making power for carrying out the provisions of t he Act
6 (2019) 3 SCC 641.
7 (2009) 15 SCC 570.
8 (2015) 9 SCC 209.
9 (2000) 3 SCC 40.
1175
was a general delegation. It was urged that the power could not be
exercised so as to bring into existence substantive rights, obligations, or
disabilities not contemplated by the provisions of the Act. It was therefore,
urged that Section 61(2)(h) and (n) did not empower the Board to indicate
eligibility criteria for entities authorised by the State Government.
24. Counsel contended that Section 17(3) of the PNGRB Act
empowered the Board only to specify the form and manner in which an
application may be made by entities under Section 17(1) and Se ction
17(2) of the Act. Thus, the PNGRB could not have prescribed substantive
obligations upon entities by creating the aforesaid artificial distinction,
contrary to the provisions of Section 16 of the Act. Learned counsel
urged that this court in its judgment in Adani Gas (supra) held that in
cases of entities which were deemed to be authorised under Section 16,
the Board was empowered only to see if certain safeguards would suffice.
It was further held that Regulation 18 was not mandatory. It was urged
that to the extent that Regulation 18 provided for reduction of the area
(of operation of any existing entity) it was contrary to Section 16, as the
area for which an entity was deemed to be authorized could not be
bifurcated. Regulation 18 could not whittle down the ambit of the principal
provision in Section 16.
25. It was submitted that the authorization order dated 28.11.2013,
excluding the disputed areas was a non-speaking order, and violative of
the principles of natural justice; it was also contrary to the provisions of
Section 17(5) of the PNGRB Act requiring reasons to be set out in such
order. Such a non-speaking order was also in breach of Regulation 18(8).
Counsel submitted that the reasons for the exclusion were given for the
first time in PNGRB’s affidavit dated 17.11.2016 wh ich was
impermissible as no order could be supported by subsequent affidavits.
Learned senior counsel relied on Mohinder Singh Gill & Anr. v. The
Chief Election Commissioner, Delhi & Ors 10 in this regard. It was
further stated that PNGRB, in its affidavit, placed reliance upon a report
dated 18.2.2011 to say that Adani did not have a presence in the sai d
areas as on the date of inspection. That report was not prov ided at the
time of the order, i.e., 28.11.2013 and was for the first time provided on
6.6.2017. Thus, it was contended that the order is violative of principles
of natural justice.
10 (1978) 1 SCC 405.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
26. Adani was granted an NOC by the State Government for the
entire Ahmedabad District, including the disputed areas under the policy
of the State Government. Such area could not have been curta iled by
relying on a power under the CGD Regulations. Further, that t he said
areas were put up for auction on 1.10.2015 with a far larger area, clearly
showed that the disputed areas were not economically viable on a
standalone basis, and the basis for exclusion of those areas from Adani’s
authorized area was unfounded.
27. Learned senior counsel submitted that the repor t dated
18.2.2011 was factually incorrect, as it stated that as on the date of
inspection, Adani had not undertaken any activity in the said areas, when
in fact it had an operational network as on the date of inspection catering
to various customers. Adani had augmented its network in the said areas
of Ahmedabad by undertaking urgent capital works pu rsuant to
PNGRB’s permission dated 11.6.2009. The details of Adani’s investments
in the disputed areas of Ahmedabad prior to the date of that report also
reflect that it had a presence in those areas. None of those particulars
were considered by the High Court.
28. It was argued that the impugned authorization was inconsistent
with Regulation 18. Under that regulation, to evaluate actual p hysical
progress and financial commitment, presence as on the appointed day is
to be seen in the entire Ahmedabad District, and not apart of it by curtailing
the ambit of Section16. It was submitted that the authorizati on order
dated 28.11.2013 omitted to say how Adani did not fulfil the criteri a
under Regulation 18. On the contrary, the minutes of the meeting of
27.8.2010 reveal that Adani’s application fulfilled the grant of
authorization under Regulation 18 in respect of the geographical area ,
which covered Ahmedabad city and contiguous areas and Dascroi. It
was urged that Adani also fulfilled the criteria of 25% physical progress
in terms of Regulation 18, for the entire Ahmedabad District. PNGRB
overlooked that as well as the fact that initiation of development work
for any CGD network, including in the Ahmedabad District, a lways
started from one point i.e., in linear progression, generally, where a city
gas station was first established for inlet gas, which then extended to the
whole of the area. Even under the current PNGRB norms, an authorized
entity was given at least 8 years to develop charge are as. Therefore,
PNGRB wrongfully carved areas out of the Ahmedabad Distri ct and
tested each such area in terms of Regulation 18, wh ich was not
permissible.
1177
29. It was argued that Adani, in accepting a restricted authorization,
or in participating in the tender process later in 2015 did not acquiesce or
waive its rights. It protested immediately against the e xclusion of the
disputed areas. Provisions of the PNGRB Act came int o force on
1.10.2007, with the exception of Section 16 (which came into force on
12.7.2010). In the interregnum, entities like Adani were
constrained to apply under Regulation 18. In respect of Khurja in Uttar
Pradesh, PNGRB accepted Adani’s application under Regulation 1 8.
There was no cause of action to challenge Regulation18 in resp ect of
the authorization granted in Khurja.
30. It was pointed out that in the case of Ahmedabad, Ada ni’s
initial Detailed Feasibility report (hereafter called “DFR”) inadvertently
failed to specify the said areas and Dascroi but the mistak e was soon
rectified, and those areas were made part of the amended DF R. The
PNGRB, in its meeting held on 12.8.2010 also recognized the inclusion
of the said areas in the DFR. Ultimately, PNGRB included Dascroi within
the scope of authorization, but excluded the disputed areas. Adani had
immediately protested against such exclusion and had never given up its
protest. It was however, constrained to participate in the auction not
only to protect its investments already made in the dispute d areas, but
also because it was desirous of developing CGD networks in the other
areas of Ahmedabad.
31. Learned counsel urged that acquiescence to certain facts or
waiver was an intentional relinquishment of a known right. The correct
interpretation of Section 16 and Section 17 of the PNGRB Ac t was
debated and unsettled. Consequently, it is incorrect to rely u pon the
doctrine of acquiescence or waiver to deny relief to Adani. L earned
counsel relied on Moti Lal Padampat Sugar Mills v. State of U.P. 11
Learned counsel further submitted that mere delay did not amoun t to
waiver and that there was no estoppel against provisions of a statute.
The so-called delay, waiver, or acquiescence on Adani’s part would not
have any bearing on the maintainability of the writ petition in relation to
the reliefs sought.
32. Mr. Dhruv Mehta, learned senior counsel argued in addition
to Mr. Salve that an overall reading of provisions of the Act - especially
Sections 16 and 17 - would show that Parliament made no classification
as far as entities were concerned. The classification was i n respect of
11 (1979) 2 SCC 409, paras 6-7.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
authorization granted by the Central Government. It was submitted that
all applications under Section 17 had to be decided in a uniform manner
while applying the same yardstick. The learned counsel relied upon Section
17(4), which empowered the Board to either accept o r reject the
application, consistent with the provisions of the Act and consistent with
norms, and policy guidelines prescribed by the Central Government. It
was thus argued that every application or intimation receiv ed by the
PNGRB had to be treated in the same manner, regardless of C entral
Government authorization. Consequently, the deeming authorization clause
in Section 16 had to be given primacy.
33. Learned counsel relied upon Section 61(2) (e), (h) and (n). It
was argued that the PNGRB’s power to frame Regulations under Section
61 was general. As contrasted with this, it was inherent in the nature of
PNGRB’s function that it had to function through regulations, ma ny
aspects in terms of Section11. Learned senior counsel relied on Adani
Gas (supra) to urge that Regulation 18 was not mandatory and that the
PNGRB could decide to apply any one or the set of criteria specified in
that provision. It was urged that in the absence of any norm or existing
statutory guidance in the form of specific provisions in t he Act, the
PNGRB could not have framed Regulation 18 to arm itself with extreme
power to pick and choose any standard at its whim. Learne d senior
counsel emphasized that if the Board were to so wish, it could apply
some of the standards spelt out in Regulation 18 in case of one entity
and only one or none in the case of another entity, while exam ining
applications under Section 17. It was urged therefore that Regulation 18
had discriminatory potential and could not be sustained. Learned senior
counsel relied on the decision of this Court in Petroleum and Natural
Gas Regulatory Board v Indraprastha Gas 12 and urged that there
was no statutory guidance to the PNGRB, in regard to regulation framing,
with respect to evaluation of applications under Section 17.
34. Dr. A.M. Singhvi, learned senior counsel appearing for an
intervenor, Haryana Gas adopted the arguments made on behalf of Adani,
with respect to the interpretation of provisions of the PNGRB Ac t. It
was submitted that there were no legal impediments before the coming
into force of the PNGRB Act, preventing any entity from sta rting the
business of laying, maintenance and operation of a gas pipeline or network.
Given this legal position, Parliament’s intent while enacting the “deemed
12 2015 (9) SCC 209.
1179
authorization” provision under the proviso to Section 16 was to save
networks that had been set up, or were under constructi on. Doing
otherwise, and holding that all entities who did not obtai n Central
Government authorization could not operate after the enactment of the
PNGRB, meant that such networks, put up at great expe nse, which
constituted national assets, would have gone waste. It was further
submitted that the requirement of Section 17(2) had to be considered in
the light of the PNGRB’s power under Section 17(4), which had to
necessarily be exercised in the light of the “deemed au thorization”
provision enacted by Section 16.
Contentions of respondents
35. The learned Attorney General for India contended that before
the opinion of the Supreme Court of India in Special Reference (supra),
State Governments proceeded on the basis that the distribution of natural
gas for consumption in cities would fall under Entry 25 of List II, and
that their executive power enabled grant of authorizations or licenses to
lay pipelines and undertake distribution of natural gas in cities. However,
once this Court rendered its opinion on 25.03.2004, the position in law
was clarified by the Court holding that Parliament alone was competent
to legislate in regard to natural gas, by reason of Entry 53 of List I.
States were bereft of legislative competence as well as executive power
to issue authorizations or licenses for setting up natural gas distribution
networks.
36. Once the Constitutional demarcation of legislative powers was
clearly enunciated by this court, the result was that al l licenses or
authorizations granted by States for operating natural gas distribution
networks were rendered null and void, and had no legal effect whatsoever.
It was argued that it was this background in which the PNGRB Act was
enacted. Section 11 set out the functions of the Board, which included
the power to authorize entities to lay, build, operate or e xpand city or
local natural gas distribution networks. Although Section 16 was not
brought in force on 01.10.2007, Section 17 which was in effect on that
date, empowered PNGRB to authorize CGD activities. Section 17 also
mandated that an application for authorization “shall” be made in writing
to the Board and that the Board may allow or reject any application.
37. It was urged that the scheme devised by Section 17(2) was
that a written application was to be made for authorization und er the
Act. As Section 11 empowered the Board to grant aut horization,
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
applications had to be made to PNGRB. The proviso expressly dealt
with the laying and operating of city or local natural gas distribution
networks that had been authorized by the Central Government before
the PNGRB Act came into force . The Central Government alone was
competent under Article 73 of the Constitution to issue such licenses or
authorizations. They were valid in the eye of law, in view of the opinion
of this Court in Special Reference (supra). Entities with the Central
Government’s authorization, only had to furnish particulars o f their
activities to the PNGRB within six months from the date when the Act
came into force, and, were entitled to operate natural gas dis tribution
networks in terms of those authorizations. However, Sections 17(3), (4)
and (5) dealt with cases where, under Sections 17(1) or (2), applications
were made directly to the PNGRB for grant of authorization t o lay,
build, operate or expand a pipeline or a network. These applicants could
fall into two categories. The first were entities laying or operating natural
gas networks immediately before the appointed date w ithout any
authorization by the Central Government, but on the basis of authorizations
given by State Governments which had no validity whatsoeve r. The
second category was for those new entrants who sought authorizations
for laying, building, operating or expanding gas pipelines or networks.
The PNGRB was entitled to consider applications from bo th these
categories of applicants, and either accept them or reject them by applying,
inter alia, the norms and policy guidelines prescribed by the Central
Government.
38. It was highlighted that Section 16, which came into force on
15.07.2010 dealt with two categories. One, a new entrant which proposed
to carry out CGD activities, which had to obtain authorization from the
PNGRB. If there was more than one applicant for the same city or local
area, a transparent process (i.e., competitive bidding) was to be resorted
to under the Act and the Regulations. There was a second category, i.e.,
entities, who had been carrying out CGD activities prior to the
appointed date in a legally valid manner, i.e., under authorization by the
Central Government and not by the State Government. The At torney
General also pointed out that the proviso to Section 16 clearly stated that
entities who were laying or operating natural gas distribution networks
immediately before the appointed day shall be deemed to ha ve such
authorization “subject to the provisions of this Chapter” . This meant
subject to the provisions of Section 17 too. Theref ore, “deemed
authorization” under the proviso to Section 16 would apply only to entities
1181
which had the authorization of the Central Government prior to the
appointed date.
39. It was urged that the interpretation adopted by this Co urt in
Adani Gas (supra), i.e., that deemed authorizations covered entities
authorized by the state government, and that the req uirements of
Regulation 18 were directory, was erroneous. It was submitted that the
Bench in Adani Gas (supra)did not take into account the binding, five
judge bench opinion in Special Reference (supra), by reason of which it
was clear that the legislative competence to regulate all aspects relating
to petroleum and petroleum products (including natural gas) was that of
Parliament, and the executive power to frame policies, that of the Central
Government.
40. Mr. Paras Kuhad, learned senior counsel appearing for the
second respondent PNGRB, argued that at all times since 1974, by virtue
of the combined effect of the Petroleum Act, 1934, (hereafter called
“the Act of 1934”), the Petroleum and Minerals Pipelines (Acquisition
of Right of User in Land) Act, 1962 (hereafter called “the Act of 1962”),
the Petroleum Rules, 1976 (hereafter called “Rules of 1976”), and the
Petroleum Rules, 2002 (hereafter called “Rules of 2002”), enacte d by
Parliament and framed under those laws (by the Central Governm ent)
pursuant to Entry 53 List I, in relation to laying of pipelines for
transportation of petroleum (with natural gas being a part of petroleum -
as held in para 40 of Special Reference), a regulatory regime with the
Central Government as the regulator had existed. Thus, pipel ines for
transportation of petroleum and natural gas could be laid only upon the
satisfaction of the Central Government to the effect that it was necessary
to lay such a pipeline between two specified points (by virtue of Sections
3 and 6 of the Act of 1962), after taking into account various factors like
approval of the route, design, construction and working of the pipeline,
by the Chief Controller of the Central Government. The satisfa ction
was based on a comprehensive Project Report, (by reason of Rule 89 of
Rules of 1976 and the Rules of 2002), subsequent to issuance o f an
authorization by Central Government, and affirmation by th e State
Government, pursuant to issuance of an order by the Central Government
in favour of the State Government or Corporation, directing the vesting
in the latter of the right of user in land for laying pipelines (Section 7(1)
read with Section 6(4) of Act of 1962).
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
41. It was submitted that taking note of these facts, Section 17(1)
and (2) of the PNGRB Act made it obligatory for all “under-construction”
pipelines or networks to obtain an authorization under the Act, except
for the pipelines or networks already authorized by the Central
Government. Section 48 of the PNGRB Act criminalized the construction
or operation of pipelines without obtaining authorization.
42. It was urged on behalf of PNGRB that Section 16 of the
PNGRB Act was to be interpreted in the light of Sections 17 and 48 and
thus, Section 16 did not clothe every “under-construction” pipeline, legal
or illegal, with the imprimatur of “deemed authorization”. The mandatory
applicability of the regulatory regimen of Section17 was reitera ted by
Section 16, by stating that deemed authorizations shall be subject to the
provisions “of this Chapter” . Upon Section 16 becoming operative,
entities with under-construction pipelines which ha d applied for
authorization under Section 17, but whose work was under suspension,
owing to Section 48, became entitled to restart construction activities at
their own risk and cost, pending a final decision on their application for
authorization. The fiction created by Section 16 was for this limited
purpose. It was submitted that illegal pipelines laid in contravention of
the Act of 1934 were not intended to be granted deemed authorization.
