ADANI GAS LIMITED versus UNION OF INDIA & ORS. on 28 September 2021

[2021] 13 S.C.R.1146

SUPREME COURT REPORTS

[2021] 13 S.C.R.

ADANI GAS LIMITED

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v.

UNION OF INDIA & ORS.

(Civil Appeal No(s). 6008-09 of 2021)

BSEPTEMBER 28, 2021

[UDAY UMESH LALIT, S. RAVINDRA BHAT ANDHRISHIKESH ROY, JJ.]

Petroleum and Natural Gas Regulatory Board Act, 2006 – ss.2(d),11,16,17 and 61 – Petroleum and Natural Gas RegulatoryCBoard (Authorizing Entities to Lay, Build, Operate or Expand Cityor Local Natural Gas Distribution Networks) Regulations, 2008 –Regulation 4 and 18 – Laying and maintaining a gas distributionnetwork – Regulation of – PNGRB Act came into effect on 1.10.2007and mandated authorization by the Petroleum and Natural GasDRegulatory Board for the laying, building, operating or expandingany city or local natural gas distribution network (“CGD activities”and “CGD network”) – On 30.10.2007, the Board issued pressnote directing entities engaged in CGD activities with or withoutauthorization of the Central Government, to submit relevant details– After submission of details by appellant-AGL, Board restrainedEits activities and issued direction for obtaining authorization fromCentral government as per requirement of s. 17 – Board later ongranted provisional clearance to appellant to carry out capitalworks in the Ahmedabad area, including the disputed areas – Section16, relating to authorization, came into effect on 12.07.2010 – OnF04.02.2013 – Board granted provisional authorization to Appellant’sCGD network in Ahmedabad city, excluding disputed areas asappellant lacked authorization from central government – Appellantaccepted the grant of authorization on 09.12.2013 – On 1.10.2015,the Board invited bids for development of CGD networks in thosedisputed areas in Ahmedabad – Appellant submitted its application-Gcum-bid documents in respect of these areas – The bid wasunsuccessful – Feeling aggrieved by the exclusion of these areasfrom the authorization granted to it – Appellant approached theHigh Court – After the petition was unsuccessful before the HighCourt appellant approached Supreme Court and submitted that –H(i) It does not require authorization from central government, as by1146

Conclusion

virtue of s. 16 of the PNGRB Act, it was entitled to be treated as anentity with “deemed authorization” reliance was placed on the caseof AGL v. Union of India (2019) 3 SCC 641: – (ii) Regulation 18(which provides for the requirement of Board’s fresh authorizationto the entities that were carrying out CGD activities prior to thecoming into effect of PNGRB Act, who were not authorized by centralgovernment) gave arbitrary power to the Board in grantingauthorization and it is ultra-vires to the PNGRB Act – (iii) Exclusionof the disputed areas from authorization was unjustified – Held: (i)Deemed authorization clause under proviso to s. 16 is subjected toother provisions – s. 17 is one such provision, which provides thatonly entities which were previously authorized by central governmentcould claim deemed authorization – Appellant lacked suchauthorization, therefore cannot be treated as entity with deemedauthorization – Adani gas case was overruled as it did not interpretthe law correctly – (ii) All criteria provided under regulation 18have to be considered, having regard to their inter-linkages –Therefore, the question of picking and choosing one criterion, andignoring others does not arise and moreover it dependent on theindividual facts of the case – This per se does not render the powerarbitrary – Remedy of judicial review is always available in case ofarbitrariness – Further observed, objective for framing Regulation18, is compatible to the overall objectives of the PNGRB Act –Regulation 18 is not contraindicated by any specific provision ofthe Act – The various factors mentioned in it, provide an objectivebasis for the Board to consider the proper method of grantingauthorization – Further, as the sectoral regulator, PNGRB isentrusted with the power to frame appropriate regulations to ensurethe objectives of the Act, therefore, it is not ultra-vires to Act – (iii)Appellant’s claim is precluded by the principle of approbate-reprobate, as it accepted authorization granted by PNGRB(including exclusion of disputed areas), furnished the performancebond and even participated in the auction for the excluded areas,and only thereafter challenged authorization when its bid wasunsuccessful.

Dismissing the appeals, the Court

HELD: 1. The following points arose for consideration bythis Court:

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A(i) The scope of the “deemed authorisation” clause underthe proviso to Section 16 of the PNGRB Act;

(ii) Validity of Regulation 18; and

(iii) Whether the exclusion of the disputed areas from theauthorisation granted to Adani was justified. [Para 54][1187-G-BH; 1188-A]

The scope of the “deemed authorisation” clause under theproviso to Section 16 of the PNGRB Act

2. Parliament did not enact the PNGRB Act on a blank slate,Cas it were. In the Presidential Reference (Special reference case)under Article 143 elicited the Court’s opinion in the backgroundof assertions by some States that they had the legislativecompetence to deal with natural gas. This Court’s unanimousjudgment was categorical, in that it upheld the primacy ofParliament under Entry 53 List I of the Seventh Schedule of theDConstitution of India. Importantly, this Court also recollectedenactments (including the pre-constitution Petroleum Act of1934) that dealt with petroleum, natural gas, mineral oils etc. andsought to regulate various facets and aspects thereof and relatedproducts and their regulations. Given this background, theEParliament felt the compelling need to enact a comprehensivelegislation that would regulate salient aspects of all activitiespertaining to petroleum products and mineral oils. The PNGRBAct was thus enacted. As noticed earlier, it regulates all activitiesafter extraction of petroleum, natural gas and other petroleumproducts starting with refining and going right up to distributionFto the ultimate consumer. When Parliament enacted the Act, itwas confronted with a factual situation where several entities hadbegun various activities towards laying pipelines and setting upnetworks in relation to natural gas. If one read the proviso toSection 16 in isolation, the inference undoubtedly would be thatGevery entity which had started laying and building pipelines andnetworks was the recipient of the deemed authorization clause-or in the words of appellant, that provision sought toretrospectively regularize activities by all entities. However, sucha plain and facial construction is unacceptable given that in thesame provision (i.e., proviso to Section 16) the deemedH

authorization is immediately followed by phrase “subject toprovisions of this chapter”. Proviso ordinarily carves out a fieldof operation, but does not travel beyond the main enactedprovision. Therefore, the golden rule of interpretation is to readthe whole section, inclusive of the proviso, in such a manner thatthey mutually throw light on each other and result in a harmoniousconstruction. [Paras 66, 67][1198-B-G]

3. The enacting part of Section 16 thus prohibits anyone orany entity from starting or carrying on any activity covered bythe PNGRB Act and requires authorisation from it. The provisothen is meant 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 whenthe Act came into force”. The proviso, unlike the main part ofSection 16, was not intended to grant authorisation to entitieswhich had not started any activity thus far. Such entities had tonow apply for authorisation. In any case, by the combined operationof Sections 16 and 17, the proviso to Section 16 is not unqualified- the “deemed authorisation” clause is subject to other provisionsof Chapter IV. Section 17 is one such provision under ChapterIV. This provision brings home clearly that only CentralGovernment authorised entities were deemed to have beenauthorised. The omission of any reference to authorisation inSection 16 is significant because the qualifier for application ofthe proviso is that it was subject to other provisions of the chapter.The scheme of Section 17 intrinsically classifies the two, i.e.Central Government authorised entities, and others. Theunderlying basis for this statutory classification is that only entitieswhich had been cleared or authorised by the Central Governmentprior to the coming into force of the Act were deemed to haveauthorization under the Act, and therefore, had to furnish certaindetails. As with regard to the others, i.e., entities not authorisedby the Central Government, fresh applications were necessary[Section 17(1) and Section 17(2)] which were to be assessed bythe Board on a case-by-case basis and in accordance with uniformstandards. Therefore, if one reads the proviso to Section 16 withthe proviso to Sections 17(1) and Section 17(2) the former (i.e.,proviso to Section 16) only states that entities that had been AB

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Apreviously authorized by the Central Government could claimdeemed authorization. The rationale for this is that the provisosto Section 17(1) and 17(2) merely require such entities (as wereauthorized by the Central Government prior to coming into forceof PNGRB Act) to intimate certain details to the PNGRB but donot require any fresh authorization. This distinction i.e., betweenBauthorization and intimation is crucial because it states thatentities which received Central Government authorization beforethe commencement of the Act, and which had started to lay, buildor operate CGD networks were deemed to be authorized underthe PNGRB Act. [Para 75, 78][1204-E-H]

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4. This Court was of the opinion that the previous ruling inAdani Gas case did not correctly interpret the law. It did notdiscuss whether the “deemed authorisation” (in the proviso toSection 16) was qualified or unqualified. The previous ruling inAdani Gas case also did not notice the important condition thatDthe deemed authorization clause applied subject to otherprovisions of Chapter IV, including Section 17; and lastly itoverlooked the decisive ruling of a five judge bench in SpecialReference case. Accordingly, the interpretation of Section 16 andthe deemed authorization clause in its proviso, in Adani Gas isheld to be incorrect. The judgment in Adani Gas is thereforeEoverruled. [Para 85][1210-F-H]

Validity of Regulation 18

Validity of Regulation 18

5. Regulation 18 pertains to entities that were carrying outCGD activities prior to the coming into effect of the PNGRB Act,Fbut were not authorized by the Central Government. Such entitiesdo not enjoy “deemed authorization” under the Act; they arerequired to apply for fresh authorization under the provisions ofRegulation 18. The PNGRB Act and Regulations, thus createthree categories of entities for the different ways in whichauthorization can be obtained: (1) Entities authorized by theGCentral Government prior to the appointed day, are deemed tobe authorized, and are merely required to submit certaininformation in the relevant forms; (2) Entities that were carryingout CGD activities, but were not authorized by the CentralGovernment, are required to apply for fresh authorization underH