Secondly, in any case, such deemed authorization could have no bearing
on the requirement of ‘obtaining authorization under this Act’ . The
proviso to Section 16 stated in unambiguous terms that its operation was
“subject to the provisions of this Chapter” . The final regimen,
uniformly applicable, was that created by the “provisions of the Act”
i.e., the PNGRB Act. Thus, every entity laying a pipeline, other than an
entity authorized by the Central Government had to obtain an authorization
under the Act of 2006 in terms of Section17(4), with the attr ibutes of
such regimen provided under the PNGRB Act and Regulations whi ch
were:
(a) Competitive selection of an entity in accordanc e with
Regulations (Section 19);
(b) Discovery of transportation tariff and commitment to b uild
pipeline/network infrastructure through a competitive bid ding
process (Regulation 7 of Authorization Regulations of 2008);
(c) Applicability of open access regimen to all pipelines/networks
after the expiry of the period of exclusivity/monopoly granted to
them (Section 21 read with Section 20 (1) & (4));
1183
(d) Subjection of all pipelines/networks to stringent qualifyi ng
standards, including that of safety and pre & post-commissioning
conditions/standards/obligations. (CGD Authorization Regulations
of 2008).
43. It was urged that the grant of authorization for Ahmedabad
city and denial of authorization for disputed areas, i.e., San and, Bavla
and Dholka were in the same order dated 28.11.2013. Adani had the
choice to accept or reject it. Having unequivocally accepted and acted
upon the grant of authorization and exclusivity for Ahmedabad City and
Dascroi, and denial of the authorization for Sanand, Bavla and Dholka, it
could not, while enjoying the fruits of the order for Ahmeda bad City,
question another part of the same order to the extent it limited the
authorization to the said area. This Court has repeatedly held tha t a
person taking advantage under an instrument, which both grants a benefit
and imposes a burden, cannot take the former without complying with
the latter. Reliance was placed on Shyam Telelink Ltd. v. Union of
India 13.It was submitted that Adani acquiesced to the terms and
conditions of the bidding process by participating in it without any demur
and was now stopped from challenging the same. Reliance was al so
placed on M/s Tafcon Projects [I] (P) Ltd. vs Union of India & O rs14.
44. It was further highlighted that Adani accepted authorizations
awarded to it by following the procedure which it now challenged, without
asserting its “deemed authorization” status at any stage, with Khurja
geographical area 15 being an example. Now however, Adani has
challenged the validity of Regulation 18 when its appl ication for
authorization was rejected in respect of Lucknow GA, Udai pur GA,
Jaipur GA and in the present case. It was submitted that A dani was
estopped by its conduct from raising a challenge to Regulation 18.
45. It was contended that pipeline construction only on the strength
of NOCs issued by the States, was not recognized by Parlia ment as
worthy of being saved. The CGD Regulations sought to save, aft er
scrutiny, such of these pipelines as were viable, optimal, safe, capable of
implementation, and actually under construction. It was contended that
Regulation 18 of the 2008 Regulations, obliged ever y “under
construction” pipeline (except Central Government authorized pipelines),
13 (2010) 10 SCC 138.
14 2004 (13) SCC 788.
15 Authorization granted on 4.12.2012.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
to compete in the selection process and succeed therein, based on its
competitive tariff bid and competitive bid for cons truction of
infrastructure. It was emphasized that the power to accept or reject an
application for authorization (Section 17(4), the power to prescribe the
process of selection (Section 19(2) and the power to grant authorization
for laying pipelines/networks (Section 20(3)), is a discretionary power
of the Board. Its exercise is subject to the legislative objectives stated in
Section 20(5), of avoiding “infructuous investment” and of “s ecuring
distribution of natural gas across the country”. The PNGRB submitted
that Regulation 18 of the Regulations of 2008 primarily sought to evaluate
the following:
(a) Managerial, technical and financial competence of the applicant
entity to implement the Project (Regulation 18(2)(a));
(b) Viability of the Project, in the context of its route/geographical
area, customer segments (industrial, commercial, do mestic,
transport etc.) and infrastructure requirements (steel inch-km
pipelines, CNG Stations, PNG connections etc.) and the pipelines/
networks design and construction, being inconformity with the
applicable technical and safety standards (Regulation 18(2)(e) &
(g));
(c) The pipelines/networks, actually under construction, those in
the process of being laid and built, the commenceme nt of
construction - demonstrated by the availability of land, clearances
and permissions, erection equipment, financial capacity (net-worth),
minimal financial commitment (25%) etc. (Regulation 18(2)(d) &
(e)).
46. In terms of Section 19(1), the applicable schedule and regulatory
standards, the Board determined the geographical area to be authorized.
Regulation 18 of the 2008 Regulations provided for evaluation of the
existence of these factors, which alone could demonstrate th at it was
not a proposed pipeline/network, but a pipeline/network that was actually
being laid or built and was viable, optimal and safe in te rms of the
objectives of the PNGRB Act.
47. Mr. P.S. Narasimha, appearing for Gujarat Gas, reiterated the
submissions made by the Attorney General. It was submitte d that the
doctrine of approbate and reprobate applied to prevent Adani from
complaining of arbitrariness.
1185
48. It was urged that the proviso to Section16 of the PNGRB Act
did not validate NOCs or authorisations issued by the State Government;
it only provided a framework whereby entities that were carry ing out
CGD activities immediately prior to the appointed date were permitted a
chance to obtain authorisation under the PNGRB Act. It was Section17
that proceeded to categorise entities as those with a Central Government
authorisation and without it. Learned counsel urged that Sections 16, 17,
and 19 of the PNGRB Act read with Regulation18 of t he CGD
Regulations provided the framework by which an authorisation under
the Act could be obtained by an entity which was laying CGD networks
without a Central Government authorisation before the appointed date.
Section 16 of the PNGRB Act did not grant or vest authoris ation, but
was “subject to the provisions of this Chapter” and thereby subject
to provisions requiring the obtaining of authorisation under the Chapter.
The process of obtaining authorisation was governed by Section 17 and
19 read with Regulation 18. Adani’s argument that Section 16 o f the
PNGRB Act preserved the entire “project” which the entity had intended
to implement (and hence it claimed “deemed” authorisation for the entire
Ahmedabad District) was outside the scope of the specific language of
the proviso to Section 16, which applied only to an entity “laying,
building, operating or expanding ” a CGD network “ immediately
before the appointed day shall be deemed to have such authorisa tion
subject to the provisions of this Chapter ”. It did not refer to any
“intention” of the entity. Therefore, the scope of the deeming provision
was limited to the specific work of laying, building, operating or expanding
a CGD network immediately before the appointed day; it wa s not as
expansive as to cover “intended” works. It was pointed out that the
PNGRB’s Site Inspection Report dated 18.02.2011 stated that the work
at site had not been carried out at the disputed areas.
49. Mr. Narasimha refuted Adani’s interpretation of the proviso
to Section 16 and submitted that the deeming fiction it ena cted was
meant to save only central government authorized entities. He urge d
that having regard to the express terms of Section 16, which was subjected
to other provisions (including Section 17), the only feasible interpretation
would be that it covered those entities that had been granted authorization
by the central government, which had exclusive jurisdiction to do so. It
was submitted that a deeming fiction had to be limited, and could not be
extended beyond the purpose for which it was enacted; he placed reliance
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
on K.S. Dharmadatam v. Central Government & Ors 16; N.K. Sharma
v. Abhimanyu 17 and State of Maharashtra v Lalji Rajshi Shah &
Ors18.
50. Mr. Saurav Agrawal, Advocate, appearing on behalf of an
intervenor, M/s Green Gas Ltd., contended that historically, for 22 areas,
entities had been authorized by the Central Government. All such entities
were Central PSU promoted entities, in which Gas Authorit y of India
Ltd. (hereafter called “GAIL”) was a stakeholder sinc e GAIL was
handling the administered pricing mechanism (hereafter called “APM”)
natural gas under the directions of the concerned Unio n Petroleum
and Natural Gas Ministry. Likewise, other Central Government owned
Oil Marketing Companies (Indian Oil Corporation Ltd., Bharat Petroleum
Corporation Ltd., and HPCL) were also stakeholders and provided the
established distribution network (e.g., retail stations, pipelines, etc.) along
with technical knowledge and experience of handling such products. All
the aforesaid entities had APM gas allocation from the Central
Government. All such entities had to be accorded ne cessary local
permissions as well as were deemed authorized entiti es under the
PNGRB Act.
51. In some areas of Gujarat, a State PSU (M/s Gujar at Gas
Limited) was historically (i.e., much before the Special Reference )
operating under permissions from the State Government and the Central
Government. The entity had Central Government ratification for those
areas. It applied for grant of authorization to PNGRB un der Section
17(2) and was granted such authorization. It was urged that afte r the
decision in Special Reference (supra) on 25.03.2004 and in the teeth of
the said decision, other state governments framed policies in regard to
natural gas distribution and issued local permissions to private entities of
their choice, in the face of the Central Government having a lready
authorized PSU-promoted entities to undertake distribution of natural
gas. So, on one hand, there were PSU-promoted Central Go vernment
authorized entities with gas allocation awaiting local permissions from
State Government to implement the CGD project. On the other hand,
the State Government did not grant local permissions to such entities and
instead permitted private entities of their choice to setup the CGD
infrastructure, albeit without any gas allocation.
16 1979 (4) SCC 294.
17 2005 (13) SCC 213.
18 2000 (2) SCC 699.
1187
52. Learned counsel referred to an affidavit by the Central
Government filed in I.A. No.270/2008 in the larger batch matter in M.C.
Mehta v. Union of India19, seeking clarification and declaration that all
such State Government NOCs/permissions were unconstitutional in view
of Special Reference (supra). That application (I.A. No.270/2008) was
disposed of by the court’s order dated 07.04.2017, in the following terms:
“The primary prayer made in this application is for a
declaration that the Central Government is exclusiv ely
empowered to formulate and implement policy with regard to
all matters pertaining to Natural Gas, including transmiss ion
and supply of Natural Gas, City Gas Distribution, etc.
Learned Solicitor General says that in view of the deci sion of
this Court in Presidential Reference in Special Refere nce No.1
of 2001 reported in (2004) 4 SCC 489 as well as the provi sions
of the Petroleum and Natural Gas Regulatory Board Act, 200 6,
no further orders are required to be passed in this a pplication
and the application is accordingly disposed of in ter ms of the
decision of this Court as well as the Act.”
53. Mr. Agarwal contested as erroneous, the submission of Adani
that the “deemed authorization” provision in Section 16 was conceived
in larger public interest, to save all existing entities who were operating.
It was urged that an entity selected by the State Government , without
following any due process and without any authority under law, could
not be saved merely because of the investments made or the l apse of
time as it was plainly contrary to public policy. All private entities which
were selected by the State Governments were so selec ted without
following any due process and most, if not all were given NOC or gas
allocation by the Central Government. If such entities w ere conferred
“deemed authorization” status, then it would be tantamount to legalizing
an illegal action.
Points for consideration
54. The following points arise for consideration by this Court:
(i) The scope of the “deemed authorisation” clause under the
proviso to Section 16 of the PNGRB Act;
(ii) Validity of Regulation 18; and
19 WP(C) 13029/1985.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
(iii) Whether the exclusion of the disputed areas fr om
the authorisation granted to Adani was justified.
Analysis & Conclusions
Re: Point No. 1: The scope of the “deemed authorizat ion”
clause under the proviso to Section 16 of the PNGRB Ac t
55. The PNGRB Act came in the wake of declaration of law by
the opinion of this Court20 under Article 143 of the Constitution of India.
This Court held that Entry 53, List I of the Seventh Schedule shall regulate
the development of oil fields and mineral oil resources, petroleum and
petroleum products, other liquids, and substances declared by Parliament
by law to be “dangerously inflammable”, and that this entry exclusively
enabled Parliament alone, to the exclusion of state legislatures to enact
laws in relation to natural gas. The Special Reference became necessary
due to the states asserting that by Entry 25 of List II21, state legislatures
had exclusive domain over the subject of natural gas. The Presidential
reference was also made with respect to the competence of the Gujarat
state legislature to enact a law regulating transmissi on, supply and
distribution of gas22.This Court, in its opinion, noted that several laws
relating to petroleum and petroleum products had been enac ted both
before and after the Constitution came into force 23. This Court, after
examining the previous decisions with respect to inte rpretation of
legislative entries in the context of rival claims to exclus ive power,
proceeded to consider what was meant by the expression “pet roleum
and petroleum products” and “mineral oil resources” in Entry 53 of List
I. After examining various technical encyclopaedias and reference books
this Court held:
“38. All the materials produced before us would only show
that the natural gas is a petroleum product. It is also important
to note that in various legislations covering the f ield of
petroleum and petroleum products, either the word
‘petroleum’ or ‘petroleum products’ has been defined in an
20 Special Reference No.1/2001.
21 Relating to ‘gas and gas works’.
22 Gujarat Gas (Regulation, Transmission, Supply and D istribution Act, 2001
23 Notably the Petroleum Act, 1934; the Mines Act, 195 2; Mines and Minerals
(Development) Act, 1957; Oil Fields (Regulation and Development) Act, 1948; Petroleum
and Minerals Pipelines (Acquisition of Right of Use r in Land) Act, 1962; Oil and
Natural Gas Development Act, 1974; Petroleum and Na tural Gas Rules, 1959.
1189
inclusive way, so as to include natural gas. In Encyclopaedia
Britannica, 15th Edn. Vol. 19, page 589 (1990), it is stated
that “liquid and gaseous hydrocarbons are so intima tely
associated in nature that it has become customary to shorten
the expression ‘petroleum and natural gas’ to ‘petroleum’ when
referring to both.” The word petroleum literally means ‘rock
oil’. It originated from the Latin term petra-oleum . (petra-
means rock or stone and oleum-means oil). Thus, Natural Gas
could very well be comprehended within the expressi on
‘petroleum’ or ‘petroleum product’.”
**********
“44. Under Entry 53 of List I, Parliament has got power t o
make legislation for regulation and development of oil fields ,
mineral oil resources, petroleum, petroleum products, other
liquids and substances declared by Parliament by law t o be
dangerously inflammable. Natural gas product extracted from
oil wells is predominantly comprising of methane. Productio n
of natural gas is not independent of the production of o ther
petroleum products; though from some wells the natura l gas
alone would emanate, other products may emanate fro m
subterranean chambers of earth. But all oil fields are explored
for their potential hydrocarbon. therefore, the regu lation of
oil fields and mineral oil resources necessarily encomp asses
the regulation as well as development of natural ga s. For
free and smooth flow of trade, commerce and industr y
throughout the length and breadth of the country, n atural
gas and other petroleum products play a vital role.
45. In Re: Cauvery Water Dispute Tribunal MANU/SC/0097/
1992: AIR1992SC522, the right to flowing water of r ivers
was described as a right ‘publici juris’, i.e., a right of public.
So also the people of the entire country has a stak e in the
natural gas and its benefit has to be shared by the whole
country. There should be just and reasonable use of natu ral
gas for national development. If one State alone is allowed to
extract and use natural gas, then other States will be depri ved
of its equitable share. This position goes on to fortify the stand
adopted by the Union and will be a pointer to the conclusion
that “natural gas’ is included in Entry 53 of List I. Thus, the
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
legislative history and the definition of ‘petroleum’, ‘petr oleum
products’ and ‘mineral oil resources’ contained in various
legislations and books and the national interest invo lved in
the equitable distribution of natural gas amongst the States -
all these factors lead to the inescapable conclusio n that
“natural gas” in raw and liquefied form is petroleum product
and part of mineral oil resource, which needs to be regula ted
by the Union.