Regulation 18; (3) Entities that seek to set up CGD activitiesafter the appointed day, i.e., all entities seeking to set upoperations afresh, after the PNGRB Act came into effect, wouldbe required to either submit an expression of interest, followedby participation in the bidding process, or participate in the suo-motu invitation of bids by the PNGRB. Regulation 18 is part ofthe CGD Regulations framed under Section 61 of the PNGRBAct. This regulation, on a plain reading, applies to entities notauthorised by the Central Government for laying, building,operating or expanding pipelines beyond the appointed date.Regulation 18(1) requires such entities (who did not possessCentral Government authorisation as on the appointed date) toapply immediately for obtaining authorisation in the formatprescribed in Schedule I to the CGD Regulations. Regulation18(2) then prescribes that the PNGRB “may” take intoconsideration the criteria or conditions spelt out in clauses (a) to(j). In the present case, having regard to the contextual settingof Regulation 18, the expression “may take into consideration”cannot be placed in the straightjacket of either a mandate or adirectory rule. There are numerous decisions which hold that“may” could mean “shall” and vice versa; much depends uponthe context and object of the provision as well as its statutorysetting. [Paras 89, 90, 91, 98][1211-H; 1212-A; 1212-B-F; 1218-F]

6. In the present case, Regulation 18(3) specifically statesthat “evaluation of the application in terms of the Clauses (a) to(j) shall be done in totality considering the composite nature andinter-linkages of the criteria.” This, coupled with the listing of“any other criteria considered as relevant by the Board based onthe examination of the application.” (Regulation 18 (2) (j)), in theopinion of this Court, brings more precision to the task ofevaluation of applications (preferred by entities which did notpossess Central authorization when the Act came into force) bythe PNGRB. All these mean that the PNGRB is to be guided bythe composite of factors enumerated in Regulation 18(2) whileevaluating applications for authorization; how important one factoris, and the appropriate weightage to be given to it, depends, asrequired by Regulation 18(3) on the “totality” of all facts“considering the composite nature and inter-linkages of the AB

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Acriteria.” It is therefore, held that all clauses of Regulation 18(2)have to be considered, and wherever necessary, “any otherrelevant criteria” (Reg. 18 (2) (j)) which means factors relevantfor the purposes of the Act, having regard to its objects andpurposes. The PNGRB also has to consider the composite natureand inter-linkages of the criteria. [Para 99][1219-A-G]B

7. In regard to the validity of Regulation 18(2), theappellant’s argument is that the regulation is ultra vires, becausethere is no substantive provision giving guidance, leaving thepower to reject applications at the whims of the PNGRB, whichcan pick and choose any or some criterion and ignore the rest.CAs far as the latter aspect goes, this Court has held above, thatall criteria have to be considered, having regard to their inter-linkages. Therefore, the question of picking and choosing onecriterion, and ignoring others does not arise. Much would dependon the individual facts of the case, the weight given to one or aDset of criteria. This per se does not render the power (underRegulation 18 (2)) arbitrary. In the particular facts of any case, itis open to an aggrieved applicant to show the exercise of poweris arbitrary, and seek judicial review. [Para 100][1219-G-H; 1220-A-B]

E8. Sections 11 and 61 of the PNGRB Act contain regulationmaking powers. Under Section 11(c)(ii) the Board has power toauthorize entities to “lay, build, operate or expand city or localnatural gas distribution networks”. By Section 11(e)(iii) PNGRBis empowered to frame regulations to “access to city or localnatural gas distribution network so as to ensure fair trade andFcompetition amongst entities as per pipeline access code”. BySection 11(f)(iv) it is enjoined to ensure “equitable distributionof petroleum and petroleum products”. All these regulatorypowers, coupled with the general power under Section 61(1) toframe regulations are, in the opinion of this court, sufficientlyGwide to clothe PNGRB with the power to frame Regulation 18.Furthermore, Regulation 18 is to be considered as applicable toa specific class of entities- by their nature, dwindling in numbers,i.e., entities which had not secured Central Governmentauthorization or approval before the PNGRB Act came into force.

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The regulation is meant to guide the Board to deal withapplications of such categories of entities, which fall under provisoto Section 16 read with Section 17 (2), and apply uniform standards.These considerations further the objectives of the whole ofPNGRB Act as well as enable the PNGRB to objectively performits task, while deciding applications, exercising its powers underSection 17 (4). [Para 105][1224-F-H; 1225-B-D]

9. This Court was of the opinion that as the sectoralregulator, PNGRB is entrusted with the power to frameappropriate regulations to ensure the objectives of the Act, andalso bring about fairness in the marketplace. It has sought toachieve that, through Regulation 18. It was is held that thechallenge to Regulation 18 cannot succeed; Adani’s argumentson this aspect were accordingly rejected. [Para 112][1229-G-H]

Whether the exclusion of the disputed areas from theauthorisation granted to Adani was justified

10. The grant of authorization to Adani, and its acceptanceof that authorization, furnishing of performance bond, andproceeding to act upon it, even participating in the auction forthe excluded areas there can be no manner of doubt that itacquiesced to the action of the PNGRB, and after havingunsuccessfully entered its bid, sought to challenge theauthorization. Clearly, this conduct amounts to approbating andreprobating. Adani’s arguments about its lack of knowledge aboutits true rights, in the opinion of this Court, cannot be countenanced,because it knew and conformed to the procedure under thePNGRB Act, specifically, the requirements of the regulations,and Regulation 18, when it applied and obtained authorization inother areas in the country. [Para 118][1234-D-F]

11. To sum up, the points of consideration raised byappellant were answered as follows:

a. On the scope of the “deemed authorisation” clause underthe proviso to Section 16 of the PNGRB Act, the decision in AdaniGas case was held to have laid down the law incorrectly, and ishereby overruled.

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Ab. It was held that the “deemed authorization” clause underproviso to Section 16 is subject to other provisions of ChapterIV, including Section 17 and, further, that only entities grantedauthorization by the Central Government, fell in that category.As a sequitur, it is held that entities which had receivedauthorization from States, had to seek authorization under theBPNGRB Act, in terms of Section 17(2), and in compliance withthe conditions spelt out under the CGD Regulations.

c. The role of the State in granting NOC is only supportiveor collaborative, in terms of the Central Government’s policy, of2006, and cannot confer any advantage to any entity, which has toCseek and be granted specific authorization in terms of the PNGRB

Act on the merits of its application.

d. It was held that Regulation 18 is neither arbitrary, norultra vires. The objective underlying Regulation 18, is compatiblewith the overall objectives of the PNGRB Act. Regulation 18 isDnot contraindicated by any specific provision of the Act. Further,as a sectoral regulator, PNGRB is entrusted with the power toframe appropriate regulations to ensure the objectives of the Act,and thus the challenge to Regulation 18 cannot succeed.

e. It was also held that Adani’s claim is precluded by theEprinciple of approbate-reprobate, as it accepted authorizationgranted by PNGRB (including exclusion of disputed areas),furnished the performance bond and even participated in theauction for the excluded areas, and only thereafter challengedauthorization when its bid was unsuccessful. It was held, thatFexclusion of the disputed areas was justified in the overall factsand circumstances. [Para 127][1239-A-H]

Adani Gas Ltd. v. Union of India (2019) 3 SCC 641 :2019 (2) SCALE 213- overruled.

Voice of India v. Union of India W.P.(C) 8415/2009,Gdecided on 20.01.2010, Pallavi Resources Ltd. v.Protos Engineering Company Pvt. Ltd. (2010) 5 SCC196 : [2010] 3 SCR 847, Association of Natural Gas &Ors v. Union of India (2004) 4 SCC 489; Global EnergyLtd v. Central Electricity Regulatory Commission (2009)15 SCC 570 : [2009] 9 SCR 22; Petroleum & NaturalH

Gas Regulatory Board v. Indraprastha Gas Limited &Ors. (2015) 9 SCC 209 : [2015] 7 SCR 215; KunjBehari Lal Butail v. State of Himachal Pradesh (2000)3 SCC 40 : [2000] 1 SCR 1054; Mohinder Singh Gill& Anr. v. The Chief Election Commissioner, Delhi & Ors.(1978) 1 SCC 405 : [1978] 2 SCR 272; Moti LalPadampat Sugar Mills v. State of U.P (1979) 2 SCC409 : [1979] 2 SCR 641; Petroleum and Natural GasRegulatory Board v. Indraprastha Gas (2015) 9 SCC209 : [2015] 7 SCR 215; Shyam Telelink Ltd. v. Unionof India (2010) 10 SCC 138; M/s Tafcon Projects [I](P) Ltd. v. Union of India & Ors. (2004) 13 SCC 788;K. S. Dharmadatam v. Central Government & Ors;(1979) 4 SCC 294; N.K. Sharma v. Abhimanyu (2005)13 SCC 213 : [2005] 4 Suppl. SCR 207; State ofMaharashtra v. Lalji Rajshi Shah & Ors. (2000) 2 SCC699 : [2000] 1 SCR 1239; Petroleum & Natural GasRegulatory Board v. Indraprastha Gas Ltd. (2015) 9SCC 209 : [2015] 7 SCR 215; Keshavlal Khemchand& Sons (P) Ltd. v. Union of India (2015) 4 SCC 770 :[2015] 2 SCR 51; Bharat Sanchar Nigam Ltd v. TelecomRegulatory Authority of India (2014) 3 SCC 222 :[2013] 12 SCR 999; Prakash Gupta v. Securities andExchange Board of India (2021) SCC OnLine SC 485;M. C. Mehta v. Union of India WP(C) 13029/1985, Voiceof India v. Union of India W.P.(C) 8415/2009, decidedon 20.01.2010 – referred to.

In re Special Reference No. 1 of 2001 (2004) 4 SCC489 : [2004] 3 SCR 534; Dwarka Prasad v. DwarkaDas Sara (1976) 1 SCC 128 : [1976] 1 SCR 277; S.Sundaram Pillai & Ors. v. V. Pattabiraman & Ors. (1985)1 SCC 591 : [1985] 2 SCR 643 : [1979] 3 SCR 472;M. Pentiah v. Muddala Veeramallappa & Ors. (1961) 2SCR 295; Superintendent and Legal Remembrancer ofLegal Affairs to Govt. of West Bengal v. Abani Maity(1979) 4 SCC 85 : [1979] 3 SCR 472; K.R.C.S.Balakrishna Chetty v. State of Madras [1961] 2 SCR736; Ashok Leyland Ltd. v. State of Tamil Nadu (2004)

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1156SUPREME COURT REPORTS

[2021] 13 S.C.R.

A3 SCC 1 : [2004] 1 SCR 306; Sri Sitaram SugarCompany Limited v. Union of India (1990) 3 SCC 223: [1990] 1 SCR 909; Collector of Customs v. NathellaSampathu Chett [1962] 3 SCR 786; State of Tamil Nadu& Anr. v. P. Krishnamurthy & Ors. (2006) 4 SCC 517 :[2006] 3 SCR 396; PTC India Ltd. v. Central ElectricityBRegulatory Commission (2010) 4 SCC 603 : [2010] 3SCR 609; State of U.P v. Renusagar Power Co. (1988)4 SCC 59 : [1988] 1 Suppl. SCR 627; Global EnergyLtd. v. Central Electricity Regulatory Commission (2009)15 SCC 570 : [2009] 9 SCR 22; State of Karnataka v.CH. Ganesh Kamath (1983) 2 SCC 402 : [1983] 2 SCR665; St. Johns Teachers Training Institute v. NCTE(2003) 3 SCC 321 : [2003] 1 SCR 975; Tata PowerCo. Ltd. v. Reliance Energy Ltd. (2009) 16 SCC 659 :[2009] 9 SCR 625; Indramani Pyarelal Gupta v. W.R.Natu [1963] 1 SCR 721; Suzuki Parasrampuria SuitingsD(P) Ltd. v. Official Liquidator (2018) 10 SCC 707 :[2018] 12 SCR 906; Amar Singh v. Union of India (2011)7 SCC 69 : [2011] 6 SCR 403; Union of India v.Shakuntala Gupta (2002) 10 SCC 694; Union of Indiav. E.G. Namboodiri (1991) 3 SCC 38 : [1991] 2 SCRE451; Union of India v. Assn. of Unified Telecom ServiceProviders of India; (2020) 3 SCC 525 : [2019] 16 SCR672; Air Line Pilots’ Assn. of India v. DG of Civil Aviation(2011) 5 SCC 435 : [2011] 5 SCR 1019; Jal MahalResorts (P) Ltd. v. K.P. Sharma (2014) 8 SCC 866 –relied on.FCase Law Reference[2004] 3 SCR 534relied onPara 8[2010] 3 SCR 847referred toPara 18G[2009] 9 SCR 22referred toPara 23[2015] 7 SCR 215referred toPara 23[2000] 1 SCR 1054referred toPara 23[1978] 2 SCR 272referred toPara 25H[1979] 2 SCR 641referred to Para 31

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 6008-6009 of 2021.

G

From the Judgment and Order dated 28.09.2018 of the High Courtof Gujarat at Ahmedabad in Special Civil Application No. 9741 of 2016with Civil Application No. 1 of 2017.

1158SUPREME COURT REPORTS

AWith

Civil Appeal Nos. 6010 and 6011 of 2021.

Harish N. Salve, Dhruv Mehta, Sr. Advs., Ms. Ruby Singh Ahuja,Sandeep Singhi, Ms. Deepti Sarin, Ms. Swikriti Singhania, NavandeepMatta, Shamik Bhatt, M/s Karanjawala & Co., Piyush Joshi, SenthilBJagadeesan, Ms. Sumiti Yadava, Ms. Sonakshi Malhan, Utkarsh Sharma,Mohit Budhiraja, Ms. Pinki Mehra, Ms. Shipra Malhotra, Ms. KaveriVats, Saurabh Aggarwal, Deepayan Mandal, Anshuman Choudhary, E.C. Agrawala, Raj Bahadur Yadav, Ashish Kumar Tiwari, Ms. DivyaRoy, Ms. Madhumita Bhattacharjee, M/s Khaitan & Co., Advs. for theCappearing parties.

The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

1. Special leave granted. These appeals were heard with theDconsent of counsel appearing on behalf of the parties. The appeals aredirected against a judgment of the Gujarat High Court[1] rejecting certainwrit petitions.

2. In those proceedings, the main appellant (hereafter called“Adani”) challenged the validity of Regulation 18 of the Petroleum andNatural Gas Regulatory Board (Authorizing Entities to Lay, Build, OperateEor Expand City or Local Natural Gas Distribution Networks) Regulations,2008 (hereafter called the “CGD Regulations”) as violative of Articles14 and 19(1)(g) of the Constitution of India, and ultra vires Section 16of the Petroleum and Natural Gas Regulatory Board Act, 2006 (hereaftercalled the “PNGRB Act” or “the Act”). Adani had also challenged theFgrant of authorization to the third respondent (hereafter called “GujaratGas”) for laying and maintaining a gas distribution network. Gujarat Gashad succeeded in securing the authorization in an auction held by thePetroleum and Natural Gas Regulatory Board (hereafter called“PNGRB” or “the Board”).

GBackground

3. The PNGRB Act came into effect on 1.10.2007, and mandatedauthorization by the Board for the laying, building, operating or expandingany city or local natural gas distribution network (collectively, “CGD

H1 Dated 28.09.2018.

activities” and such a network, “CGD network”). On 30.10.2007, theBoard issued a press note directing entities engaged in CGD activitieswith or without authorization of the Central Government, to submitrelevant details. After receiving the petitioner’s details, the Board informedit that recognition and acceptance could be only of a specific and formalauthorization by the Central Government, in accordance with Section 17of the Act. Accordingly, Adani’s activities were restrained and a directionwas given to obtain authorization from the Central Government. TheBoard eventually granted Adani provisional clearance to carry out certaincapital works in the Ahmedabad area, including the disputed areas ofSanand, Bavla, and Dholka (hereafter called “disputed areas”). Adanialso submitted an indemnity in favour of the Board.

4. Section 16, relating to authorization, came into effect on12.07.2010. On 04.02.2013, the Board granted provisional authorizationto Adani’s CGD network in Ahmedabad city and Dascroi area, excluding18 CNG stations of Hindustan Petroleum Corporation Limited (hereaftercalled “HPCL”), subject to certain conditions. The disputed areas wereexcluded from this provisional authorization. Under protest, Adaniaccepted the grant of authorization on 09.12.2013, despite certain areasbeing excluded. On 1.10.2015, the Board invited bids for developmentof CGD networks in those disputed areas in Ahmedabad. Adani submittedits application-cum-bid documents in respect of these areas.

5. Feeling aggrieved by the exclusion of these areas from theauthorization granted to it, Adani approached the High Court, preferringa petition under Article 226 of the Constitution, seeking several reliefs.The principal relief claimed was the quashing of the grant of authorizationto Gujarat Gas, questioning the exclusion of the disputed areas by theearlier authorization dated 28.11.2013, and challenging the vires ofRegulation 18 framed by the Board under the PNGRB Act. Adani alsocontended that by virtue of Section 16 of the PNGRB Act, it was entitledto be treated as an entity with “deemed authorization”.

6. The PNGRB and Gujarat Gas, who were arrayed asrespondents before the High Court, contended that Adani’s petition wasliable to be dismissed on the ground of delays and laches, and availabilityof alternate remedies. They also contended that Adani was disentitled toclaim the reliefs it sought due to its conduct. On merits, PNGRBcontended that its letter dated 31.03.2008 to Adani sought necessarydetails. At that stage, Adani did not challenge the validity of Regulation AB

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A18 and on the contrary, sought authorization under that provision by aletter dated 09.07.2008 without protest. It was contended that althoughSection 16 of the PNGRB Act was brought into force in 2010, at thattime too, Adani did not challenge the validity of the impugned regulation.Furthermore, Adani applied for authorization under Section 17(2) of thePNGRB Act and Regulation 18 without any protest and participated inBthe hearings fixed by PNGRB. At that stage too, no objection was raisedwith regard to its entitlement as a “deemed authorized” entity, and Adanifurnished the required particulars to PNGRB. The respondents pointedout that on 04.02.2013, PNGRB issued a provisional authorization letteron certain terms and conditions in which the disputed areas wereCexcluded. At that stage too, Regulation 18 was not challenged; Adani, onthe other hand accepted the terms and conditions on 28.10.2013. Thepetition was therefore opposed on the grounds of estoppel, applicabilityof the principle of approbate-reprobate, as well as delay and on merits.