46. Natural gas being a petroleum product, we are of the vi ew
that under Entry 53 List I, Union Govt. alone has got legislative
competence. Going by the definition of gas as given in Se ction
2(g) of the Gujarat Act wherein “gas” has been defin ed as
“a matter of gaseous state which predominantly consi sts of
methane”, it would certainly include natural gas also. We are
of the view that under Entry 25 List II of the Seventh Schedule,
the State would be competent to pass a legislation only in
respect of gas and gas-works and having regard to
collocation of words ‘gas and gas works’, this Entry w ould
mean any work or industry relating to manufactured gas which
is often used for industrial, medical or other similar purp oses.
Entry 25 of List II, as suggested for the States, will h ave to be
read as a whole. The expressions therein cannot be
compartmentally interpreted. The word ‘gas’ in the Entry will
take colour from other words ‘gasworks’. In Ballantine’s Law
Dictionary, 3rd edition, 1969 ‘Gas Works’ is define d as “a
plant for the manufacture of artificial gas”. Simil arly in
Webster’s New 20th Century dictionary, it is defined a s “an
establishment in which gas for heating and lighting is
manufactured”. In the www.freedictionary.com ‘gas w orks’
is explained as “a manufactory of gas, with all the machinery
and appurtenances; a place where gas is generated.” The
meaning of the term ‘gas works’ is well understood in the
sense that the place where the gas is manufactured. So it is
difficult to accept the proposition that ‘gas’ in E ntry 25 of
List II includes Natural Gas, which is fundamentally differe nt
from manufactured gas in gas works. therefore, Entry 25 of
List II could only cover manufactured gas and does not cover
Natural Gas within its ambit. This will negative the argume nt
of States that only they have exclusive powers to mak e laws
1191
dealing with Natural Gas and Liquefied Natural Gas. Entry
25 of List II only covers manufactured gas. This is the c lear
intention of framers of the Constitution. This reading w ill no
way make that entry a ‘useless lumber’ as feared by the Stat es,
because Natural Gas was never intended to be covere d by
that entry. It is also difficult to accept the argument of Stat es
that all ‘gas’ could be categorized as dangerously inflamm able
and thus arriving at the conclusion that Natural Gas is al so
covered in State List because this differentiation is base d not
on the characteristics of gas, but on the manner of its origin.
Entry 25 of List II covers the gas manufactured and us ed in
gas works. In view of this specific Entry 53, for any p etroleum
and petroleum products, the State Legislature has no legislative
competence to pass any legislation in respect of natural g as.
To that extent, the provisions-contained in the Guj arat Act
are lacking legislative competence.”
56. The Court categorically held that States had no legisl ative
competence to enact laws on the subject of natural gas and liq uefied
natural gas. It also held that the Gujarat enactment of 2001, insofar as it
related to natural gas or liquefied natural gas was without le gislative
competence and that the act was ultra vires the Constitution. The opinion
of the Court was rendered on 25.03.2004. As a result, all activi ties
relating to natural gas that relied upon authorizations by the States became
exposed to the vice of illegality. Having regard to the opinion of this
Court and the previous policies of the Central Government, Parliament
thought it fit to enact the PNGRB Act. Significantly, this Act does not
deal with any aspect relating to extraction of petroleum or liquefied natural
gas. It deals with what may be termed as “downstream activities “such
as refining, processing, storage, transportation, distribution, marketing
and sale of petroleum and petroleum products and natural gas. The main
aim of the Act is to regulate all these activities in a comprehensive and
wide-ranging manner. When parliament enacted the PNGRB Act, it was
aware that several entities were in the process of set ting up various
kinds of networks which the law governed (i.e., transmission, storage,
distribution, marketing etc.). Parliament, therefore, devised a uniform
standard by which entities that were laying networks or w ere in the
process of setting up such activities had to be considered. The statutory
device adopted was through Sections 16 and 17. By virtue of the power
conferred by Section1(3) upon the Central Government, all provisions of
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
the PNGRB Act except Section 16 were brought into force on 01.10.2007.
The intention of not bringing into force Section 16 appears to have been
to allow some breathing time to entities which were in t he process of
laying, building and operating any pipeline, to first apply to the PNGRB.
If Section 16 were to be brought into force at once, all activities which
had started before the enactment of the PNGRB Act would necessarily
have been rendered illegal and would have had to cease. The de layed
enforcement of this provision meant that existing entities could do what
was required of them in terms of other provisions of the Act a nd seek
necessary authorisation.
57. The non-implementation or absence of enforcement of Section
16 led to a public interest litigation before the Delhi High Court24. The
High Court declared that by virtue of absence of notification of Section
16, the PNGRB lacked the power to grant authorisation to entities which
had applied to it for laying, building, operating or expanding city or local
natural gas networks. The judgement was carried in appeal by special
leave25 in which notice was issued. In the meanwhile, pending decision
on the Special Leave Petition, the Central Government brought into force
Section 16 of the Act by notification dated 12.07.2010 with effect from
15.07.2010.
58. If one considers the background of the enactment, it is evident
that the Parliament wished to decisively declare that only entities
authorised in accordance with the provisions of the Act by the PNGRB
could function. Section 16 by itself does not classify o r make any
distinction between entities who are permitted or authorised by the Central
Government or any other authority. However, by the proviso, it
distinguishes two categories of entities, i.e., (i) those lay ing, building,
operating or expanding any pipeline as common carriers or contract
carriers and (ii) any city or local natural gas distri bution network.
The deeming fiction, as it were, in respect of such two classes of entities,
by which Adani and other intervenors in its support urge to be unqualified,
is created by the expression that such entities “immediately before the
appointed date shall be deemed to have such authori zation” .
However, this deeming provision is expressly made subj ect to the
provisions of this Chapter. The chapter in question is Chapter IV.
24 Voice of India v. Union of India W.P.(C) 8415/2009, decided on 20.01.2010.
25 SLP 5408/2010
1193
59. Parliament enacted the PNGRB Act to regulate refini ng,
processing, storage, transportation, distribution, marketing, and sale of
petroleum, petroleum products, and natural gas excluding the production
of crude oil and natural gas. The objectives of the enactme nt are inter
alia, setting up of the Board, regulation of refining, storage, processing,
transportation, distribution, marketing, and sale of petroleum, petroleum
products, and natural gas except for the production of crude oil an d
natural gas. An important objective is the protection of consumer’s
interests in certain activities related to petroleum, its products, and natural
gas and ensuring a sufficient and continuous supply of petroleum, its
products, and natural gas all around the country. The other i mportant
objective is promotion of competitive business.
60. The PNGRB’s functions are (under Section 11):
(a) registration of entities to market notified petroleum and its
products that are subject to contract by Central government,
and natural gas;
(b) registration of entities establishing and operat ing LPG
terminals;
(c) registration to entities to set up storage facilities petroleum,
its products, and natural gas, if it exceeds the capacity provided
by regulations;
(d) Authorization of entities to lay, build, operate, or expand:
1. A common or contract carrier.
2. City or local natural gas distribution network.
(e) Declaring pipelines to be common or contract carriers.
There are other functions too, including regulating access to
common or contract carriers to ensure fair trade and competition among
the entities, specifying the pipeline access code regulating transportation
rates for common or contract carriers and regulating access to city or
local natural gas distribution networks to ensure fair trade and competition
among the competitors according to the pipeline access codes.
61. Chapter V of the Act deals with the settlement of disputes. A
bench consisting of a member (legal) and one or more member(s ) as
nominated by the Chairperson of the PNGRB is empowered to s ettle
disputes under the PNGRB Act. Section 24 empowers the Bench to
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
exercise its power as a Civil Court on matters such as refining, processing,
storage, transport, distribution, marketing and sale of petroleum, petroleum
products, and natural gas, quality of service and security of supply to the
consumers by the entities, and disputes arising under Sections 1 5 and
19. Under Section 25, complaints can be filed by any person before the
Board to refer to the dispute between entities or any matter of the entities
or any other matter relating to the provisions of the Act. The complaint
must be filed within sixty days from the date of any contravention, act,
or conduct that took place. The complaint shall be accompanied by fees
as provided under the regulation. Section 26 empowers the PNGRB to
appoint an officer having qualifications and experi ence, as an
Investigating Officer to investigate in the matters as specified by the
regulations. If any person contravenes any directions of the PNGRB, it
is empowered to impose a civil penalty on that person and the ord er
passed by the Board can be deemed to be a decree. Section 27 of the
PNGRB Act deals with certain factors that the Board takes into account
while deciding any dispute. These factors are (a) a mount of
inappropriate gain and unfair advantage obtained because of a default;
(b) amount of loss suffered by an entity because of a default, and (c) the
repetitive nature of the default.
62. Adani and the intervenors supporting it argue that the deeming
fiction (in Section 16) should be given full effect. To say so, they point
out that the deeming fiction should be taken to extend to all entities who
were laying, building, or expanding any pipeline, regardless of whether
such entities received Central Government authorization or not. In the
absence of any distinction, the fullest effect shou ld be given to
Parliament’s intent, to ensure that work that had commenced on laying
or building, etc. of pipelines, was to be preserved as that was beneficial
to the national economy. It is also urged that the expression “subject to
the provisions of this chapter” should be harmoniously construed, which
means that entities that apply under Section 17 (1) or 17 (2) for
authorization should not be denied it without reasonable cau se, given
that the PNGRB is bound to respect and give effect to the ma ndate of
the deemed authorization clause, which is applicable to all.
63. The appellants relied upon the judgment in Adani Gas (supra).
The controversy in that case was that Adani had applied and obtained
NOC with regard to gas distribution network for Udaipur and Jaipur.
Adani had, after coming into force of the PNGRB Act, app lied for
1195
authorization under Section 17 on 28.08.2008. The PNGRB which was
seized of the applications asked Adani to appear before it on 04.08.2010
(after Section 16 was brought into force on 12.07.2010). The Board
required Adani to show-cause as to why its applications should not be
rejected. After issuing notice, the State Government on 18.05.2011
withdrew the NOC granted and forfeited the commitment fee given by
Adani. Later the PNGRB rejected the application seeking authorization
for Udaipur and Jaipur. Both these actions i.e., withdrawal of NOC and
the rejection of the application under Section 17 were challenged along
with a challenge to the vires of Regulation 18. This Court in Adani Gas
Ltd. (supra) considered the scope of the PNGRB Act and observed as
follows:
“15. Section 16 of the 2006 Act, which came into for ce on
12-7-2010, relates to “authorisation”. It puts an embargo on
laying, building, operating or expanding in city or local
natural gas distribution network without obtaining
authorisation under the Act. Proviso (ii) of the said Sec tion
16 provides for” deemed authorisation” in case an entity had
been 1aying, building, operating or expanding any c ity or
local gas distribution network, immediately before the
appointed date, which shall be deemed to have such
authorisation. In the present case, the appointed d ate is
1-10-2007 when the 2006 Act was brought into force, except
the provision contained in Section 16 of the 2006 Act, whic h
came into force on 12-7-2010.
16. The 2008 Regulations were framed before Section 16 of
the 2006 Act came into force. Regulation 18 of the 2008
Regulations provides that an entity, not authorised by the
Central Government for laying. building, operating or
expanding CGD network before the appointed date, sh all
apply or obtaining an authorisation in the form as in Sche dule
I and the Board may take into consideration the criteri a for
considering the application for grant of authorisation in te rms
specified in clauses (a) to (j) of Regulation 18(2).”
64. Then, noticing Regulation 18 and the various requirements
spelt out by it which the PNGRB Act took into account, the ju dgment
further held as follows:
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
“18. It is noteworthy that the language used in Reg ulation
18(2) is that “the Board may take into consideration... “. As
such, the language in which the Regulation has been couched
does not make the consideration in the said clauses, inclu ding
clause (d), to be mandatory, but no doubt the same would be
relevant considerations. On a careful perusal of th e order
passed by Board, we find that the application of the appel lant
has been rejected for reasons mentioned in para 5 o f the
impugned order dated 19-5-2011, which are extracted
hereunder:
“5.The committee found that you do not satisfy the conditions
laid down under Regulation 18(1) of the Petroleum a nd
Natural Gas Regulatory Board (Authorising Entities to Lay,
build, Operate or Expand City or Local Natural Gas
Distribution Networks)Regulations,2008onaccount of the
following:
(a) Physical and financial progress achieved by M/s Adani
Gas Ltd. before the appointed day in the GA of Jaipur d oes
not satisfy the proviso 18(2)(d) of Regulation 18(1 ) of the
Petroleum and Natural Gas Regulatory Board (Authori sing
Entities to Lay, Build, Operate or Expand City or Local Natural
Gas Distribution Networks) Regulations, 2008;
(b) Even after clear instructions of PNGRB vide Pre ss Note
dated 30-10-2007 to stop all incremental activities M/s Adani
Energy Ltd. had continued with laying of MDPE pipeline and
thus violating the directions of the Board.”
19. From the above, it is clear that the applicatio n of the
appellant has been rejected primarily on the ground of non-
compliance with clause (d) of Regulation 18(2) of the 2008
Regulations. It was incumbent on the Board to take into
consideration various factors as specified in clauses(a)to ( j)of
Regulation 18(2) of the 2008 Regulations, and the same has
to be considered in the backdrop of the fact that t he press
note was issued on 30-10-2007 to stop all incremental activities
and as such it was necessary to consider whether the appellant
could have been faulted for non-compliance with clause (d)
of Regulation 18(2), and whether it was a mandatory
1197
requirement or merely one of the factors to be cons idered
along with all the other factors. Other relevant as pects as
contained in the other clauses have not been adverted to by
the Board while deciding the application of the app ellant,
which were also equally significant. It was necessa ry to
consider whether the appellant is compliant with various othe r
factors as provided in clauses (a) to (j) of Regulati on 18(2)
of the2008 Regulations. The non-compliance, if any, with
clause (d) ought to have been considered in the light of the
press note dated 30-10-2007 which required stopping of all
incremental activities.
20. The peculiar factual position is that the 2006 Act had
been notified on 3-4-2006 but came into force on 1-10-2007
and the NOC was issued on 27-3-2006, after the Government
of Rajasthan had invited open bids on19-11-2005 for laying
of city gas distribution network in the cities of Ud aipur and
Jaipur, in which the appellant had been selected. B esides
depositing the sum of Rs 2 crores immediately towar ds
commitment fee, the appellant had thereafter incurr ed
mammoth expenditure alter it was successful in the bids, w hich
aspect has not been considered by the Board while dec iding
the application of the appellant. In our considered vie w, the
same should not have normally been overlooked. Besides the
same, in the factual circumstances of the present c ase, the
provision of “deemed authorisation contained in proviso (ii)
to Section 16 had also been enforced on 12-7-2010 a nd it
was necessary for the Board to have considered whethe r it
was a case where only certain safeguards were requir ed to
be observed in view of the “deemed authorisation”.
65. An overall reading of the judgment (Adani Gas Ltd.) discloses
that this Court was not cognizant of the background in which Parliament
had enacted the PNGRB Act. This Court did not consider the exclusive
legislative competence that Parliament possessed, and as a corollary,
executive authority that the Central Government exercised by virtue of
Entry 53 List I of the Seventh Schedule of the Constitution. More crucially,
the decisive and unanimous opinion of this Court rendered in Special
Reference (supra) was not considered or even adverted to. In light of
the above circumstances this Court should now consider the correctness
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
of the approach and view recorded in the previous review i.e., Adani
Gas Ltd (supra).