7. The High Court, after hearing the parties, by its judgment heldDthat Adani had applied for and was granted authorization with respect toKhurja area in Uttar Pradesh in 2012. That authorization was issuedunder Regulation 18. Adani accepted that authorization and neverprotested against it; it also accepted the terms and conditions of theletter issued by the PNGRB for Ahmedabad, which excluded the disputedareas. Thereafter, the performance bank guarantee was also submittedEby the Adani, and ultimately PNGRB issued the final authorization forAhmedabad city and Dascroi area, excluding the disputed areas. TheCourt noticed that the bid for the disputed area was issued on 01.10.2015and Adani participated in the bidding process, rather than challenging it.The petition was filed only after it was unsuccessful in the bid. The HighFCourt found that the challenge to Regulation 18 of the CGD Regulationstherefore, was only when it suited Adani’s convenience.8. The impugned judgment then noted that this court, in its judgmentreported 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 theGSeventh Schedule, the Parliament had exclusive legislative competence,and the Central Government, exclusive executive competence on thesubject of natural gas, and that State Governments did not have anyauthority to enact such a legislation or to grant any authorization in respectof the subject of natural gas. The High Court held that:

H2 (2004) 4 SCC 489.

H2 (2004) 4 SCC 489.

“The Parliament has, therefore, made provision with regardto ‘deemed authorization’ under Section 16 of the PNGRBAct subject to the provisions of Chapter IV which includesSection 17 of the PNGRB Act. If the provision contained inSection 17 of the PNGRB Act is seen, it provides for distinctionbetween the entities authorized by the Central Governmentand those not so authorized. Further, the entities authorizedby the Central Government have to furnish the particulars oftheir activities before the appointed day to therespondent Board, whereas, the other entities have to applyfor authorization under Section 17(2) of the PNGRB Act andRegulation 18 of Regulations of 2008. Thus, the Parliament,while enacting Section 17(2) of the PNGRB Act, had given achance to such entities to apply for authorization to respondentBoard in respect of the areas in which they were active beforethe appointed day. At this stage, it is also required to be notedthat the petitioner No.1 commenced the work of CGD networkin Ahmedabad District on the basis of the interim policy ofthe Government of Gujarat. The said policy itself providesthat as and when the Gas Act or any other relevant regulationis brought into force, the petitioner No.1 will have to meetwith the requirements of the Regulation. Further, the NOCgranted by the Government of Gujarat is also subject tosimilar condition. In fact, the Presidential Reference was withregard to the Gujarat Gas Act and ultimately the Hon’bleSupreme Court, in the case of Association of Natural Gas&Ors. (supra), struck down the constitutional validity ofGujarat Gas Act and held that with respect to natural gas,only the Central Government has legislative competence. Thus,from the date of coming into force of PNGRB Act i.e., on01.10.2007, only the Central Government is having legislativeand executive competence and therefore Parliament introduced‘deemed authorization’ in Section 16 of the PNGRB Act.Therefore, when the Parliament introduced the concept of‘deemed authorization’ in Section 16 of the PNGRB Act, itcould only be with respect to entities operating under anexecutive order/authorization from the Central Government.If section 16 of PNGRB Act is interpreted to mean “deemedauthorization” even to entities operating without such ABC

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executive order/authorization, such interpretation would runcontrary to the Presidential Reference answered by theHon’ble Supreme Court. As observed hereinabove, Section16 of the PNGRB Act is subject to the provisions of ChapterIV which includes Section 17.

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B12.1. If we consider the provisions contained in Sections 11,18, 19 and 61 of the PNGRB Act, it is clear that the respondentBoard has been empowered under the Act to either inviteapplications and or decide applications moved to it frominterested parties to lay, build, operate or expand suchpipelines or city or local gas distribution network and theCsaid applications have to be decided in transparent andobjective manner as provided in the regulations. The functionof the respondent Board is defined under Section 11(i) of thePNGRB Act. Further, Section 61 of the PNGRB Act empowersthe respondent Board to frame the regulations which areDconsistent with the PNGRB Act and the Rules madethereunder to carry out the provisions of the PNGRB Act. Theregulations of 2008 were therefore framed. Regulation 18(2)empowers the respondent Board to take into considerationvarious criteria while considering the application for grantof authorization to such entities and one of them is in respectEof the actual physical progress made and the financialcommitment specifying a physical progress at least twenty fivepercent and a financial commitment of at least twenty fivepercent of the capital expenditure identified for the CGDproject as per the DFR submitted immediately before theFappointed day, may be considered as adequate. If any entitywhich is already carrying out work before the appointed day,without the authorization of the Central Government, itbecomes incumbent upon the respondent Board to see thatthe quantity of the work and financial commitment is sufficientand therefore the condition as specified in Regulation 18(2)(d)Gcannot be said to be ultra vires to the provisions of PNGRBAct. In fact the impugned regulation is in furtherance of theobjects of the PNGRB Act.

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12.2. Thus, from the combined reading of Sections 16 and 17of the PNGRB Act and Regulation 18 of the Regulations of H

2008, it would be clear that other entities can also claimauthorization from the respondent Board provided they meetthe test of Regulation 18 of the Regulations of 2008. In fact,the aforesaid provisions provide a fair opportunity tounauthorized/other entities also to claim authorization withrespect to work already carried out before the appointed dayprovided the work was completed to a reasonable extent.”

In view of this reasoning, the High Court dismissed Adani’s writpetition.

Relevant Provisions of the PNGRB Act and Regulations

9. The PNGRB Act, with the exception of Section 16, came intoforce on 1.10.2007 (“appointed day”). Section 16 was, however, broughtinto force subsequently, on 12.07.2010. The enactment set up the PNGRBto regulate refining, processing, storage, transport, marketing, distributionand sale of petroleum, petroleum products and natural gas in all parts ofthe country, and to promote competitive markets. Section 1 (4) of theAct declares that it applies to “refining, processing, storage,transportation, distribution, marketing and sale of petroleum,petroleum products and natural gas excluding production of crudeoil 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 products ornatural 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 carrier orcontract carrier, or

(ii) to lay, build, operate or expand a city or local naturalgas distribution network;”

Section 2(i) of the Act defines a ‘city or local natural gasdistribution network’ as:

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A“(i)an interconnected network of gas pipelines and theassociated equipment used for transporting natural gas froma bulk supply high pressure transmission main to the mediumpressure distribution grid and subsequently to the service pipessupplying natural gas to domestic, industrial or commercialpremises and CNG stations situated in a specifiedBgeographical area.”

Section 2 (l) defines compressed natural gas as follows:

“(l) “compressed natural gas or CNG” means natural gasused as fuel for vehicles, typically compressed to the pressureCranging 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 andconsisting primarily of hydrocarbons and includes—

D(i) gas in liquid state, namely, liquefied natural gas andregasified liquefied natural gas,

(ii) compressed natural gas,

(iii) gas imported through transnational pipelines, includingCNG or liquefied natural gas,E

(iv) gas recovered from gas hydrates as natural gas

(v) methane obtained from coal seams, namely, coal bedmethane, but does not include helium occurring in associationwith such hydrocarbons;”

F10. Section 16 of the PNGRB Act requires authorization by theBoard for any entity that wishes to lay, build, operate or expand any cityor local natural gas distribution network. Section 17 deals withauthorization, and Section 18 deals with publicity of applications. Theprovisions read as follows:

G“16. Authorisation. – No entity shall –(a) lay, build, operate or expand any pipeline as a commoncarrier or contract carrier; (b) lay, build, operate or expand any city or local naturalgas distribution network, without obtaining authorizationHunder this Act:

Provided that an entity, -

(i) laying, building, operating or expanding any pipeline ascommon carrier or contract carrier’ or

(ii) laying, building, operating or expanding any city or localnatural gas distribution network, immediately before the appointed day shall be deemed to havesuch authorisation subject to the provisions of this Chapter,but any change in the purpose or usage shall require separateauthorization granted by the Board.

17. Application for authorisation.

(1) An entity which is laying, building, operating or expanding,or which proposes to lay, build, operate or expand, a pipelineas a common carrier or contract carrier shall apply in writingto the Board for obtaining an authorisation under this Act:

Provided that an entity laying, building, operating orexpanding any pipeline as common carrier or contract carrierauthorised by the Central Government at any time before theappointed day shall furnish the particulars of such activitiesto the Board within six months from the appointed day.

(2) An entity which is laying, building, operating or expanding,or which proposes to lay, build, operate or expand, a city orlocal natural gas distribution network shall apply in writingfor obtaining an authorisation under this Act:

Provided that an entity laying, building, operating orexpanding any city or local natural gas distribution networkauthorised by the Central Government at any time before theappointed day shall furnish the particulars of such activitiesto 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 shallbe accompanied with such fee as the Board may, byregulations, specify.

(4) Subject to the provisions of this Act and consistent withthe norms and policy guidelines laid down by the CentralGovernment, the Board may either reject or accept an A

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application made to it, subject to such amendments orconditions, if any, as it may think fit.

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(5) In the case of refusal or conditional acceptance of anapplication, the Board shall record in writing the grounds forsuch rejection or conditional acceptance, as the case maybe.

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18. Publicity of applications.—When an application forregistration for marketing notified petroleum, petroleumproducts and natural gas, or for establishing and operatinga liquefied natural gas terminal, or for establishing storagefacilities for petroleum, petroleum products or natural gasexceeding such capacity as may be specified by regulations,is accepted whether absolutely or subject to conditions orlimitations, the Board shall, as soon as may be, cause suchacceptance to be known to the public in such form and manneras may be provided by regulations.”