66. Parliament did not enact the PNGRB Act on a blank slate, as
it were. In the Presidential Reference [Special Reference (supra)]
under Article 143 elicited the Court’s opinion in the back ground of
assertions by some States that they had the legislative c ompetence to
deal with natural gas. This Court’s unanimous judgment was categorical,
in that it upheld the primacy of Parliament under Entry 53 List I of the
Seventh Schedule of the Constitution of India. Importantly, this Court
also recollected enactments (including the pre-constitution Pe troleum
Act of 1934) that dealt with petroleum, natural gas, mineral oils etc. and
sought to regulate various facets and aspects thereof and related products
and their regulations. Given this background, the Parliament fe lt the
compelling need to enact a comprehensive legislation that would regulate
salient aspects of all activities pertaining to petr oleum products and
mineral oils. The PNGRB Act was thus enacted. As noticed earl ier, it
regulates all activities after extraction of petroleum, natural gas and other
petroleum products starting with refining and going right up to distribution
to the ultimate consumer. When Parliament enacted the Act , it was
confronted with a factual situation where several entities had begun
various activities towards laying pipelines and setting up networks in
relation to natural gas. If one read the proviso to Section 16 in isolation,
the inference undoubtedly would be that every entity which had started
laying and building pipelines and networks was the recipient of the deemed
authorization clause- or in the words of Adani, that provision sought to
retrospectively regularize activities by all entities. However, such a plain
and facial construction is unacceptable given that in the same provision
(i.e., proviso to Section 16) the deemed authorization is immedi ately
followed by phrase “subject to provisions of this chapter” .
67. At this stage, it would be necessary to notice the sco pe of a
proviso. Proviso ordinarily carves out a field of operation, but does not
travel beyond the main enacted provision. Therefore, the golden rule of
interpretation is to read the whole section, inclusive of the proviso, in
such a manner that they mutually throw light on each other and result in
a harmonious construction. This was held in Dwarka Prasad v. Dwarka
Das Saraf 26:
26 (1976) 1 SCC 128.
1199
“18. We may mention in fairness to counsel that the following,
among other decisions, were cited at the Bar bearing on the
uses of provisos in statutes: Commissioner Income Tax v. Indo-
Mercantile Bank Ltd. [1959 Supp (2) SCR 256]; Ram Narain
Sons Ltd. v. Commissioner Sales Tax (1955) 2 SCR 48 3];
Thompson v. Dibdin [1912 AC 533]; R. v. Dibdin [1910 P 57
(CA)] and Tahsildar Singh v. State of U.P. [1959 Supp (2) SCR
875. The law is trite. A proviso must be limited to the s ubject-
matter of the enacting clause. It is a settled rule of constru ction
that a proviso must prima facie be read and conside red in
relation to the principal matter to which it is a proviso. It is
not a separate or independent enactment. ‘Words are
dependent on the principal enacting words to which they are
tacked as a proviso. They cannot be read as divorce d from
their context’ (Thompson v. Dibdin [1912 AC 533]. If the rule
of construction is that prima facie a proviso should be limit ed
in its operation to the subject-matter of the enacting clause,
the stand we have taken is sound. To expand the ena cting
clause, inflated by the proviso, sins against the f undamental
rule of construction that a proviso must be conside red in
relation to the principal matter to which it stands as a prov iso.
A proviso ordinarily is but a proviso, although the golden
rule is to read the whole section, inclusive of the proviso , in
such manner that they mutually throw light on each other and
result in a harmonious construction.”
68. Later, in S. Sundaram Pillai & Ors. v. V. Pattabiraman &
Ors.,27 this Court held as follows:
“27. (…) The well-established rule of interpretatio n of a
proviso is that a proviso may have three separate func tions.
Normally, a proviso is meant to be an exception to somethi ng
within the main enactment or to qualify something e nacted
therein which but for the proviso would be within the purview
of the enactment. In other words, a proviso cannot be torn
apart from the main enactment nor can it be used to nullify o r
set at naught the real object of the main enactment.
28. Craies in his book ‘Statute Law’ (7th Edn.) while explaining
the purpose and import of a proviso state at page 218 thu s:
27 (1985) 1 SCC 591.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
“The effect of an excepting or qualifying proviso, accor ding
to the ordinary rules of construction, is to except out of the
preceding portion of the enactment, or to qualify s omething
enacted therein, which but for the proviso would be within
it...The natural presumption is that, but for the pro viso, the
enacting part of the section would have included the subject -
matter of the proviso.”
***
30. Sarathi in ‘Interpretation of Statutes’ at pages 294-295
has collected the following principles in regard to a prov iso:-
“(a) When one finds a proviso to a section the natu ral
presumption is that, but for the proviso, the enacting par t of
the section would have included the subject-matter of the
proviso.
(b) A proviso must be construed with reference to the preceding
parts of the clause to which it is appended.
(c) Where the proviso is directly repugnant to a sec tion, the
proviso shall stand and be held a repeal of the section as the
proviso speaks the later intention of the makers.
(d) Where the section is doubtful, a proviso may be used a s a
guide to its interpretation; but when it is clear, a proviso cannot
imply the existence of words of which there is no trace in the
section.
(e) The proviso is subordinate to the main section.
(f) A proviso does not enlarge an enactment except for
compelling reasons.
(g) Sometimes an unnecessary proviso is inserted by wa y of
abundant caution.
(h) A construction placed upon a proviso which brings it into
general harmony with the terms of section should prevail.
(i) When a proviso is repugnant to the enacting part, the proviso
will not prevail over the absolute terms of a later Act directed
to be read as supplemental to the earlier one.
(j) A proviso may sometimes contain a substantive provision .”
***
1201
33. The above case was approved by this court in CIT v. Indo
Mercantile Bank Ltd 28., where Kapur, J. held that the proper
function of a proviso was merely to qualify the general ity of
the main enactment by providing an exception and taking out ,
as it were, from the main enactment a portion which, but for
the proviso, would fall within the main enactment. In Shah
Bhojraj Kuverji Oil Mills & Ginning Factory v. Subh ash
Chandra Yograj Sinha 29 Hidayatullah, J, indicated the
parameters of a proviso thus:
“As a general rule, a proviso is added to an enactm ent to
qualify or create an exception to what is in the ena ctment,
and ordinarily, a proviso is not interpreted as stating a general
rule.”
***
“37. In short, generally speaking, a proviso is int ended to
limit the enacted provision so as to except something which
would have otherwise been within it or in some measu re to
modify the enacting clause. Sometimes a proviso may be
embedded in the main provision and becomes an integral part
of it so as to amount to a substantive provision itself.”
69. The Central Government did not immediately bring into force
Section 16 of the PNGRB Act, as its imperative and negative terms
(“no entity shall” lay build, operate a city or local gas network) would
have led to a virtual standstill of all network laying or constructing activity.
Instead, it notified all provisions, except Section 16, as to grant time to
the newly established Board to consider and examine the feasibility of
applications for authorization, based on which entities were then laying
and constructing networks, the soundness of their scheme in technic al
and economic terms, etc. Adani and intervenors supporting it, have urged
that this Court should give full scope to the proviso, and the fiction of a
deemed authorization, since Parliament’s intent was to clearly authorize
all entities, subject to certain modalities, because not doing so would
result in waste of precious national resources.
70. This Court recollects that while interpreting a provis o, not
only should the main provision be kept in mind, but the purpose for enacting
28 [1959] 2 Supp. SCR 256.
29 [1962] 2 SCR 159.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
the proviso should not be lost sight of. In N.K. Sharma (supra) this
Court rejected an argument that under the Haryana C o-operative
Societies Act, 1984, a Managing Director could not be prosecuted without
sanction, as he was a deemed public servant. The Court held that Section
123, which created the legal fiction of treating some employees as public
servants, was restricted in its application to those engaged in recovery
of loans or those appointed as liquidator or arbitrator. It was held that:
“Section 117 of the said Act enumerates offences. S ection
118 limits taking of cognizance of offences which come with in
the purview of the said Act, as would be evident from sub-
section (1) thereof, and not under the provisions of the P enal
Code or any other statute. The said provision, therefore, ha s
no application. In terms of Section 123, only an em ployee
who is engaged in the recovery of loans or a person who has
been appointed as a liquidator or an arbitrator only shall be
treated as a public servant. By reason of the said provision, a
legal fiction has been created. A legal fiction, as is well known,
is created for a specific purpose and, thus, applicability thereof
cannot be extended for a purpose other than those for whic h
it has been created. As the Managing Director of Ha ryana
State Cooperative Land Development Bank Ltd., the appellant
was not engaged in the recovery of loans or appointe d as a
liquidator or an arbitrator and in that view of the matter, the
limited purpose for which the legal fiction has been created
would have no application in the instant case.
71. In Principles of Statutory Interpretation, 14th Edn. G.P. Singh,
the author describes the scope of a proviso:
“In interpreting a provision creating a legal fiction, the cour t
is to ascertain for what purpose the fiction is crea ted [State
of Travancore-Cochin v. Shanmugha Vilas Cashewnut
Factory, AIR 1953 SC 333; State of Bombay v. Pandur ang
Vinayak, AIR 1953 SC 244] , and after ascertaining this, the
Court is to assume all those facts and consequences which
are incidental or inevitable corollaries to the giving e ffect to
the fiction. [East End Dwellings Co. Ltd. v. Finsbury Borough
Council, (1951) 2 All ER 587 (HL); CIT v. S. Teja Singh, AIR
1959 SC 352] But in so construing the fiction it is not to be
extended beyond the purpose for which it is created [Ben gal
1203
Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC
661; CIT v. Amarchand N. Shroff, AIR 1963 SC 1448] , or
beyond the language of the section by which it is c reated.
[CIT v. Shakuntala, AIR 1966 SC 719; Mancheri Puthusser i
Ahmed v. Kuthiravattam Estate Receiver, (1996) 6 SCC 185 ]
It cannot also be extended by importing another fic tion.
[CIT v. Moon Mills Ltd., AIR 1966 SC 870] The princ iples
stated above are ‘well-settled’. [State of W.B. v. S adan K.
Bormal, (2004) 6 SCC 59] A legal fiction may also b e
interpreted narrowly to make the statute workable.
[Nandkishore Ganesh Joshi v. Commr., Municipal Corp n. of
Kalyan and Dombivali, (2004) 11 SCC 417]”
72. The distinction between Central Government authoriz ed
entities and others does not appear in Section 16; however, it clearly
does in Section 17, where different regimes and standards of scrutiny
are prescribed for the PNGRB in considering applications. This statutory
classification is important because it harks back to the gene sis of the
PNGRB Act, i.e., Parliament’s intention to enact a comprehensive law
to regulate important aspects of the petroleum and natural gas sector of
the economy, in the wake of a decisive opinion of this Court that it is the
Parliament alone that always had the competence to legisl ate in the
field, and the Central Government, to frame policies. The statutory
distinction, which is a classification no less, between Central Government
approved entities and others, therefore, is manifest in Section 17, which
occurs after Section 16.
73. The opening words of Section 16 are cast in negative term s
(“no entity shall ”). In a series of judgments, this Court has
ruled that negative words are prohibitory. As held in M. Pentiah
v. Muddala Veeramallappa & Ors 30,
“Negative imperative words are clearly prohibitory and are
ordinarily used as a legislative device to make a s tatute
imperative.”
74. In Superintendent and Legal Remembrancer of Legal
Affairs to Govt. of West Bengal vs. Abani Maity31, this Court observed
as follows:
30 (1961) 2 SCR 295.
31 (1979) 4 SCC 85.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
“Exposition ex visceribus actus is a long-recognise d rule of
construction. Words in a statute often take their meaning fro m
the context of the statute as a whole. They are therefore, n ot
to be construed in isolation. For instance, the use of the word
‘may’ would normally indicate that the provision wa s not
mandatory. But in the context of a particular statute, this word
may connote a legislative imperative, particularly when its
construction in a permissive sense would relegate i t to the
unenviable position, as it were, ‘of an ineffectual angel
beating its wings in a luminous void in vain’. ‘If the choi ce is
between two interpretations’, said Viscount Simon, L.C. In
Nokes vs. Doncaster Amalgamated Collieries, Ltd. (AC a t p.
1022):
‘The narrower of which would fail to achieve the ma nifest
purpose of the legislation, we should avoid a const ruction
which would reduce the legislation to futility and should rather
accept the bolder construction based on the view th at
Parliament would legislate only for the purpose of bri nging
about an effective result.’”
75. The enacting part of Section 16 thus prohibits anyone or any
entity from starting or carrying on any activity covered by the PNGRB
Act and requires authorisation from it. The proviso then is me ant to
operate in an extremely restricted manner, i.e., to deal with entities inter
alia that were engaged in laying, building, operating etc., inter alia, gas
pipelines “at the time when the Act came into force ”. The proviso,
unlike the main part of Section 16, was not intende d to grant
authorisation to entities which had not started any activity thus far. Such
entities had to now apply for authorisation. In any case, by the combined
operation of Sections 16 and 17, the proviso to Section 16 is not unqualified
- the “deemed authorisation” clause is subject to other provi sions of
Chapter IV. Section 17 is one such provision under Chapter IV. As noticed
previously, this provision brings home clearly that only Central Government
authorised entities were deemed to have been authorised. The omission
of any reference to authorisation in Section 16 is significant because the
qualifier for application of the proviso is that it was su bject to other
provisions of the chapter. The scheme of Section 17 intrinsically classifies
the two, i.e. Central Government authorised entities, and others. T he
underlying basis for this statutory classification is that only entities which
1205
had been cleared or authorised by the Central Government prior to the
coming into force of the Act were deemed to have authorization under
the Act, and therefore, had to furnish certain details. As with regard to
the others, i.e., entities not authorised by the Central Government, fresh
applications were necessary [Section 17(1) and Section 17( 2)] which
were to be assessed by the Board on a case-by-case basis and in
accordance with uniform standards.
76. The other reason for holding that the deeming fictio n of
authorization in the proviso to Section 16 does not apply to all entities, is
that the clause is “subject to other provisions of this chapter”. This
means that not all entities can be termed as “deemed authorized” entities.
In K.R.C.S. Balakrishna Chetty v. State of Madras 32 this Court
explained the use of the term “subject to” in the following manner:
“The use of the words “subject to” has reference to
effectuating the intention of the law and the correct meaning,
in our opinion, is “conditional upon”.
77. In Ashok Leyland Ltd. v. State of Tamil Nadu 33 this Court
held that “subject to” is an expression of subordination:
“93. Furthermore, the expression ‘subject to’ must be given
effect to.
94. In Black’s Law Dictionary, Fifth Edition at page 1278 the
expression “Subject to” has been defined as under:
“Liable, subordinate, subservient, inferior, obedie nt to;
governed or affected by; provided that; provided, answe rable
for. Homan v. Employers Reinsurance Corporation, 345 Mo.
650, 136 S.W. 2d 289, 302”
78. Therefore, if one reads the proviso to Section 16 with the
proviso to Sections 17(1) and Section 17(2) the former (i.e., proviso to
Section 16) only states that entities that had been previously authorized
by the Central Government could claim deemed authoriz ation. The
rationale for this is that the provisos to Section 17(1) and 17(2) merely
require such entities (as were authorized by the Central Government
prior to coming into force of PNGRB Act) to intimate certain details to
the PNGRB -but do not require any fresh authorization. This distinction
32 1961 (2) SCR 736.
33 (2004) 3 SCC 1.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
i.e., between authorization and intimation is crucial because it states that
entities which received Central Government authorization before the
commencement of the Act, and which had started to lay, build or operate
CGD networks were deemed to be authorized under the PNGRB A ct.
This is the only logical and reasonable construction, given this Court’s
declaration in Special Reference (supra), that States did not have the
competence to enact any laws or frame policies in respe ct of natural
gas. It was the Parliament alone that could do so. The Court also declared
ultra vires the Gujarat enactment, in light of this reasoning. Parliament
was conscious that authorizations for CGD networks were being granted
by the Central Government, and it sought to save only these authorizations,
which had the support of the Constitution. Authorizations granted by
state governments were not legal and did not have the suppor t of the
Constitution, and such authorizations were to be obtained afresh, under
the regime put in place by the PNGRB Act.
79. The appellant’s reliance on Section 17(4), to urge that t he
PNGRB has limited options and can either reject an application seeking
authorization or allow it, and that there is no statutory indication apart
from the deemed authorization under the proviso to Section 16, is without
basis. In the overall scheme of the PNGRB Act, what appears clearly is
that:
(1) After coming into force of the PNGRB Act, all acti vities
covered by it (refining, processing, storage, trans portation,
distribution, marketing and sale of petroleum products and natural
gas) can be carried out only with the authorization of the PNGRB,
in accordance with provisions of the Act;
(2) The PNGRB’s functions are delineated in Section 11 whic h
include granting authorization to entities to lay, build, operate or
expand common carriers, contract carriers or local natural ga s
distribution network;
(3) The PNGRB’s functions also include the control throu gh
regulation, access to city or local natural gas distribution network
to ensure fair trade and competition amongst entities;
(4) The PNGRB has adjudicatory powers under Section 12 and
24;
(5) The PNGRB has regulation making powers under Sections 11
and 61;
1207
(6) Pursuant to its regulatory powers, and regulation m aking
powers, PNGRB in fact has framed several regulation s34,
including the CGD Regulations of 2008;
(7) Sections 16 and 17 are of crucial importance because they
manifest Parliament’s intention of meting out uniform treatment,
in regard to entities that were in the process of laying, buildi ng,
operating or expanding any city or local natural gas distribution
network or any pipeline as a common carrier or contract carrier;
and
(8) Section 17 (4) itself alludes to the policies of th e Central
Government, which are to apply and guide the PNGRB, while
considering applications under Section 17 (2).
80. As discussed earlier, petroleum was always within the exclusive
domain of the Parliament and Central Government. The enact ment of
the Petroleum Act, 1934 (pre-Constitutional law) and more importantly,
the Petroleum and Natural Gas Rules, 1959 (hereafter called “the 1959
Rules”) shows that Union primacy always existed in this field. The 1959
Rules, by Rule 3(i) defined “natural gas” as gas obtained from bore-
holes and consisting primarily of hydrocarbons. Importantly, “petroleum”
in Rule 3(k) is defined as “naturally occurring hydrocarbons in a
free State whether in the form of natural gas or in a liqu id viscous
or solid form.” By Rule 4, all prospecting or mining except under a
license or a lease was prohibited. The Petroleum Rules, 2002in Part V
brought in a regime (Rules 87-101) for regulation and transportation of
petroleum, again defined broadly to include natural gas. Rule 89 is cast
in negative terms and expressly prohibits pipelines without prior approval:
“89. Approval of the design and route of the pipeli ne-No
pipeline shall be laid without the prior written app roval of
the Chief Controller of the route of the pipeline, and o f the
design, construction and working thereof.”
34 Petroleum and Natural Gas Regulatory Board (Authori zing Entities to Lay, Build,
Operate or Expand Natural Gas Pipelines) Regulations, 2008; Petroleum and Natural
Gas Regulatory Board (Procedure for Development of Technical Standards and
Specifications including Safety Standards) Regulations, 2009; Petroleum and Natural
Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand Petroleum
and Petroleum Products Pipelines) Regulations, 2010 ; Petroleum and Natural Gas
Regulatory Board (Procedure for Development of Technical Standards and Specifications
including Safety Standards) Regulations, 2009; Petroleum and Natural Gas Regulatory
Board (Gas Exchange)Regulations, 2020
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
81. Rule 90 provides certain technical specifications with respect
to design of the pipeline as well as location; Rule 91 states that pipelines
are to be laid in the most favourable route, avoiding obstr uctions and
areas which have no unusual external conditions. Other criterion s uch
as hydrostatic testing, protection against corrosion, layi ng pipelines
underground, shutting down of pipelines, checking o f gauges,
provisions for alterations, additions, repairs and maintenance , and the
power of inspection and examination as well as obligation t o report
accidents are provided for.
82. The Policy for Development of Natural Gas Pipeline and
City or Local Natural Gas Distribution Network , 2006 was framed
by the Central Government. In para 1.3, the policy’s objecti ve is to
promote public and private sector investment in natural gas pipelines
and city or local natural gas distribution networks to facil itate open
access to all entities to the pipeline network on a non-disc riminatory
network, promotion of competition amongst entities to prevent abuse of
dominant position and to secure consumer interest in ter ms of gas
availability and reasonable tariff for natural gas pipeline and city or local
natural gas distribution networks. Para 6.1 states that any entity wanting
to build, operate or expand common or contract carrier gas pipelines has
to undertake that if it has business interest in rela ted areas of gas
marketing or city or local gas distribution network or has a related entity
(a parent company, group company, JV, subsidiary etc.), it would ensure
an arm’s length relationship between pipeline activity and those activities.
Such entities were obliged to follow an Affiliate Code of Conduct, and
the PNGRB had the right to enquire about managerial structure/ownership
patterns and accounts of the authorized entity and its related entities to
ensure that such relationship is at arm’s length. Para 6.2 envisions that
authorized entities will have transportation of natural gas as their sole
business activity and not have any business interests in gas marketing or
city or local gas distribution networks. Para 6.3 aims at ensur ing that
pipeline ownership would not provide any competitive advantage to any
gas seller and abuse of market power in establishing an eff icient gas
grid with open access on a non-discriminatory basis. By reason of para
7.1, gas grid connectivity
“[I]s with a view to harmonizing the operations and providing
interconnectivity to different gas pipelines. For t he
development of the gas sector in India, including t he
1209
establishment of Gas Grid with open market access f or all
players on a non-discriminatory basis, a comprehens ive set
of technical requirements and safety standards as we ll as a
code for gas grid connectivity, to be developed by the Board,
is necessary to ensure operational compatibility. Adh erence
to such standards and codes will be an integral condition of
Authorization for gas pipelines as well as city or local na tural
gas distribution networks. The Board may refuse acc ess to
the gas grid on technical considerations.”
In para 9, the Central Government or PNGRB, in consultati on
with the Oil Industry Safety Directorate (hereafter called “OISD”), has
to
“[R]eview the existing rules & standards, their applica bility
and develop a comprehensive set of technical & HSE
standards in respect of natural gas transmission & distribution
pipelines and city or local natural gas distribution n etwork.
These standards shall cover technical & HSE parameter s in
design, laying, operation & maintenance of natural gas
pipelines and city or local natural gas distribution ne tworks
including associated facilities & equipment considering, int er
alia gas grid connectivity issues. The Board shall la y down
the standards as per Section 11 (i) of the Act to ensure seamless
development of natural gas pipeline & distribution
infrastructure in the country.”
83. All these- the objectives and the provisions of the PNGRB
Act and the Policy of 2006 - afford sufficient guidance to the Board,
along with the regulations framed by it, for deciding which ap plicant
entities can be granted authorization, and if so, to what exte nt of their
respective projects. The decision by the PNGRB under Sect ion 17(4)
therefore, to decide upon any authorization application is not based on its
consideration of the subjective factors relating to each application, but
on an overall analysis of all the above relevant factors.
84. Adani’s contention as indeed that of the interveners with
respect to orders of this Court (especially made in the public interest
litigation, in M.C. Mehta) or authorizations granted by the State cannot
be read as overriding or in any manner undermining the provisions of the
PNGRB Act in terms of the opinion of this Court, in In re. Special
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
Reference 2001 as well as the decision in Association of Natural Gas
&Ors. (supra). Parliament had exclusive competence to enact laws and
the Union had the corresponding sole executive powers to frame policies
in relation to petroleum and petroleum products. As noticed in the previous
part of the judgment, though the Petroleum Act, 1934 continued as a
“law in force”, was used several times by framing specific rules in relation
to various aspects, containing a legal regime for regulation of laying of
gas pipelines, etc. for which Central authorities always exercised exclusive
control prior to the enactment of the PNGRB Act. The Act cr eates a
modern-day regulation intended to create All-India guidelines and policies
for due implementation, ensuring that market dominance in the field is
not abused and fairness in dealings of various entities takes place. PNGRB
Act was intended to have primacy in regard to grant of authorizations on
the subject over which it exercises jurisdiction. To facilitate due exercise
of its jurisdiction, same role or space has been accorded to the States –
which is indicated again in clear terms under the Central Government’s
policy of 2006. The role of the states in granting no objection is limited
taking into account local factors - no more no less. In these circumstances,
any contention on behalf of Adani or the intervenors to the effect that no
objection had been granted to them by a State authority or orders of
Court had permitted any entity to either function or continue to function
does not per se amount to an authorization in terms of the PNGRB Act.
It does not also follow that authorization of the Central Government can
be assumed. Such entities had to secure authorization, under the PNGRB
Act, in respect of any area, after coming into force of th e Act.
85. Having regard to all these, this Court is of the opinion that the
previous ruling in Adani Gas (supra) did not correctly interpret the law.
It did not discuss whether the “deemed authorisation” (in the proviso to
Section 16) was qualified or unqualified. The previous ruling in Adani
Gas(supra)also did not notice the important condition that the
deemed authorization clause applied subject to other provisions of
Chapter IV, including Section 17; and lastly it overlooked the decisive
ruling of a five-judge bench in Special Reference (supra).
Accordingly, the interpretation of Section 16 and the deemed authorization
clause in its proviso, in Adani Gas is held to be incorrect. The judgment
in Adani Gas is therefore overruled. For the same reasons, the
submissions of the appellants as well as the supporting interveners are
rejected.
1211
Re Point No. 2: Validity of Regulation 18
86. As discussed in the previous section of this judgment, by virtue
of Sections 16 and 17, only those entities that were carrying out CGD
activities, which had been authorized prior to the appointed day, are
deemed to be authorized under the PNGRB Act. Section 19 provid es
that the Board may grant authorization either on the basis of an application
for authorization, or on a suo motu basis, where the Board finds it
necessary or expedient to lay, build, operate or expand a city or local
natural gas distribution network in a specified geographic area.
87. In respect of entities that seek to set up such operations after
the Act came into effect, Regulation 4 provides as follows:
“4. Initiation of proposal through expression of interest route
or suo-motu by Board.
(1) An entity desirous of laying, building, operati ng or
expanding a CGD network shall submit an expression of
interest to the Board in the form of an application at Schedul e
B alongwith an application fee as specified under t he
Petroleum and Natural Gas Regulatory Board (Levy of Fee
and Other Charges) Regulations, 2007.
(2) The Board may suo-motu invite bids from entities interested
in laying, building, operating or expanding a CGD n etwork
for any specified geographical area.
88. Therefore, such entities are required to either s ubmit an
expression of interest, followed by acceptance of the proposal and
invitation of bids by the Board (under Regulation 5(5)), or bi d for
authorization when such bids are invited suo-motu by the Board (under
Regulation 6). Entities that satisfy all the requisite conditio ns shall be
granted authorization, under Regulation 10.
89. Regulation 17 provides for the further monitoring and regulation
of entities that have prior authorization by the Central Government, which
are deemed to be authorized under the PNGRB Act. The regula tion
imposes requirements to comply with all terms and conditions of the
authorization, and relevant technical standards and specifications, etc.
The Board may grant exclusivity to such entities; the Board also f ixes
transportation tariffs. Regulation 18 pertains to entities that were carrying
out CGD activities prior to the coming into effect of the PNGRB Act,
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
but were not authorized by the Central Government. Such entities do not
enjoy “deemed authorization” under the Act; they are required to apply
for fresh authorization under the provisions of Regulation 18.
90. The PNGRB Act and Regulations, thus create three categories
of entities for the different ways in which authorization can be obtained:
(1) Entities authorized by the Central Government prior to the appointed
day, are deemed to be authorized, and are merely required t o submit
certain information in the relevant forms; (2) Entities that were carrying
out CGD activities, but were not authorized by the Central Government,
are required to apply for fresh authorization under Regulation 18; (3)
Entities that seek to set up CGD activities after the appointed day, i.e.,
all entities seeking to set up operations afresh, after t he PNGRB Act
came into effect, would be required to either submit an e xpression of
interest, followed by participation in the bidding process, or participate in
the suo-motu invitation of bids by the PNGRB.
91. Regulation 18 is part of the CGD Regulations framed under
Section 61 of the PNGRB Act. This regulation, on a plain reading, applies
to entities not authorised by the Central Government for laying, building,
operating or expanding pipelines beyond the appointed date. Regulation
18(1) requires such entities (who did not possess Central Gover nment
authorisation as on the appointed date) to apply immediately for obtaining
authorisation in the format prescribed in Schedule I to the CGD
Regulations. Regulation 18(2) then prescribes that the PNGRB “may”
take into consideration the criteria or conditions spelt out in clauses (a)
to (j). Regulation 18(2)(a) speaks of the minimum eligibili ty criteria
specified in Regulation 5(6)(a) to (e) and (i); Regulation 18(2)(b) states
that entities which were not registered as companies at the time of coming
into force of the Regulations were to undertake to become companies;
Regulation 18(2)(c) states that a satisfactory assessment of the actual
physical progress made and the financial commitment in respect of it
immediately before the appointed date in comparison with the entities
DFR appraised by the financial institutions funding the project may be
taken into consideration by the PNGRB for grant of authorization. If the
project is not funded, the Board could appraise the DFR which had to
clearly indicate the specific geographical area of the p roject and also
specify the coverage for CNG and PNG. Regulation 18 (2)(d)
prescribes that the actual physical progress and th e financial
demand referred to in clause (c) would mean at least 25% of the capital
1213
expenditure identified for the CGD Project in terms of DFR immediately
before the appointed date. Apart from these, the entity s hould have
arranged by way of acquisition or lease, lands for the next project (Clause
(e)). The PNGRB reserves the right to have the actual physical progress
certified and, having regard to the progress achieved, authorise the entity
only for the authorised area as per the (i) geographical area in its DFR;
or (ii) geographical area actually covered under implementation till the
appointed day; or (iii) any area as specified by the Board( Clause (f)).
The Board has to be satisfied of the adequacy of the entities ‘capacities
to meet the applicable technical standard and safety standards specified
in the regulations or the technical standards, including the quality of safety
standards. Clause (g) also refers to Clause 15. Regulati on 18(3) is
important because it obliges overall evaluation and is in the follow ing
terms:
“Regulation 18 (3) - the evaluation of the application in term s
of the Clauses (a) to (j) shall be done in totality consider ing
the composite nature and inter-linkages of the crite ria.”
92. Apart from sub-regulation (3), it is also notewort hy that
Regulation 18 applies only to one category, i.e., entities which were not
authorised by the Central Government prior to coming into force of the
PNGRB Act. These were a limited number of entities, a vanishing species,
so to say, as they were not expected to continue without authorization.
There is some logic in interpreting Regulation 18 in the light of the proviso
to Section 16 and the main parts of Section 17. Before the coming into
force of the PNGRB Act, the existing norms for grant o f approval or
authorisation evolved by the Central Government were found in t he
Petroleum Act, Petroleum Rules as well as the existing policies, i.e. the
policy of 2002 and the later policy of 2006. Keeping this in mind,
Regulation 18 was meant to cater to an extremely limi ted class of
applicants and the intention of framing this regulation was to apply it
to those entities whose projects existed and whose projects were
unknown to the central government. The ruling in Special Reference
(supra) was only a declaration of what always was the cor rect legal
position, i.e., that Parliament had exclusive legislative comp etence to
enact laws in relation to petroleum, mineral oil and oil and natural gas
and that the Central Government had exclusive control over the subject
matter. The infraction of this constitutional position by the States, some
of which had granted authorizations, would mean that such entities which
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
had been authorised by the State but not the Central Government, in all
likelihood would not have conformed to the overall policy of the Central
Government with respect to inter alia laying, operating, and building of
natural gas pipelines and city or local natural gas distribution networks.
93. Regulation 18 was meant to provide a uniform st andard
whereby such State authorised entities’ projects could be evaluated and
granted authorization, if need be. Apart from techn ical and safety
standards which the regulation necessitated, final standards were
prescribed; common yardstick of 25% of actual physical progress with
corresponding financial commitment was, therefore, insisted upon.
94. The PNGRB has been granted the flexibility of either approving
the entire project or curtailing it or approving that pa rt of the project
which is actually performed. In the opinion of this Court, this discretion
is essential inasmuch as the PNGRB had to consider the overall position
of not only the area or areas in question, but the fea sibility of the
concerned network and its integration with the state and national network.
Regulation 18 is to be seen, therefore, as a special feature to deal with
the applications made by entities not authorised by the Central
Government. With the coming into force of Section 16 and the conclusion
of evaluation of all those existing entities, there would be little or no
scope for applying Regulation 18. This is also evident from Regulation
17 which reads as follows:
“17. Entity authorized by the Central Government for l aying,
building, operating or expanding CGD network before the
appointed day.