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11. Section 17(2) obliges entities to apply to the PNGRB forauthorization, and its proviso says that such entities which were authorizedby the Central Government at any time before the appointed day, shallfurnish the particulars of such activities to the Board within six monthsfrom the appointed day. Section 19 provides for the grant of authorizations,Eand reads as follows:

“19. Grant of authorization.

(1) When, either on the basis of an application forauthorisation for laying, building, operating or expanding acommon carrier or contract carrier or for laying, building,operating or expanding a city or local natural gas distributionnetwork is received or on suo motu basis, the Board forms anopinion that it is necessary or expedient to lay, build, operateor expand a common carrier or contract carrier between twospecified points, or to lay, build, operate or expand a city orlocal natural gas distribution network in a specifiedgeographic area, the Board may give wide publicity of itsintention to do so and may invite applications from interestedparties to lay, build, operate or expand such pipelines or cityor local natural gas distribution network.

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(2) The Board may select an entity in an objective andtransparent manner as specified by regulations for suchactivities.”

12. The CGD Regulations apply to any entity which is laying,building, operating or expanding, or which proposes to lay, build, operateor expand a CGD network. Regulation 2(c) defines an ‘authorized area’as:

“(c) “authorised area” means the specified geographical areafor a city or local natural gas distribution network (hereinafterreferred to as CGD network) authorized under theseregulations for laying, building, operating or expanding theCGD network which may comprise of the following categories,either individually or in any combination thereof, dependingupon the criteria of economic viability and contiguity as statedin Schedule A, namely:-

(i) geographic area, in its entirety or in part thereof, within amunicipal corporation or municipality, any other urban areanotified 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 areamentioned 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 gasdistribution network;”

Regulation 2(2) provides that:

“(2) Words and expressions used and not defined in theseregulations, but defined in the Act or in the rules or regulationsmade thereunder, shall have the meanings respectivelyassigned to them in the Act.”

13. Regulation 18 of the CGD Regulations pertains to entities notauthorized by the Central Government, and provides as follows:

“18. Entity not authorized by the Central Government forlaying, building, operating or expanding CGD network beforethe appointed day.

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(1) An entity laying, building, operating or expanding CGDnetwork at any time before the appointed day but not dulyauthorized to do so by the Central Government shall applyimmediately for obtaining an authorization in the form as atSchedule I.

(2) The Board may take into consideration the followingcriteria while considering the application for grant ofauthorization, namely: - (a) the entity meets the minimum eligibility criteria asspecified in clauses (a) to (e) and (i) of sub regulation (6)of regulation 5 before the appointed date and is possessingall necessary statutory clearances, permissions, noobjection certificates from the Central and StateGovernments and other statutory authorities; (b) an entity which is not registered under the CompaniesAct, 1956 at the time of submitting the application for grantof authorization shall undertake to become a companyregistered under the Companies Act, 1956:

Provided that the Board may exempt an entity to registerunder the Companies Act, 1956 on such conditions as itmay deem appropriate;

(c) a satisfactory assessment of the actual physical progressmade and the financial commitment thereof till immediatelybefore the appointed day in comparison with the entity’sDFR appraised by the financial institution funding theproject. In case the project has not been funded by anyfinancial institution, the Board may appraise the DFR. TheDFR of the entity should clearly indicate the specifiedgeographical area of the project and also specify thecoverage proposed for CNG and PNG. In case uponscrutiny of the DFR by the board by taking into accountthe geographical area, customer segments, infrastructurerequirements, etc. proposed by the entity, the DFR is foundto be sub-optimal and unacceptable, the Board may notconsider the case of the entity for issuing the authorization; (d) in respect of the actual physical progress made and thefinancial commitment thereof referred to in clause (c), a physical progress of at least twenty five percent and afinancial commitment of at least twenty five percent of thecapital expenditure identified for the CGD project as perthe DFR immediately before the appointed day may beconsidered as adequate; (e) the entity should have arranged, by way of acquisitionor lease, land for CGS and procured the necessaryequipment for erecting the CGS before the appointed day; (f) the Board reserves the right to get the actual physicalprogress and the financial commitment certified anddepending upon the progress achieved, the Board mayconsider authorizing the entity for the authorized area –

i) as per the geographical area in its DFR;

ii) as per the geographical area actually covered underimplementation till the appointed day; or

ii) the geographical area as specified by the Board; (g) in relation to laying, building, operating or expandingthe CGD network, it is for the entity to satisfy the Boardon the adequacy of its ability to meet the applicabletechnical standards, specifications and safety standardsas specified in the relevant regulations for technicalstandards and specifications, including safety standardsand the quality-of-service standards as specified inregulation 15;

(h) assessment of the financial position of the entity in timelyand adequately meeting the financial commitments indeveloping the CGD network project as appraised by afinancial institution and an examination of the auditedbooks of accounts of the entity;

(i) firm arrangement for supply of natural gas to meet thedemand in the authorized area to be covered by the CGDnetwork; (j) any other criteria considered as relevant by the Boardbased on the examination of the application.

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(3) The evaluation of the application in terms of the clauses(a) to (j) shall be done in totality considering the compositenature and the inter-linkages of the criteria.

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(4) The Board, after examining the application in terms of thecriteria under sub-regulation (2) and also taking into accountBthe requirements in other regulations, may form a prima-facieview as to whether the case should be considered forauthorization.

(5) In case of prima-facie consideration, the Board shall issuea public notice in one national and one vernacular dailyCnewspaper (including web-hosting) giving brief details of theproject and seek comments and objections, if any, within thirtydays 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 rejectthe case for grant of authorization for the CGD network.

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(7) In case it is decided to grant authorization, the same shallbe in the form at Schedule D.

(8) In case of rejection of the application, the Board shallpass a speaking order after giving a reasonable opportunityEto the concerned party to explain its case and proceed toselect an appropriate entity for the project in terms ofRegulation 6.

(9) In case the entity is selected for grant of authorization forCGD network- F

(a) the network tariff and the compression charge for CNGshall be determined under the Petroleum and Natural GasRegulatory Board (Determination of Network Tariff for Cityor Local natural Gas Distribution Networks andcompression charge for CNG) Regulations 2008; G

(b) the Board may consider grant of exclusivity on such termsand conditions as specified in the Petroleum and Natural GasRegulatory Board (Exclusivity for City or Local Natural GasDistribution Networks) Regulations, 2008; H

(c) the entity shall abide by the technical standards,specifications including safety standards as specified underrelevant regulations for technical standards and specifications,including safety standards; (d) the provisions under regulations 9, 13, 14, 15 and 16shall apply to the entity.”

Contentions of the appellants

14. Mr Harish Salve, learned senior counsel contended that theimpugned judgement erroneously interpreted Section 16 of the PNGRBAct and its proviso. Referring to the sequence of events, it was highlightedthat the initial proposal for setting-up of the gas pipeline was by theinvitation of the Gujarat Government. Adani made the proposal on20.08.2001. The State Government framed its policy with effect from18.07.2002, and Adani applied under that policy. It was after consideringcommercial and technical feasibility that the Gujarat Government issuedthe 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 Stateshave the legislative competence and executive authority in respect ofnatural gas became the subject matter of a reference underArticle 143. By its opinion in Special Reference (supra), this Courtanswered the reference and held that it was only the Parliament whichcould, having regard to Entry 53 of List I of the Seventh Schedule to theConstitution, legislate in respect of natural gas and petroleum products,and the Central Government alone could frame suitable policies. It wasto give effect to this opinion that the PNGRB Act was enacted. The Actwas brought into force on 01.10.2007. Mr. Salve drew the attention ofthe Court to a Press Note dated 31.10.2007 seeking applications frominterested parties. He then submitted that on 31.03.2008, having regardto the fact that Adani had received state authorization in the past, thePNGRB 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 Actwere brought into force, the Central Government advisedly did not bringinto force Section 16 of the Act. This led to a proceeding before theDelhi High Court[3], which directed the provision to be brought into force.It was as a consequence of these proceedings that the Central 3 Voice of India v. Union of India W.P.(C) 8415/2009, decided on 20.01.2010.

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AGovernment ultimately notified Section 16. Mr Salve urged that theproviso to Section 16 of the PNGRB Act was enacted with the intent todeem authorization, and by that, save and permit the functioning ofnetworks and facilities of all entities who were functioning in the sector,and not only entities authorized by the Central Government. He urgedthat a narrow interpretation of the proviso, confining benefit of “deemedBauthorization” to entities that were permitted to operate before theenactment of PNGRB, and who were granted authorization by theCentral Government, would be reading something new into the statutethat does not exist. It was argued that the proviso to Section 16 of thePNGRB Act was plain and unambiguous and referred to entities whichCwere involved in various activities listed in it before the appointed dayand not only entities authorized by the Central Government.17. It was submitted that Section 17 of the PNGRB Act did notdistinguish between entities authorized by the Central Government andothers, and merely required entities which did not have centralDauthorization to apply in writing for authorization in terms spelt out bythe regulations framed by the PNGRB. The procedural requirement forentities authorized by the Central Government was (as per Section 17(2) of the PNGRB Act), to intimate relevant details. Therefore Section16 of the PNGRB Act did not create an artificial distinction betweenentities authorized by the Central Government and other entities. It wasEsubmitted that Parliament was well aware of the debate which tookplace before the coming into force of the PNGRB Act, especially thefact that several States had authorized entities to construct and laypipelines and networks, which had come up in the meanwhile. It wasurged in this context that the Preamble to the PNGRB Act and the Fproviso to Section 16 referred to “entities” and not“entities authorizedby Central Government”. The proviso to Section16 emphasized on thephysical activity of laying, building, operating or expanding any city orlocal natural gas distribution network and not the factum as to whetherauthorization for such activity was previously granted by the Central Government or not. It was urged that the lone exception carved out inGthe proviso to Section 16 was that a separate authorization was requiredfor change in the purpose or usage. Unless there was a change in thepurpose or usage, an entity laying, building, operating or expanding anycity or local natural gas distribution network before the appointed day(i.e., irrespective of prior authorization by Central Government) shall beHdeemed to have the authorization under Section16.

18. Learned counsel submitted that in terms of Section 17(2) ofthe PNGRB Act, all entities had to apply in writing for authorization insuch form and manner as specified in regulation made under Section17(3).In terms of Section 17(4), consideration of applications (made underSection 17(2)) was subject to the provisions of the PNGRB Act, whichwould include Section 16. Thus, all entities, regardless of past authorizationby the Central Government, who were carrying out CGD activitiesimmediately before the appointed day were deemed to haveauthorization qua the entire area. It was urged that in the absence ofany norms and policy guidelines by the Central Government, the referencemade to “norms and policy guidelines laid down by the CentralGovernment” in Section 17(4) was rendered insignificant. Adani alsodisputed the contention that Section16 granted deemed authorisation onlyto entities authorised by the Central Government. It was urged thataccepting that argument would involve reading something new into astatutory provision which was otherwise plain and unambiguous. Learnedcounsel cited Pallavi Resources Ltd. vs. Protos Engineering CompanyPvt. Ltd.[4]

19. The appellants disputed that the provisions of the PetroleumAct, 1934 read with the Petroleum Rules framed under it were applicable,and certain authorizations and approvals were necessary before theenactment of the PNGRB Act. It was asserted that those provisionsonly required approval on the design and route of the pipeline from theChief Controller of Explosives. It was urged that the authorities underthe Petroleum Rules had no powers to authorize or prohibit a particularentity from transporting petroleum through pipelines as long as theappropriate design/route was adopted.

20. Learned senior counsel further contended that PNGRB’sjustification for Regulation 18was without foundation. Mr Salve placedreliance upon the opinion rendered by this Court in Association ofNatural Gas & Ors v Union of India[5 ]which stated that the Stateslacked legislative competence to enact laws on the subject of naturalgas, and therefore, under the PNGRB Act, entities authorized bythe Central Government stood on a different footing as compared totheir entities. It was urged that Section 16 of the PNGRB Act read withSection 17 covered only entities authorized by the Central Government 4 (2010) 5 SCC 196.

5 (2004) 4 SCC 489.

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Ato seek a different kind of clearance. The PNGRB Act was enactedtwo years after the decision rendered by this Court in Special Reference(supra). When it enacted the PNGRB Act, Parliament did notdifferentiate between entities authorized by the Central Government andother entities, but in fact covered all entities carrying out activities whichwere the subject matter of the Act before the appointed day underBSection16 of the PNGRB Act, subject to the provisions of Chapter IV ofthe Act.

21. Learned counsel cited Adani Gas Ltd. vs. Union of India[6],and stressed that this recognized the applicability of the provision of“deemed authorization” under Section 16 of the PNGRB Act, even inCrespect of an entity not previously authorized by the Central Government.It was pointed out that Adani, in the present case, had started work from21.4.2003 in Ahmedabad District in terms of the NOC issued by theState Government. The appellant would therefore be deemed to possessauthorization in terms of Section 16.D

22. It was next argued that Section 17(4) empowered the Boardto accept or reject the application, subject to the provisions of the Actand consistent with the norms and policy guidelines laid down by theCentral Government. The PNGRB evaluated applications in terms ofRegulation 18(2), on behalf of deemed authorized entities under SectionE16 of the PNGRB Act. Regulation 18(2) prescribed eligibility criteriaand/or statutory obligations for entities which were deemed to beauthorised under Section 16 of the Act. Regulation 18(2)(1) conferredomnibus power to the PNGRB to evolve any other criteria deemedrelevant by it. This empowered the Board to conjure up criteria, defeatingthe parliamentary intent in Section 16.F

23. It was urged that the regulation framing power under Section61(1) was a general power to carry out the provisions of the Act. Reliancewas placed on three decisions of this court, viz. Global Energy Ltd v.Central Electricity Regulatory Commission[7], Petroleum & NaturalGas Regulatory Board v. Indraprastha Gas Limited & Ors[8]and KunjGBehari Lal Butail v. State of Himachal Pradesh[9], where it was heldthat the rule making power for carrying out the provisions of the Act 6 (2019) 3 SCC 641.7 (2009) 15 SCC 570.8 (2015) 9 SCC 209.H9 (2000) 3 SCC 40.

was a general delegation. It was urged that the power could not beexercised so as to bring into existence substantive rights, obligations, ordisabilities 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 indicateeligibility criteria for entities authorised by the State Government.

24. Counsel contended that Section 17(3) of the PNGRB Actempowered the Board only to specify the form and manner in which anapplication may be made by entities under Section 17(1) and Section17(2) of the Act. Thus, the PNGRB could not have prescribed substantiveobligations upon entities by creating the aforesaid artificial distinction,contrary to the provisions of Section 16 of the Act. Learned counselurged that this court in its judgment in Adani Gas (supra) held that incases 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 urgedthat 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 thearea for which an entity was deemed to be authorized could not bebifurcated. Regulation 18 could not whittle down the ambit of the principalprovision 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 ofthe principles of natural justice; it was also contrary to the provisions ofSection 17(5) of the PNGRB Act requiring reasons to be set out in suchorder. Such a non-speaking order was also in breach of Regulation 18(8).Counsel submitted that the reasons for the exclusion were given for thefirst time in PNGRB’s affidavit dated 17.11.2016 which wasimpermissible as no order could be supported by subsequent affidavits.Learned senior counsel relied on Mohinder Singh Gill & Anr. v. TheChief Election Commissioner, Delhi & Ors[10] in this regard. It wasfurther stated that PNGRB, in its affidavit, placed reliance upon a reportdated 18.2.2011 to say that Adani did not have a presence in the saidareas as on the date of inspection. That report was not provided at thetime of the order, i.e., 28.11.2013 and was for the first time provided on6.6.2017. Thus, it was contended that the order is violative of principlesof natural justice.

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A26. Adani was granted an NOC by the State Government for theentire Ahmedabad District, including the disputed areas under the policyof the State Government. Such area could not have been curtailed byrelying on a power under the CGD Regulations. Further, that the saidareas were put up for auction on 1.10.2015 with a far larger area, clearlyshowed that the disputed areas were not economically viable on aBstandalone basis, and the basis for exclusion of those areas from Adani’sauthorized area was unfounded.

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27. Learned senior counsel submitted that the report dated18.2.2011 was factually incorrect, as it stated that as on the date ofinspection, Adani had not undertaken any activity in the said areas, whenCin fact it had an operational network as on the date of inspection cateringto various customers. Adani had augmented its network in the said areasof Ahmedabad by undertaking urgent capital works pursuant toPNGRB’s permission dated 11.6.2009. The details of Adani’s investmentsin the disputed areas of Ahmedabad prior to the date of that report alsoDreflect that it had a presence in those areas. None of those particularswere considered by the High Court.

28. It was argued that the impugned authorization was inconsistentwith Regulation 18. Under that regulation, to evaluate actual physicalprogress and financial commitment, presence as on the appointed day isEto be seen in the entire Ahmedabad District, and not apart of it by curtailingthe ambit of Section16. It was submitted that the authorization orderdated 28.11.2013 omitted to say how Adani did not fulfil the criteriaunder Regulation 18. On the contrary, the minutes of the meeting of27.8.2010 reveal that Adani’s application fulfilled the grant ofauthorization under Regulation 18 in respect of the geographical area,Fwhich covered Ahmedabad city and contiguous areas and Dascroi. Itwas urged that Adani also fulfilled the criteria of 25% physical progressin terms of Regulation 18, for the entire Ahmedabad District. PNGRBoverlooked that as well as the fact that initiation of development workfor any CGD network, including in the Ahmedabad District, alwaysGstarted from one point i.e., in linear progression, generally, where a citygas station was first established for inlet gas, which then extended to thewhole of the area. Even under the current PNGRB norms, an authorizedentity was given at least 8 years to develop charge areas. Therefore,PNGRB wrongfully carved areas out of the Ahmedabad District andtested each such area in terms of Regulation 18, which was notHpermissible.

29. It was argued that Adani, in accepting a restricted authorization,or in participating in the tender process later in 2015 did not acquiesce orwaive its rights. It protested immediately against the exclusion of thedisputed areas. Provisions of the PNGRB Act came into force on1.10.2007, with the exception of Section 16 (which came into force on12.7.2010). In the interregnum, entities like Adani wereconstrained to apply under Regulation 18. In respect of Khurja in UttarPradesh, PNGRB accepted Adani’s application under Regulation 18.There was no cause of action to challenge Regulation18 in respect ofthe authorization granted in Khurja.