(1) The entity shall submit relevant information al ong with
supporting documents in the form as in Schedule H wit hin a
period of one hundred and eighty days from the appo inted
day.
(2) The entity shall abide by the terms and conditions of th e
authorization by the Central Government including
obligations, if any, imposed by the Central Governme nt.
(3) The entity shall abide by the relevant regulati ons for
technical standards and specifications, including s afety
standards and the quality of service standards****.
1215
(4) The Board may consider grant of exclusivity on such t erms
and conditions as per the provisions in the Petrole um and
Natural Gas Regulatory Board (Exclusivity for City or Loc al
Natural Gas Distribution Networks) Regulations, 2008.
(5) The transportation tariff shall be as determine d by the
Board as per regulation under section 22 of the Petr oleum
and Natural Gas Regulatory Board Act, 2006.
(6) The activities of the entity may be subject to such other
regulations as may be applicable as per the provisions of the
Act.”
95. The ruling cited, i.e., Adani Gas (supra) in support
of the submission noticed in the previous part of the judge ment stated
that Regulation 18(2) is not couched in mandatory terms and it held that:
“…but no doubt the same would be relevant considera tions
having regard to the express terms of regulation 18(3) whic h
clearly spelt out that PNGRB has to take into consid eration
an application and test whether all criteria are satisfied having
regard to their inter-linkages. There can be no room for doubt
that these conditions were meant to be mandatory.”
In view of the above scheme of the regulations, this Court would
first consider whether the phrase “may take into consideration” in
Regulation 18 (2), before setting out the various criteria, is compulsive
or only by way of guidance. In Adani Gas (supra), this Court held that
the term was not mandatory, and that the PNGRB had to neverthele ss
be generally guided by the various criteria in clauses (a) to (j).
96. As noticed earlier, the PNGRB Act is intended to regulate all
activities post extraction – i.e., refining, processing, storage, transport,
distribution, marketing and sale. Power, when conferred, ha s to be
construed in the overall context of the parent statute, and t he specific
powers conferred on the regulatory agency. Section 11 and Section 61
of the PNGRB Act confer regulation making powers on the Board. It is
in the exercise of this power that Regulation 18 was fram ed, for the
application of uniform criteria to consider applications for authorization,
made by entities which did not have Central Government
authorization on the appointed date. It is in this context that one has to
consider the interpretation of the phrase “may take into
consideration”.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
97. In Sri Sitaram Sugar Company Limited v. Union of India 35,
this Court had to consider and interpret the expression “having regard
to” in the statute, which conferred power upon the govern ment to
determine the price of sugar. This Court observed as follows:
“29. (….) Be that as it may, the expression “having regard
to” must be understood in the context in which it is u sed in
the statute. See Union of India v. Kamlabhai Harjiw andas
Parekh [(1968) 1 SCR 463, 471]. These words do not me an
that the government cannot, after taking into accou nt the
matters mentioned in clauses (a) to (d), consider an y other
matter which may be relevant. The expression is not “having
regard only to” but “having regard to”. These words are not
a fetter; they are not words of limitation, but of general
guidance to make an estimate. The government must, of course,
address itself to the questions to which it must have r egard,
and, having done so, it is for the government to de termine
what it is empowered to determine with reference to what it
reasonably considers to be relevant for the purpose . The
Judicial Committee in CIT v. Williamson Diamonds Ltd. [LR
1958 AC 41, 49 : (1957) 3 WLR 663] observed with reference
to the expression “having regard to”: (AC p. 49)
“The form of words used no doubt lends itself to th e
suggestion that regard should be paid only to the two
matters mentioned, but it appears to their Lordships that it
is impossible to arrive at a conclusion as to reasonableness
by considering the two matters mentioned isolated f rom
other relevant factors. Moreover, the statute does not say
“having regard only” to losses previously incurred by the
company and to the smallness of the profits made. N o
answer, which can be said to be in any measure adequate,
can be given to the question of “unreasonableness” by
considering these two matters alone.”
See CIT v. Gungadhar Banerjee and Co. (P) Ltd. [(19 65) 3
SCR 439, 444-45 : AIR 1965 SC 1977 : 57 ITR 176] Se e
also Saraswati Industrial Syndicate Ltd. v. Union o f India
[(1974) 2 SCC 630, 633 : (1975) 1 SCR 956, 959]. In Sta te
of Karnataka v. Ranganatha Reddy [(1977) 4 SCC 471, 488
35 (1990) 3 SCC 223.
1217
: (1978) 1 SCR 641, 657-58] this Court stated: (SCC p. 488,
para 23 : SCR pp. 657-58)
“The content and purport of the expressions “having reg ard
to” and “shall have regard to” have been the subject matter
of consideration in various decisions of the courts in Engla nd
as also in this country. We may refer only to a few .
In Illingworth v. Walmsley [(1900) 2 QB 142 : 16 TLR 281] it
was held by the Court of Appeal, to quote a few words f rom
the judgment of Romer C.J. at page 144:
“All that clause 2 means is that the tribunal assessing the
compensation is to bear in mind and have regard to the
average weekly wages earned before and after the accident
respectively. Bearing that in mind, a limit is plac ed on the
amount of compensation that may be awarded ....”
****
“29. (…) It is worthwhile to quote a few words from the
judgment of Fletcher Moulton, L.J. at page 458. Und er the
phrase ‘Regard may be had to’ the facts which the courts may
thus take cognizance of are to be ‘a guide, and not a fetter’.
This Court speaking through one of us (Beg, J., as he then
was), has expressed the same opinion in the case of Saraswa ti
Industrial Syndicate Ltd. v. Union of India [(1965) 3 SCR 439,
444-45 : AIR 1965 SC 1977 : 57 ITR 176]. Says the learned
Judge at page 959 (SCC p. 633, para 3):‘The express ion
“having regard to” only obliges the government to cons ider
as relevant data material to which it must have regard’.”
In State of U.P. v. Renusagar Power Co. [(1988) 4 SCC 59:
AIR 1988 SC 1737] , one of us (Mukharji, J., as he then was)
observed:
“The expression “having regard to” only obliges the
government to consider as relevant data material to which
it must have regard...”.
In O’May v. City of London Real Property Co. Ltd. [(1982) 1
All ER 660, 665 : (1982) 2 WLR 407 (HL)], Lord Hails ham
stated:
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
“A certain amount of discussion took place in argume nt
as to the meaning of ‘having regard to’ in Section 35.
Despite the fact that the phrase has only just been used b y
the draftsman of Section 34 in an almost mandatory sense,
I do not in any way suggest that the court is intended or
should in any way attempt to bind the parties to the terms
of the current tenancy in any permanent form....”.
30. The words “having regard to” in the sub-section are the
legislative instruction for the general guidance of the
government in determining the price of sugar. They are not
strictly mandatory, but in essence directory. The
reasonableness of the order made by the government in
exercise of its power under sub-section (3-C) will, of course,
be tested by asking the question whether or not the matters
mentioned in clauses (a) to (d) have been generally considere d
by the government in making its estimate of the price, but the
court will not strictly scrutinise the extent to which those matters
or any other matters have been taken into account. There is
sufficient compliance with the sub-section, if the governm ent
has addressed its mind to the factors mentioned in clauses (a)
to (d), amongst other factors which the government may
reasonably consider to be relevant, and has come to a
conclusion, which any reasonable person, placed in the
position of the government, would have come to. (…)”
98. In the present case, having regard to the contextual setting of
Regulation 18, the expression “may take into consideration” cannot
be placed in the straightjacket of either a mandate or a directory rule.
There are numerous decisions which hold that “may” could mean “shall”
and vice versa; much depends upon the context and object of the provision
as well as its statutory setting. As discussed by this Court in Shri
Sitaram Sugar Company (supra) the phrase “having regard to”
followed by enumeration of criteria, is the legislature’s or rule maker’s
indicator of how discretion is to be exercised. Likewise, the terms “may
consider” or “may take into consideration” or even the enumeration
of criteria prefaced by the phrase “it shall be lawful to consider” are
methods by which the law or rule maker would like the aut hority to
exercise discretion, taking into consideration certain c riteria while
discharging its duties.
1219
99. In the present case, Regulation 18(3) specifically stat es that
“evaluation of the application in terms of the Clau ses (a) to (j)
shall be done in totality considering the composite nature and i nter-
linkages of the criteria.” This, coupled with the listing of “any other
criteria considered as relevant by the Board based on the
examination of the application.”(Regulation 18 (2) (j)), in the opinion
of this Court, brings more precision to the task of evaluation of applications
(preferred by entities which did not possess Central authorization when
the Act came into force) by the PNGRB. If one keeps in mind the fact
that all enumerated criteria deal with distinct matters, some of them
technical, and others with financial capability of the applicant entity, the
PNGRB is duty bound to further consider how and to what exte nt the
applicant’s project- ongoing, or at a nascent stage - had pr ogressed.
This is because “laying, building, operating or expanding”, covers
all stages i.e., from conceptualization and initial work, t o advanced
execution of a project, with deployment of optimal men, mate rial and
resources. Therefore, one criterion prescribed is the 25% threshold for
execution of ongoing work, as well as expending such percentage of
finance. The flexibility given to the PNGRB at the stage of evaluation is
evident from Regulation 18(2)(f)(iii) which empowers it to specify the
geographical area for which authorization is to be given to an entity,
irrespective of the area specified in the DFR, or even the actual area
“covered under implementation till the appointed day”. All these
mean that the PNGRB is to be guided by the composite of factors
enumerated in Regulation 18(2) while evaluating applic ations for
authorization; how important one factor is, and the appropriate weightage
to be given to it, depends, as required by Regulation 18( 3) on the
“totality” of all facts “considering the composite nature and inter-
linkages of the criteria.” It is therefore, held that all clauses of
Regulation 18(2) have to be considered, and wherever necessary, “any
other relevant criteria” (Reg. 18 (2) (j)) which means factors relevant
for the purposes of the Act, having regard to its objects and purposes.
The PNGRB also has to consider the composite nature a nd inter-
linkages of the criteria.
100. In regard to the validity of Regulation 18(2), the appellant’s
argument is that the regulation is ultra vires, because there is no
substantive provision giving guidance, leaving the powe r to reject
applications at the whims of the PNGRB, which can pick and c hoose
any or some criterion and ignore the rest. As far as the l atter aspect
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
goes, this Court has held above, that all criteria have to be considered,
having regard to their inter-linkages. Therefore, the question of picking
and choosing one criterion, and ignoring others does not arise. Much
would depend on the individual facts of the case, the weight given to one
or a set of criteria. This per se does not render the power (under
Regulation 18 (2)) arbitrary. In the particular facts of any case, it is open
to an aggrieved applicant to show the exercise of power is arbitrary,
and seek judicial review. As held by this Court in Collector of Customs
v Nathella Sampathu Chetty 36:
“The possibility of abuse of a statute otherwise va lid does
not impart to it any element of invalidity. The converse m ust
also follow that a statute which is otherwise invalid as being
unreasonable cannot be saved by its being administered in a
reasonable manner. The constitutional validity of the statute
would have to be determined on the basis of its pro visions
and on the ambit of its operation as reasonably construed. If
so judged it passes the test of reasonableness, poss ibility of
the powers conferred being improperly used is no ground f or
pronouncing the law itself invalid and similarly if the law
properly interpreted and tested in the light of the requirements
set out in Part III of the Constitution does not pass the test it
cannot be pronounced valid merely because it is administered
in a manner which might not conflict with the consti tutional
requirements.”
101. The challenge to the regulation on the ground of arbitrariness,
and violation of Article 14, therefore, fails.
Point No. 2 Whether Regulation 18 is ultra vires the PNGRB
Act
102. The next question is with respect to whether Regulation 18
is ultra vires the PNGRB Act. In State of Tamil Nadu & Anr. v
P. Krishnamurthy & Ors.37 this Court recollected the following principles
while adjudging the validity of subordinate legislation, including regulations:
“15. There is a presumption in favour of constitutionality or
validity of a subordinate legislation and the burden is upon
him who attacks it to show that it is invalid. It is also well
36 (1962) 3 SCR 786.
37 (2006) 4 SCC 517.
1221
recognized that a subordinate legislation can be
challenged under any of the following grounds:
(a) Lack of legislative competence to make the subo rdinate
legislation.
(b) Violation of fundamental rights guaranteed unde r the
Constitution of India.
(c) Violation of any provision of the Constitution of In dia.
(d) Failure to conform to the statute under which it is m ade or
exceeding the limits of authority conferred by the enabling
Act.
(e) Repugnancy to the laws of the land, that is, any enactme nt.
(f) Manifest arbitrariness/unreasonableness (to an extent
where the court might well say that the legislature never
intended to give authority to make such rules)
16. The court considering the validity of a subordi nate
legislation, will have to consider the nature, object and sc heme
of the enabling Act, and also the area over which power has
been delegated under the Act and then decide whethe r the
subordinate legislation conforms to the parent statute. Where
a rule is directly inconsistent with a mandatory provis ion of
the statute, then, of course, the task of the court is simple and
easy. But where the contention is that the inconsis tency or
non- conformity of the rule is not with reference to any speci fic
provision of the enabling Act, but with the object and scheme
of the parent Act, the court should proceed with caution before
declaring invalidity.”
103. This Court, in PTC India Ltd. v. Central Electricity
Regulatory Commission38, characterised regulation making as legislative:
“49. On the above analysis of various sections of th e 2003
Act, we find that the decision-making and regulation-makin g
functions are both assigned to CERC. Law comes into existence
not only through legislation but also by regulation and
litigation. Laws from all three sources are binding. According
to Professor Wade, “between legislative and adminis trative
38 (2010) 4 SCC 603.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
functions we have regulatory functions”. A statutor y
instrument, such as a rule or regulation, emanates fro m the
exercise of delegated legislative power which is a part of
administrative process resembling enactment of law by the
legislature whereas a quasi-judicial order comes fr om
adjudication which is also a part of administrative process
resembling a judicial decision by a court of law. ( See Shri
Sitaram Sugar Co. Ltd. v. Union of India [(1990) 3 SCC 223])
104. In State of U.P v Renusagar Power Co. 39 this Court held
that
“If the exercise of power is in the nature of subor dinate
legislation, the exercise must conform to the provisions of the
statute.”
In Global Energy Ltd. v. Central Electricity Regulator y
Commission40, a rule disqualifying a company or entity from applying
for a license under the Electricity Act, 2003, was impugned as ultra
vires. The rule, setting out disqualifications inter alia, precluded an entity
whose partners, promoters, directors or associates were “involved in
any legal proceedings, and in the opinion of the Commission grant
of licence in the circumstances, may adversely affect th e interest of
the electricity sector of the consumers”; or “is not considered a fit
and proper person for the grant of licence for any other re ason to
be recorded in writing” from the applying. The phrase “not considered
fit” was amplified in the explanation to include “(i) financial
integrity of the applicant; (ii) his competence; (ii i) his reputation
and character; and (iv) his efficiency and honesty. ” This Court
proceeded to analyse the challenge to the rule, and observed as follows:
“38. When a disqualification is provided, it is to op erate at
the threshold in respect of the players in the field of tr ading
in electricity. When, however, a regulatory statute i s sought
to be enforced, the power of the authority to impos e
restrictions and conditions must be construed having r egard
to the purpose and object it seeks to achieve. Dealing in any
manner with generation, distribution and supply and trading
in electrical energy is vital for the economy of the country.
39 (1988) 4 SCC 59.
40 (2009) 15 SCC 570.
1223
The private players who are permitted or who are gr anted
licence in this behalf may have to satisfy the cond itions
imposed. No doubt, such conditions must be reasonab le.
Concededly, the doctrine of proportionality may have to be
invoked.