30. It was pointed out that in the case of Ahmedabad, Adani’sinitial Detailed Feasibility report (hereafter called “DFR”) inadvertentlyfailed to specify the said areas and Dascroi but the mistake was soonrectified, and those areas were made part of the amended DFR. ThePNGRB, in its meeting held on 12.8.2010 also recognized the inclusionof the said areas in the DFR. Ultimately, PNGRB included Dascroi withinthe scope of authorization, but excluded the disputed areas. Adani hadimmediately protested against such exclusion and had never given up itsprotest. It was however, constrained to participate in the auction notonly to protect its investments already made in the disputed areas, butalso because it was desirous of developing CGD networks in the otherareas of Ahmedabad.

31. Learned counsel urged that acquiescence to certain facts orwaiver was an intentional relinquishment of a known right. The correctinterpretation of Section 16 and Section 17 of the PNGRB Act wasdebated and unsettled. Consequently, it is incorrect to rely upon thedoctrine of acquiescence or waiver to deny relief to Adani. Learnedcounsel relied on Moti Lal Padampat Sugar Mills v. State of U.P.[11]Learned counsel further submitted that mere delay did not amount towaiver and that there was no estoppel against provisions of a statute.The so-called delay, waiver, or acquiescence on Adani’s part would nothave any bearing on the maintainability of the writ petition in relation tothe reliefs sought.

32. Mr. Dhruv Mehta, learned senior counsel argued in additionto Mr. Salve that an overall reading of provisions of the Act - especiallySections 16 and 17 - would show that Parliament made no classificationas far as entities were concerned. The classification was in respect of 11 (1979) 2 SCC 409, paras 6-7.

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Aauthorization granted by the Central Government. It was submitted thatall applications under Section 17 had to be decided in a uniform mannerwhile applying the same yardstick. The learned counsel relied upon Section17(4), which empowered the Board to either accept or reject theapplication, consistent with the provisions of the Act and consistent withnorms, and policy guidelines prescribed by the Central Government. ItBwas thus argued that every application or intimation received by thePNGRB had to be treated in the same manner, regardless of CentralGovernment authorization. Consequently, the deeming authorization clausein Section 16 had to be given primacy.

33. Learned counsel relied upon Section 61(2) (e), (h) and (n). ItCwas argued that the PNGRB’s power to frame Regulations under Section61 was general. As contrasted with this, it was inherent in the nature ofPNGRB’s function that it had to function through regulations, manyaspects in terms of Section11. Learned senior counsel relied on AdaniGas (supra) to urge that Regulation 18 was not mandatory and that theDPNGRB could decide to apply any one or the set of criteria specified inthat provision. It was urged that in the absence of any norm or existingstatutory guidance in the form of specific provisions in the Act, thePNGRB could not have framed Regulation 18 to arm itself with extremepower to pick and choose any standard at its whim. Learned seniorcounsel emphasized that if the Board were to so wish, it could applyEsome of the standards spelt out in Regulation 18 in case of one entityand only one or none in the case of another entity, while examiningapplications under Section 17. It was urged therefore that Regulation 18had discriminatory potential and could not be sustained. Learned seniorcounsel relied on the decision of this Court in Petroleum and Natural FGas Regulatory Board v Indraprastha Gas[12] and urged that therewas 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 anintervenor, Haryana Gas adopted the arguments made on behalf of Adani,Gwith respect to the interpretation of provisions of the PNGRB Act. Itwas submitted that there were no legal impediments before the cominginto force of the PNGRB Act, preventing any entity from starting thebusiness of laying, maintenance and operation of a gas pipeline or network.Given this legal position, Parliament’s intent while enacting the “deemed H12 2015 (9) SCC 209.

authorization” provision under the proviso to Section 16 was to savenetworks that had been set up, or were under construction. Doingotherwise, and holding that all entities who did not obtain CentralGovernment authorization could not operate after the enactment of thePNGRB, meant that such networks, put up at great expense, whichconstituted national assets, would have gone waste. It was furthersubmitted that the requirement of Section 17(2) had to be considered inthe light of the PNGRB’s power under Section 17(4), which had tonecessarily be exercised in the light of the “deemed authorization”provision enacted by Section 16.

Contentions of respondents

35. The learned Attorney General for India contended that beforethe opinion of the Supreme Court of India in Special Reference (supra),State Governments proceeded on the basis that the distribution of naturalgas for consumption in cities would fall under Entry 25 of List II, andthat their executive power enabled grant of authorizations or licenses tolay pipelines and undertake distribution of natural gas in cities. However,once this Court rendered its opinion on 25.03.2004, the position in lawwas clarified by the Court holding that Parliament alone was competentto legislate in regard to natural gas, by reason of Entry 53 of List I.States were bereft of legislative competence as well as executive powerto issue authorizations or licenses for setting up natural gas distributionnetworks.

36. Once the Constitutional demarcation of legislative powers wasclearly enunciated by this court, the result was that all licenses orauthorizations granted by States for operating natural gas distributionnetworks were rendered null and void, and had no legal effect whatsoever.It was argued that it was this background in which the PNGRB Act wasenacted. Section 11 set out the functions of the Board, which includedthe power to authorize entities to lay, build, operate or expand city orlocal natural gas distribution networks. Although Section 16 was notbrought in force on 01.10.2007, Section 17 which was in effect on thatdate, empowered PNGRB to authorize CGD activities. Section 17 alsomandated that an application for authorization “shall” be made in writingto the Board and that the Board may allow or reject any application.

37. It was urged that the scheme devised by Section 17(2) wasthat a written application was to be made for authorization under theAct. As Section 11 empowered the Board to grant authorization, AB

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Aapplications had to be made to PNGRB. The proviso expressly dealtwith the laying and operating of city or local natural gas distributionnetworks that had been authorized by the Central Government beforethe PNGRB Act came into force. The Central Government alone wascompetent under Article 73 of the Constitution to issue such licenses orauthorizations. They were valid in the eye of law, in view of the opinionBof this Court in Special Reference (supra). Entities with the CentralGovernment’s authorization, only had to furnish particulars of theiractivities to the PNGRB within six months from the date when the Actcame into force, and, were entitled to operate natural gas distributionnetworks in terms of those authorizations. However, Sections 17(3), (4)Cand (5) dealt with cases where, under Sections 17(1) or (2), applicationswere made directly to the PNGRB for grant of authorization to lay,build, operate or expand a pipeline or a network. These applicants couldfall into two categories. The first were entities laying or operating naturalgas networks immediately before the appointed date without anyauthorization by the Central Government, but on the basis of authorizationsDgiven by State Governments which had no validity whatsoever. Thesecond category was for those new entrants who sought authorizationsfor laying, building, operating or expanding gas pipelines or networks.The PNGRB was entitled to consider applications from both thesecategories of applicants, and either accept them or reject them by applying,Einter alia, the norms and policy guidelines prescribed by the CentralGovernment.

38. It was highlighted that Section 16, which came into force on15.07.2010 dealt with two categories. One, a new entrant which proposedto carry out CGD activities, which had to obtain authorization from theFPNGRB. If there was more than one applicant for the same city or localarea, a transparent process (i.e., competitive bidding) was to be resortedto under the Act and the Regulations. There was a second category, i.e.,entities, who had been carrying out CGD activities prior to theappointed date in a legally valid manner, i.e., under authorization by theCentral Government and not by the State Government. The AttorneyGGeneral also pointed out that the proviso to Section 16 clearly stated thatentities who were laying or operating natural gas distribution networksimmediately before the appointed day shall be deemed to have suchauthorization “subject to the provisions of this Chapter”. This meantsubject to the provisions of Section 17 too. Therefore, “deemedHauthorization” under the proviso to Section 16 would apply only to entities which had the authorization of the Central Government prior to theappointed date.

39. It was urged that the interpretation adopted by this Court inAdani Gas (supra), i.e., that deemed authorizations covered entitiesauthorized by the state government, and that the requirements ofRegulation 18 were directory, was erroneous. It was submitted that theBench in Adani Gas (supra)did not take into account the binding, fivejudge bench opinion in Special Reference (supra), by reason of which itwas clear that the legislative competence to regulate all aspects relatingto petroleum and petroleum products (including natural gas) was that ofParliament, and the executive power to frame policies, that of the CentralGovernment.

40. Mr. Paras Kuhad, learned senior counsel appearing for thesecond respondent PNGRB, argued that at all times since 1974, by virtueof the combined effect of the Petroleum Act, 1934, (hereafter called“the Act of 1934”), the Petroleum and Minerals Pipelines (Acquisitionof Right of User in Land) Act, 1962 (hereafter called “the Act of 1962”),the Petroleum Rules, 1976 (hereafter called “Rules of 1976”), and thePetroleum Rules, 2002 (hereafter called “Rules of 2002”), enacted byParliament and framed under those laws (by the Central Government)pursuant to Entry 53 List I, in relation to laying of pipelines fortransportation of petroleum (with natural gas being a part of petroleum -as held in para 40 of Special Reference), a regulatory regime with theCentral Government as the regulator had existed. Thus, pipelines fortransportation of petroleum and natural gas could be laid only upon thesatisfaction of the Central Government to the effect that it was necessaryto lay such a pipeline between two specified points (by virtue of Sections3 and 6 of the Act of 1962), after taking into account various factors likeapproval of the route, design, construction and working of the pipeline,by the Chief Controller of the Central Government. The satisfactionwas based on a comprehensive Project Report, (by reason of Rule 89 ofRules of 1976 and the Rules of 2002), subsequent to issuance of anauthorization by Central Government, and affirmation by the StateGovernment, pursuant to issuance of an order by the Central Governmentin favour of the State Government or Corporation, directing the vestingin the latter of the right of user in land for laying pipelines (Section 7(1)read with Section 6(4) of Act of 1962).