39. The superior courts would ensure that the subor dinate
legislation has been framed within the four corners of the
Act and is otherwise valid. The issue therefore which arises
for our consideration is as to whether the delegation havin g
been made for the purpose of carrying out the object, co uld
the limitation be imposed for ascertaining as to whethe r the
applicant is fit and proper person and disregarding his
creditworthiness. There cannot be any doubt whatsoever that
a statute cannot be vague and unreasonable.
******** ********* ******
41. The question, which, however, falls for our consideratio n
is as to whether the purported legislative policy is val id or
not. Such a question did not arise for consideratio n
in Clariant [(2004) 8 SCC 524].
******** ********* ******
43. A legislative policy providing for qualificatio n or
disqualification of a person for obtaining a trading licence
should not be vague or uncertain. Parameters must be l aid
down therefor for determining the financial integri ty,
reputation, character, efficiency and honesty of the applicant.
An Explanation appended to clause (f) of Regulation 6-A
points out various aspects that may be considered w hile
determining the said criteria. However, what should be the
criteria in regard to financial integrity, character, reputatio n,
etc. have not been defined. How and in what manner the said
criteria are required to be ascertained have not be en laid
down, the criteria are subjective ones.
******** ********* ******
44. A disqualifying statute, in our opinion, must b e definite
and not uncertain; it should not be ambiguous or va gue.
Requisite guidelines in respect thereof should be laid down
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
under the statute itself. It is well settled that essential legislative
function cannot be delegated.
******** ********* ******
47. The factors enumerated in the Explanation append ed to
clause (f) of Regulation 6-A are unlimited. For deter mining
the question as to whether the applicant is a fit an d proper
person, a large number of factors may be taken into
consideration. It for all intent and purport would be more
than the technical requirement, capital adequacy requirement
and creditworthiness for being an “electricity trad er” as
envisaged under Section 52 of the Act. An applicant us ually
would be a new applicant. It is possible that there had bee n
no dealings by and between the applicant and the lic ensor.
Each one of the criteria laid down in the Explanation refer s
to creditworthiness.
******** ********* ******
51. Regulation 6-A in effect confers powers/discret ion on
matters of licensing even in public hearing. Such r elevant
factors which provide for the criteria laid down in Regulat ion
6-A could be brought on record. Section 15, however ,
empowers the Commission to specify the form and manner of
the application and the fees that is required to be a ttached.
The parliamentary object must be read in the context of the
Preamble.”
105. Sections 11 and 61 of the PNGRB Act contain regulation
making powers. Under Section 11(c)(ii) the Board has power to authorize
entities to “lay, build, operate or expand city or local natural ga s
distribution networks”. By Section 11(e)(iii) PNGRB is empowered
to frame regulations to “access to city or local natural gas distribution
network so as to ensure fair trade and competition amongst en tities
as per pipeline access code”. By Section 11(f)(iv) it is enjoined to
ensure “equitable distribution of petroleum and petroleum products”.
Section 11(i) empowers the Board to:
“(i) lay down, by regulations, the technical standa rds and
specifications including safety standards in activitie s relating
1225
to petroleum, petroleum products and natural gas, inc luding
the construction and operation of pipeline and
infrastructure projects related to downstream petrol eum and
natural gas sector.”
All these regulatory powers, coupled with the general power under
Section 61(1) to frame regulations are, in the opinion of t his court,
sufficiently wide to clothe PNGRB with the power to frame Regulation
18. Furthermore, Regulation 18 is to be considered as applica ble to a
specific class of entities- by their nature, dwindling in numbers, i.e.,
entities which had not secured Central Government authorization or
approval before the PNGRB Act came into force. The regulat ion is
meant to guide the Board to deal with applications of such categories of
entities, which fall under proviso to Section 16 read with Section 17 (2),
and apply uniform standards. These considerations further the
objectives of the whole of PNGRB Act as well as enable the PNGRB to
objectively perform its task, while deciding applications, exercising its
powers under Section 17 (4).
106. In Petroleum & Natural Gas Regulatory Board v.
Indraprastha Gas Ltd. 41 the issue involved was whether the PNGRB
was empowered to fix or regulate the maximum retail pric e at which
gas could be sold by entities such as Indraprastha Gas Ltd., to the
consumers and further if the Board was empowered to fix any component
of network tariff or compression charge for an entity having i ts own
distribution network. This Court noticed the difference between city and
local gas distribution networks. This Court considered the combined
impact of Section 20 (declaring, laying, building, etc., of common carrier
or contract carrier and city or local natural gas distrib ution network);
Section 21(the right of first use by entities laying, building, operating or
expanding a pipeline for transportation of petroleum and petroleum
products or local natural gas distribution networks) and Section 22 (the
Board’s power to fix transportation tariff). This Court noted that Section
22 i.e., the power to fix tariff is “subject to” other provisions of the Act,
including Section 11. Having regard to the specific provisions of Sections
22 and 11, it was then held that the Board lacks the power to fix tariffs,
regulating maximum retail price at which gas could be sold to ultimate
consumers. In that context, this Court, noticing the general re gulation
making power of the Board, under Section 61, held that
41 (2015) 9 SCC 209.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
“53. In the case at hand, the Board has not been con ferred
such a power as per Section 11 of the Act. That is the
legislative intent. Section 61 enables the Board to frame
Regulations to carry out the purposes of the Act and cer tain
specific aspects have been mentioned therein. Section 61 h as
to be read in the context of the statutory scheme. The
regulatory provisions, needless to say, are to be r ead and
applied keeping in view the nature and textual context of the
enactment as that is the source of power. On a scann ing of
the entire Act and applying various principles, we find that
the Act does not confer any such power on the Board and the
expression “subject to” used in Section 22 makes it a
conditional one. It has to yield to other provisions of the A ct.
The power to fix the tariff has not been given to the Board.
In view of that the Board cannot frame a Regulation w hich
will cover the area pertaining to determination of network
tariff for city or local gas distribution network a nd
compression charge for CNG. As the entire Regulation centres
around the said subject, the said Regulation deserves to be
declared ultra vires, and we do so.”
107. This Court is of the opinion that the above decision is of no
assistance; on the contrary the observations with regard to the term
“subject to provisions of this Act ” in Section 22 - which are in pari
materia with proviso to Section 16, reinforce the conclusions recorded
previously. The power to fix tariffs, was held to extend only to inter se
relationship between parties, to foster competition and fairness, and did
not extend to regulating relationship between the entities and t he end
consumers. The observations with respect to Section 61 not authorizing
the Board to make regulations relating to the tariff at which gas could be
sold to customers, was made having regard to the specific man ner in
which tariffs were dealt with under Section 22, and the general objectives,
of the enactment, i.e., to frame common standards to regulate the sector,
promote competition and fairness. In the present case, the pr oviso to
Section 16 is subject to other provisions, notably Section 17. The power
to consider and make appropriate orders on applicat ions for
authorizations, are dependent upon the policies of the Central Government,
in addition to the objectives of the Act.
1227
108. In the present case, this Court notices no express provision
of the kind which the Court in Petroleum and Natural Gas Regulatory
Board (supra) had to deal with. Section 22 had to be cons trued
restrictively, as not conferring the power to fix tarif fs for products,
delivered to the ultimate consumers, having regard to the objectives of
the Act. On the other hand, Regulation 18 is essential for giving effect to
the scheme of the Act, particularly Sections 16 and 17.
109. It is a well-established principle that the rule or reg ulation
making authority cannot travel beyond the scope of the enabling parent
Act. (State of Karnataka v. H. Ganesh Kamath 42 ; St. Johns Teachers
Training Institute v. NCTE43; Tata Power Co. Ltd. v. Reliance Energy
Ltd.44). In the decision reported as Indramani Pyarelal Gupta v. W.R.
Natu 45 this Court observed that the proper test applicable would be to
consider whether the rule or subordinate legislation is “incompa tible”
with the purpose for which the body was created or the particular power
is contra-indicated by a specific provision:
“[T]he proper rule of interpretation would be that unless the
nature of the power is such as to be incompatible w ith the
purpose for which the body is created, or unless the particul ar
power is contra-indicated by any specific provision of the
enactment bringing the body into existence, any power which
would further the provisions of the Act could be le gally
conferred on it.”
110. In the present case, the purpose and objective for frami ng
Regulation 18, is compatible to the overall objectives of the PNGRB
Act. The various factors mentioned in it, provide an objective basis for
the Board to consider the proper method of granting authorization, under
Section 17 (2); in their absence, the PNGRB would have experi enced
difficulty in dealing with every application for authorization, on a case-
by-case basis. More importantly the content of Regulation 18 is not
contraindicated by any specific provision of the Act.
111. It is recognized, in certain decisions, by this Cour t, that
regulations and rules framed in exercise of statutory empowerment, by
42 1983 (2) SCC 402.
43 2003 (3) SCC 321.
44 (2009) 16 SCC 659.
45 1963 (1) SCR 721.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
expert statutory bodies, and regulatory authorities, should be interpreted
deferentially, with the foreknowledge that such bodies know their task
and are best equipped for it. In Keshavlal Khemchand & Sons (P)
Ltd. v. Union of India 46 the validity of an amendment, in 2004 to the
Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002, defining, by Section 2 (o) “non-performing
assets” was challenged, on the ground of excessive delegation, as it left
the matter of defining what could be such non-performing assets, to the
discretion of the Reserve Bank of India (hereafter called “RBI”).After
noting that the modern financial system is complex and requires
“[C]onstant monitoring on daily basis sometime even on
minute to minute basis. In lieu of the importance a nd
complexities, the Reserve Bank, the prime regulator of the
Indian economy and banking system, has been issuing
guidelines and directions from time to time not only t o the
banks but to various other financial institutions w hich are
amenable to its jurisdiction.”
This Court upheld the amendment, as empowering an expert body,
which is experienced and knowledgeable in the sector, to issue appropriate
guidelines, and notifications.47 In Bharat Sanchar Nigam Ltd v Telecom
Regulatory Authority of India 48 this Court, dealing with the powers
and functions of the Telecom Regulatory Authority of India (hereafter
called “TRAI”) observed as follows:
“The TRAI Act speaks of many players like the licensors and
users, who do not come within the ambit of the term “service
provider”. If TRAI has to discharge its functions q ua the
licensors or users, then it will have to use powers under
provisions other than Sections 12(4) and 13. Theref ore, in
exercise of power under Section 36(1), TRAI can mak e
regulations which may empower it to issue direction s of
general character applicable to service providers and other s
and it cannot be said that by making regulations under Section
46 (2015) 4 SCC 770.
47 A similar approach was adopted by the Court in Transmission Corporation of Andhra
Pradesh Limited Vs. Rain Calcining Limited and Ors. 2019 SCC OnLine SC 1537.
48 2014 (3) SCC 222.
1229
36(1) TRAI has encroached upon the field occupied b y
Sections 12(4) and 13 of the TRAI Act.
100. In view of the above discussion and the propos itions
laid down in the judgments referred to in the preceding paragr aphs,
we hold that the power vested in TRAI under Section 36(1) to mak e
regulations is wide and pervasive. The exercise of this power is
only subject to the provisions of the TRAI Act and the rules framed
under Section 35 thereof. There is no other limitation on the ex ercise
of power by TRAI under Section 36(1). It is not controlled or l imited
by Section 36(2) or Sections 11, 12 and 13.”
A like approach is visible in the recent ruling in Prakash Gupta v
Securities and Exchange Board of India 49 where it was observed, in
relation to the Securities Exchange Board of India (hereafte r called
“SEBI”) that:
“SEBI, as the regulator, is entrusted with diverse ro les and
functions including the power to regulate the secur ities’
market, make regulations and to enforce the provisi ons of
the Act. Its functions have been recognized in a pano ply of
statutory provisions. Independent of initiating a p rosecution,
SEBI has been entrusted with wide ranging powers an d
functions including the power to investigate, to is sue
directions and levy penalties and make cease and desist orders.
While the statute has entrusted the powers of compou nding
offences to SAT or to the Court, as the case may be, before
which the proceedings are pending, the view of SEBI as an
expert regulator must necessarily be borne in mind by the
SAT and the Court, and would be entitled to a degre e of
deference.”
112. In the present case too, this Court is of the opinion that as the
sectoral regulator, PNGRB is entrusted with the pow er to frame
appropriate regulations to ensure the objectives of the Ac t, and also
bring about fairness in the marketplace. It has sought to achieve that,
through Regulation 18. For the above reasons, it is held that the challenge
to Regulation 18 cannot succeed; Adani’s arguments on this aspect are
accordingly rejected.
49 2021 SCC OnLine SC 485.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
Re Point No. 3:On whether the exclusion of the disputed areas
from the authorisation granted to Adani was justified.
113. Gujarat Gas has urged before this Court that Adani should
not be allowed to urge this aspect, since it took chances on multiple
occasions, was always aware of its rights, and even availed itself of the
opportunity to participate in the bidding for the disputed (excluded) areas,
and therefore, cannot be allowed to question the decision of PNGRB to
grant a license to it, for some areas. It was urged that h aving derived
benefits from the authorization, it was not open to Adani to question the
same order, after unsuccessfully bidding for the excluded areas. Adani
countered this argument, by saying that the interpretation of provisions
of the PNGRB Act, were in a state of flux, and that until t he law was
clearly laid down, it could not be said that Adani was aware of its legal
rights so as to preclude its claims for the disputed areas.
114. The doctrine of approbate and reprobate is based on the
principle of estoppel. Paraphrased, it implies that one cannot challenge a
decision, from which an advantage is enjoyed. As was tersely stated in
another context, an order “cannot be partly good and partly bad like
the curate’s egg” 50. In Suzuki Parasrampuria Suitings (P) Ltd.
vOfficial Liquidator 51 this Court described the principle as one which
does not permit a litigant to “take contradictory stands in the same
case. A party cannot be permitted to approbate and rep robate on
the same facts and take inconsistent shifting stands.” In Amar Singh
vUnion of India 52this Court said held that
“50. This Court wants to make it clear that an action at law is
not a game of chess. A litigant who comes to court and invokes
its writ jurisdiction must come with clean hands. He cannot
prevaricate and take inconsistent positions.”
In Joint Action Committee of Air Line Pilots’ Assn. of
India v. DG of Civil Aviation 53 it was observed that
‘‘12. The doctrine of election is based on the rule of estoppel
—the principle that one cannot approbate and reprob ate
50 Union of India v Shakuntala Gupta, (2002) 10 SCC 694.
51 (2018) 10 SCC 707.
52 (2011) 7 SCC 69.
53 (2011) 5 SCC 435.
1231
inheres in it. The doctrine of estoppel by election is one of the
species of estoppels in pais (or equitable estoppel), w hich is
a rule in equity. … Taking inconsistent pleas by a par ty makes
its conduct far from satisfactory. Further, the parti es should
not blow hot and cold by taking inconsistent stands and
prolong proceedings unnecessarily.”
115. These decisions, applying the principle of “approbate and
reprobate” precluding a party, which derives advantage from an order
or statutory instrument, or even a contract, from assailing a part of it,
later, have been applied in other judgments of this court, as w ell.54 In
MBP v LGK55, the Queen’s Bench Division (Technology and Construction
Court), held that:
“53. Codrington v Codrington 1875 LR 7 HL at 866, L ord
Chelmsford referred to the doctrine in these terms:
“He who accepts a benefit under an instrument must ad opt
the whole of it, confirming to all its provisions and reno uncing
every right inconsistent with it.
…….. ……
56. More recently, the doctrine has been expressed more
generally and in broader terms. Notably, in Express
Newspapers Plc v News (UK) Ltd & others [1990] 1 WL R
1320, a breach of copyright case concerned with mut ual
copying of news stories, the Court held that the cl aimant’s
resistance to judgment on the counterclaim was whol ly
inconsistent with its own claim and that on the basis of the
doctrine of approbation and reprobation the claiman t was
not permitted to put forward two inconsistent cases . When
giving judgment, Sir Nicolas Browne-Wilkinson VC pu t the
doctrine in these terms:
“The fact is that if the defences now being put forward by the
defendants in relation to the “Daily Star” article a re good
defences to the Ogilvy case, they were and are equally g ood
54 Union of India v. Assn. of Unified Telecom Service Providers of India, (2020) 3 SCC
525; Jal Mahal Resorts (P) Ltd. v. K.P. Sharma (2014) 8 SCC 866.
55 [2020] EWHC 90 (TCC).
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
defences to the claim by the “Daily Express” against “Toda y”
newspaper relating to the Bordes claim. I think tha t what
Mr. Montgomery describes as what is sauce for the goose is
sauce for the gander has a rather narrower legal
manifestation. There is a principle of law of gener al
application that it is not possible to approbate and reprobate.
That means you are not allowed to blow hot and cold in the
attitude that you adopt. A man cannot adopt two inconsistent
attitudes towards another: he must elect between them a nd,
having elected to adopt one stance, cannot thereaft er be
permitted to go back and adopt an inconsistent stance.
To apply that general doctrine to the present case is, I acce pt,
a novel extension. But, in my judgment, the principle is one
of general application and if, as I think, justice so requires,
there is no reason why it should not be applied in the pre sent
case.”
57. Both parties also referred me to a number of ca ses in
which the doctrine has been raised in the context o f
adjudication. In particular, I was referred to PT B uilding
Services Ltd v ROK Build Ltd 2008 EWHC 3434 (TCC), Twintec
Ltd v Volkerfitzpatrick Ltd 2014 EWHC 10 (TCC), Rob Purton
t/a Richwood Interiors v Kilker Projects Ltd 2015 EWHC 2624
(TCC), RMP Construction Services Ltd v Chalcroft Ltd 2 015
EWHC 3737 (TCC) , and Skymist Holdings Ltd v Grandl ane
Developments Ltd [2018] EHC 3504 (TCC). Save in relation
to the PT Building Services case to which I refer further below,
I have not found these decisions particularly pertinent. That
is because they are concerned with challenges to an
adjudicator’s jurisdiction on enforcement based, for instance,
on whether the underlying construction contract was mis-
described by the referring party or on whether the contractual
provision relied upon to make the referral existed at all. T his
is not such a case.
58. All the same, certain principles arise from the c ase law
taken as a whole:
i) The first is that the approbating party must have e lected,
that is made his choice, clearly and unequivocally;
1233
ii) The second is that it is usual but not necessar y for the
electing party to have taken a benefit from his electi on such
as where he has taken a benefit under an instrument such as
a will;
iii) Thirdly, the electing party’s subsequent conduc t must be
inconsistent with his earlier election or approbation .
In essence, the doctrine is about preventing incons istent
conduct and ensuring a just outcome.”
116. In this case, Adani applied for authorization, after being asked
by the PNGRB, to do so, in 2008. Its application was not decided by the
Board; in the meanwhile, on 12.07.2010, Section 16 came into force. On
18.10.2013, the PNGRB granted authorization to Adani’s CGD network
in Ahmedabad city and Dascroi area, excluding 18 CNG stations of
HPCL, subject to certain conditions. The disputed area was ex cluded
from this provisional authorization. Adani was asked to furnis h the
performance bond. By its letter dated 28.10.2013, Ad ani wrote to
PNGRB, underlining its position that the excluded areas were under its
operation, and stating that “In view of the above facts, we are
constrained to accept the Terms and Conditions of auth orization”.
Adani accepted the grant of authorization and furnished its performance
bond, by letter dated 31.10.2013. PNGRB replied to Adani’s letter on
28.11.2013 and stated that its position stood clarified by its previous letter
(intimating authorization) of 18.10.2013. Adani furnished its performance
bond, on 31.10.2013, after which PNGRB issued the authorization on
28.11.2013. After receiving the authorization, Adan i accepted it
expressing its protest by letter dated 09.12.2013. Though Adani argues,
that acceptance of this authorization was under protest, the material on
record shows that this protest was registered, in terms:
(a) After Adani furnished its performance bond, despite knowledge
that the disputed areas were excluded; and
(b) At the time of acceptance of authorization.
117. By furnishing the performance bond, and accepting t he
authorization, Adani acted on the authorization. On 01.10.2015, the Board
invited bids for development of CGD networks in those disputed
(excluded) areas in Ahmedabad. Adani submitted its application-cum-
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
bid documents in respect of these areas. The auction was conduc ted;
after Adani realized that it was unsuccessful, it articulated its grievance
for exclusion of disputed areas from the authorization granted and
approached the High Court, preferring a petition under Article 226 of
the Constitution, Adani sought several reliefs; the main relief claimed
was the quashing of the grant of authorization to Gujarat Gas, questioning
the exclusion of the disputed areas by the earlier authoriza tion dated
28.11.2013, and challenging the vires of Regulation 18. It is a matter of
record that PNGRB granted authorization to Adani on 04.12.2012 in
respect of the Khurja area, in UP. Given these back ground
circumstances, its argument about lack of knowledge with respect to its
rights, is indefensible. Adani accepted and acted on the authorization, by
furnishing the performance bond, after which it registered its protest (in
respect of excluded areas) with the PNGRB. Even then, it proceeded to
act upon the authorization.
118. In view of the factual discussion, about the background leading
to the grant of authorization to Adani, and its acc eptance of that
authorization, furnishing of performance bond, and proceeding to act
upon it, even participating in the auction for the excluded areas
there can be no manner of doubt that it acquiesced to the action of the
PNGRB, and after having unsuccessfully entered its bid, s ought to
challenge the authorization. Clearly, this conduct amounts to approbating
and reprobating. Adani’s arguments about its lack of knowledge about
its true rights, in the opinion of this Court, cannot be countenanced, because
it knew and conformed to the procedure under the PN GRB Act,
specifically, the requirements of the regulations, and Regulation 18, when
it applied and obtained authorization in other areas in the country.
119. During the course of the hearing, Adani had made a two-fold
factual argument. One, that PNGRB’s order rejecting its application for
authorization was unreasoned and that it became aware of the reasons
only in 2016, when the Board filed its counter affidavit in the High Court.
Two, that the reasons do not stand up to judicial scrutiny inasmu ch as
factually Adani fulfilled the criteria spelt out in Regulation 18 inasmuch
as it had completed 25% of works in relation to the pipelines which it
had been awarded.
1235
120. So far as the first contention goes, there can be no doubt that
an administrative authority is expected to record its rea sons for any
decision that it takes. In Union of India v. E.G. Namboodiri 56, this
Court observed in the context of the obligation of eve ry statutory
administrative authority or the executive governmen t that such
authority had “no license to act arbitrarily.” This Court further held
that:
“No order of an administrative authority communicating it s
decision is rendered illegal on the ground of absen ce of
reasons ex facie and it is not open to the Court to in terfere
with such orders merely on the ground of absence of reasons.
However, it does not mean that the administrative authority i s
at liberty to pass orders without there being any reasons for
the same. In governmental functioning, before any o rder is
issued, the matter is considered at various levels and the
reasons and opinion are contained in the comments o n the
file. The reasons contained in the file enable the co mpetent
authority to formulate its opinion. If the order as
communicated to the government servant rejecting th e
representation is not contained in the reasons, the order
cannot be held to be bad in law. If such an order is challenged
in Court of law, it is not always open to the competent authority
to place the reasons before the Court which may have led t o
the rejection of the representation. It is always o pen to an
administrative authority to produce evidence aliunde before
the Court to justify its action.”
121. In the present case, the PNGRB has placed on record its
reasons by way of an affidavit. There is nothing to indicate that prior to
approaching the Court, Adani had sought the reasons for rejection of its
authorization; all evidence points to the fact that after its initial protest, it
did not represent further and the authorization granted to it, appears to
have been acted upon. It even proceeded to accept the sequitur to the
authorisation, i.e., PNGRB’s jurisdiction to auction the disputed area by
participating in it. In these circumstances, in the absence of any evidence
disclosing that Adani had sought for reasons or even made any attempt
to secure them through the RTI Act, its belated complaint that PNGRB’s
56 (1991) 3 SCC 38.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
order rejecting the application for authorization is illegal for the reason
that it is unreasoned, cannot be countenanced. PNGRB disclosed its
reasons for the decision, before the High Court. Therefore, this argument
is rejected as insubstantial.
122. On the second aspect, i.e., that Adani fulfilled the stipulations
of 25% development of the areas, there is a serious dispute inasmuch as
the PNGRB has argued that the application for authorization d id not
contain any map which included the disputed area. This is a f actual
aspect. Adani countered this by stating that the boundaries of Ahmedabad
area which was subjected to initial authorization granted by the State
which was held to be untenable [in view of the Constitutio n Bench
decision Special Reference (supra) ], included those areas. In the
circumstances, this Court cannot proceed on the assumption that the
disputed area was in fact included in the Adani’s claim when it applied
for authorization to the PNGRB. Adani has argued that it was granted
authorization for the entire Ahmedabad District, including the said are
as under the policy of the State Government, which could not have been
curtailed by relying on a power under the CGD Authorizing Regulations.
It was further stated that the fact that the disputed areas were put up for
auction on 1.10.2015 with a larger area, showed that the areas were not
economically viable on a “standalone” basis, and, consequently the basis
for exclusion of the disputed areas from Adani’s authorized are a was
unfounded. Adani disputed PNGRB’s report dated 18.2.2011 and urged
that on the date of inspection, it had an operational network, and it had
augmented its network in the said areas of Ahmedabad by undertaking
urgent capital works pursuant to PNGRB’s permission dated 11.6.2009.
The authorization was also impeached on the ground that for evaluating
actual physical progress and the financial commitment under Regulation
18, presence as on the appointed day was required to be see n in the
entire Ahmedabad District, and not apart thereof by curtailing the ambit
of Section16. It was submitted that PNGRB failed to apprec iate that
while undertaking development work of any CGD network, including in
the Ahmedabad District, initiation of development works be gan in a
linear manner, generally where city gas station was first established for
inlet gas, which then extended to whole of the area. Under c urrent
PNGRB norms, an authorized entity was given at least 8 years to develop
charge areas. Adani submitted that consequently, PNGRB wrong fully
1237
carved out areas out of the Ahmedabad District and tested eac h such
area as per Regulation 18, which was not permissible.
123. PNGRB submitted that the state NOC only spoke o f
Ahmedabad Zone; in Adani’s application to Board (fo r grant of
authorization), there was no mention of the disputed areas, i.e., Sanand,
Dholka and Bavla, and the NOC only spoke of Ahmedabad city. It was
urged that clause (j) (iii) of application provided for submission of a map
depicting the area proposed to be covered and upon examination, the
PNGRB found that the area of distribution network disclosed in the map
other than Ahmedabad area, was the area of Chadkhera and Moter a.
Correspondingly, the DFR submitted by Adani in terms of Clause (j) (iii)
of the application also did not cover the area of Sanand, Bavla and Dholka.
Thus, the application submitted under Regulation 18 for grant of
authorization did not cover, the annexed map or the DFR, the are a of
Sanand, Bavla and Dholka. It was also urged that Adani admitted to this
fact in its representation dated 16.05.2012under the caption ‘authorization’
detailed the infrastructure set up. This made no reference t o Sanand,
Bavla and Dholka. It was stated that the DFR was a constit utional
document of a project. And the absence of these areas from DFR,
submitted on 09.05.2008 (application date), showed that as on appointed
day, Adani had not even conceived a project for laying distribution network
in Sanand, Bavla and Dholka, and had thus not applied for an authorization
for these areas.
124. PNGRB urged that the record showed that no distribution
network was under construction in these areas as on the appointed date,
and relied on minutes of hearing dated 27.08.2010; on site verification
report dated 18.02.2011; asset block statement filed by Adani which
showed that as on 01.10.2007 (appointed date) no construction work
was in progress in any of the three disputed areas and C WIP for all
three areas ended only on 31.03.2019.
125. The discussion in the preceding paragraphs would reveal
that there is a serious dispute about the extent of developme nt which
Adani had undertaken, as on the appointed day. Adani’s reliance on the
extent of areas it was given by State authorization, an d whether the
excluded areas, were part of it, is not a matter which can be s ettled by
this Court. The PNGRB relies on the application form, filed by Adani,
when seeking authorization under the CGD Regulations, to say that the
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
disputed areas were not mentioned and were also not shown in the map.
This is a factual aspect. Furthermore, as to the e xact nature of
development, when the inspection took place in 2011, again, there is a
dispute. If one considers the fact that the enactment came into force in
2007, there were many ways in which Adani could have established the
exact areas it had developed as on the appointed date, such as the account
of expenditure it had maintained during the relevant years; the r aw
material procured, the personnel employed for that period, and the periodic
progress it had achieved. The materials it furnished toge ther with the
inspection report and minutes of meeting were considered by the PNGRB
when it granted authorization by excluding the disputed areas. Apart
from the fact that these disputes are not fit to be adjudi cated in writ
proceedings, this Court is also cognizant of the fact that had Adani wished
to agitate these issues, it could well have chosen the remedy of an appeal.
Its choice of not preferring an appeal, and approaching the Cou rt two
years after the grant of authorization is an important factor that impels
this Court to desist from embarking on a factual enquiry. It is relevant to
notice here, that appeals against decisions of the PNGRB are provided
under Section 33 of the Act before a tribunal57. The period of preferring
appeals is 30 days from the date of the decision of the PNGRB (Section
33(2) of the Act). Adani’s conscious choice to not exercise its option to
appeal against the PNGRB’s order, to the extent it excluded the disputed
areas, is a crucial factor for this Court to refrain from examining the
factual assertions made by it.
126. Before concluding, this Court would observe that although
the position in law was clarified by the five judge Constit ution Bench
ruling in Re Special Reference of 2001 as far back as in 2004, and
pursuant to the PNGRB Act, the appellant consciously applied for
authorization in 2008, later secured temporary authorization to complete
certain maintenance works, and was denied authorization in 2013, by
initiating the present litigation in 2015, it has in ef fect stalled the
authorization given to Gujarat Gas. Its challenge to Regulation 18 was
an instance of speculative litigation which has led to avoidab le delay
(and the consequential escalation of cost) of the development of the
network, in question.
57 The Appellate Tribunal established under Section 11 0 of the Electricity Act, 2003
(36 of 2003), by reason of Section 30 of the PNGRB Act.
1239
Conclusion
127. To sum up, the points of consideration raised are answered
as follows:
a. On the scope of the “deemed authorisation” clause under th e
proviso to Section 16 of the PNGRB Act, the decision in Adani
Gas (supra) is held to have laid down the law incorrectly, and is
hereby overruled.
b. It is held that the “deemed authorization” clause under proviso
to Section 16 is subject to other provisions of Chapter IV, including
Section 17 and, further, that only entities granted authorization by
the Central Government, fell in that category. As a sequitur, it is
held that entities which had received authorization from States,
had to seek authorization under the PNGRB Act, in terms of Section
17(2), and in compliance with the conditions spelt out under the
CGD Regulations.
c. The role of the State in granting NOC is only suppor tive or
collaborative, in terms of the Central Government’s policy, of 2006,
and cannot confer any advantage to any entity, which has to seek
and be granted specific authorization in terms of the PNGRB Act
on the merits of its application.
d. It is held that Regulation 18 is neither arbitrary, nor ultra vires.
The objective underlying Regulation 18, is compatible with th e
overall objectives of the PNGRB Act. Regulation 18 i s not
contraindicated by any specific provision of the Act. Further, as a
sectoral regulator, PNGRB is entrusted with the power to frame
appropriate regulations to ensure the objectives of the Act , and
thus the challenge to Regulation 18 cannot succeed.
e. It is also held that Adani’s claim is precluded by the principle of
approbate-reprobate, as it accepted authorization gra nted by
PNGRB (including exclusion of disputed areas), furnished the
performance bond and even participated in the auction for the
excluded areas, and only thereafter challenged authorization when
its bid was unsuccessful.
f.It is held, that exclusion of the disputed areas was justified in the
overall facts and circumstances.
ADANI GAS LIMITED v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
128. Having regard to the above findings and conclusions, the
appeals fail and are dismissed. In the circumstances, Ada ni shall bear
the costs quantified @ ` 10 lakhs, payable to the Union of India.
Ankit Gyan Appeals dismissed.