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A41. 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, exceptfor the pipelines or networks already authorized by the CentralGovernment. Section 48 of the PNGRB Act criminalized the constructionor operation of pipelines without obtaining authorization.B

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42. It was urged on behalf of PNGRB that Section 16 of thePNGRB Act was to be interpreted in the light of Sections 17 and 48 andthus, Section 16 did not clothe every “under-construction” pipeline, legalor illegal, with the imprimatur of “deemed authorization”. The mandatoryapplicability of the regulatory regimen of Section17 was reiterated byCSection 16, by stating that deemed authorizations shall be subject to theprovisions “of this Chapter”. Upon Section 16 becoming operative,entities with under-construction pipelines which had applied forauthorization under Section 17, but whose work was under suspension,owing to Section 48, became entitled to restart construction activities atDtheir own risk and cost, pending a final decision on their application forauthorization. The fiction created by Section 16 was for this limitedpurpose. It was submitted that illegal pipelines laid in contravention ofthe Act of 1934 were not intended to be granted deemed authorization.Secondly, in any case, such deemed authorization could have no bearingon the requirement of ‘obtaining authorization under this Act’. TheEproviso 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 anentity authorized by the Central Government had to obtain an authorizationFunder the Act of 2006 in terms of Section17(4), with the attributes ofsuch regimen provided under the PNGRB Act and Regulations whichwere:

(a) Competitive selection of an entity in accordance withRegulations (Section 19); G(b) Discovery of transportation tariff and commitment to buildpipeline/network infrastructure through a competitive biddingprocess (Regulation 7 of Authorization Regulations of 2008);

(c) Applicability of open access regimen to all pipelines/networksafter the expiry of the period of exclusivity/monopoly granted toHthem (Section 21 read with Section 20 (1) & (4)); (d) Subjection of all pipelines/networks to stringent qualifyingstandards, including that of safety and pre & post-commissioningconditions/standards/obligations. (CGD Authorization Regulationsof 2008).

43. It was urged that the grant of authorization for Ahmedabadcity and denial of authorization for disputed areas, i.e., Sanand, Bavlaand Dholka were in the same order dated 28.11.2013. Adani had thechoice to accept or reject it. Having unequivocally accepted and actedupon the grant of authorization and exclusivity for Ahmedabad City andDascroi, and denial of the authorization for Sanand, Bavla and Dholka, itcould not, while enjoying the fruits of the order for Ahmedabad City,question another part of the same order to the extent it limited theauthorization to the said area. This Court has repeatedly held that aperson taking advantage under an instrument, which both grants a benefitand imposes a burden, cannot take the former without complying withthe latter. Reliance was placed on Shyam Telelink Ltd. v. Union ofIndia[13].It was submitted that Adani acquiesced to the terms andconditions of the bidding process by participating in it without any demurand was now stopped from challenging the same. Reliance was alsoplaced on M/s Tafcon Projects [I] (P) Ltd. vs Union of India & Ors[14].

44. It was further highlighted that Adani accepted authorizationsawarded to it by following the procedure which it now challenged, withoutasserting its “deemed authorization” status at any stage, with Khurjageographical area[15] being an example. Now however, Adani haschallenged the validity of Regulation 18 when its application forauthorization was rejected in respect of Lucknow GA, Udaipur GA,Jaipur GA and in the present case. It was submitted that Adani wasestopped by its conduct from raising a challenge to Regulation 18.

45. It was contended that pipeline construction only on the strengthof NOCs issued by the States, was not recognized by Parliament asworthy of being saved. The CGD Regulations sought to save, afterscrutiny, such of these pipelines as were viable, optimal, safe, capable ofimplementation, and actually under construction. It was contended thatRegulation 18 of the 2008 Regulations, obliged every “underconstruction” pipeline (except Central Government authorized pipelines), 13 (2010) 10 SCC 138.

14 2004 (13) SCC 788.

15 Authorization granted on 4.12.2012.

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Ato compete in the selection process and succeed therein, based on itscompetitive tariff bid and competitive bid for construction ofinfrastructure. It was emphasized that the power to accept or reject anapplication for authorization (Section 17(4), the power to prescribe theprocess of selection (Section 19(2) and the power to grant authorizationfor laying pipelines/networks (Section 20(3)), is a discretionary powerBof the Board. Its exercise is subject to the legislative objectives stated inSection 20(5), of avoiding “infructuous investment” and of “securingdistribution of natural gas across the country”. The PNGRB submittedthat Regulation 18 of the Regulations of 2008 primarily sought to evaluatethe following:C(a) Managerial, technical and financial competence of the applicantentity to implement the Project (Regulation 18(2)(a));

(b) Viability of the Project, in the context of its route/geographicalarea, customer segments (industrial, commercial, domestic,transport etc.) and infrastructure requirements (steel inch-kmDpipelines, CNG Stations, PNG connections etc.) and the pipelines/networks design and construction, being inconformity with theapplicable technical and safety standards (Regulation 18(2)(e) &(g));

(c) The pipelines/networks, actually under construction, those inEthe process of being laid and built, the commencement ofconstruction - demonstrated by the availability of land, clearancesand permissions, erection equipment, financial capacity (net-worth),minimal financial commitment (25%) etc. (Regulation 18(2)(d) &(e)).F46. In terms of Section 19(1), the applicable schedule and regulatorystandards, the Board determined the geographical area to be authorized.Regulation 18 of the 2008 Regulations provided for evaluation of theexistence of these factors, which alone could demonstrate that it wasnot a proposed pipeline/network, but a pipeline/network that was actuallyGbeing laid or built and was viable, optimal and safe in terms of theobjectives of the PNGRB Act.

47. Mr. P.S. Narasimha, appearing for Gujarat Gas, reiterated thesubmissions made by the Attorney General. It was submitted that thedoctrine of approbate and reprobate applied to prevent Adani fromcomplaining of arbitrariness.H

48. It was urged that the proviso to Section16 of the PNGRB Actdid not validate NOCs or authorisations issued by the State Government;it only provided a framework whereby entities that were carrying outCGD activities immediately prior to the appointed date were permitted achance to obtain authorisation under the PNGRB Act. It was Section17that proceeded to categorise entities as those with a Central Governmentauthorisation and without it. Learned counsel urged that Sections 16, 17,and 19 of the PNGRB Act read with Regulation18 of the CGDRegulations provided the framework by which an authorisation underthe Act could be obtained by an entity which was laying CGD networkswithout a Central Government authorisation before the appointed date.Section 16 of the PNGRB Act did not grant or vest authorisation, butwas “subject to the provisions of this Chapter” and thereby subjectto provisions requiring the obtaining of authorisation under the Chapter.The process of obtaining authorisation was governed by Section 17 and19 read with Regulation 18. Adani’s argument that Section 16 of thePNGRB Act preserved the entire “project” which the entity had intendedto implement (and hence it claimed “deemed” authorisation for the entireAhmedabad District) was outside the scope of the specific language ofthe proviso to Section 16, which applied only to an entity “laying,building, operating or expanding” a CGD network “immediatelybefore the appointed day shall be deemed to have such authorisationsubject to the provisions of this Chapter”. It did not refer to any“intention” of the entity. Therefore, the scope of the deeming provisionwas limited to the specific work of laying, building, operating or expandinga CGD network immediately before the appointed day; it was not asexpansive as to cover “intended” works. It was pointed out that thePNGRB’s Site Inspection Report dated 18.02.2011 stated that the workat site had not been carried out at the disputed areas.

49. Mr. Narasimha refuted Adani’s interpretation of the provisoto Section 16 and submitted that the deeming fiction it enacted wasmeant to save only central government authorized entities. He urgedthat having regard to the express terms of Section 16, which was subjectedto other provisions (including Section 17), the only feasible interpretationwould be that it covered those entities that had been granted authorizationby the central government, which had exclusive jurisdiction to do so. Itwas submitted that a deeming fiction had to be limited, and could not beextended beyond the purpose for which it was enacted; he placed reliance AB

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Aon K.S. Dharmadatam v. Central Government & Ors[16]; N.K. Sharmav. Abhimanyu[17]and State of Maharashtra v Lalji Rajshi Shah &Ors[18].

50. Mr. Saurav Agrawal, Advocate, appearing on behalf of anintervenor, M/s Green Gas Ltd., contended that historically, for 22 areas,Bentities had been authorized by the Central Government. All such entitieswere Central PSU promoted entities, in which Gas Authority of IndiaLtd. (hereafter called “GAIL”) was a stakeholder since GAIL washandling the administered pricing mechanism (hereafter called “APM”)natural gas under the directions of the concerned Union Petroleumand Natural Gas Ministry. Likewise, other Central Government ownedCOil Marketing Companies (Indian Oil Corporation Ltd., Bharat PetroleumCorporation Ltd., and HPCL) were also stakeholders and provided theestablished distribution network (e.g., retail stations, pipelines, etc.) alongwith technical knowledge and experience of handling such products. Allthe aforesaid entities had APM gas allocation from the CentralDGovernment. All such entities had to be accorded necessary localpermissions as well as were deemed authorized entities under thePNGRB Act.

51. In some areas of Gujarat, a State PSU (M/s Gujarat GasLimited) was historically (i.e., much before the Special Reference)Eoperating under permissions from the State Government and the CentralGovernment. The entity had Central Government ratification for thoseareas. It applied for grant of authorization to PNGRB under Section17(2) and was granted such authorization. It was urged that after thedecision in Special Reference (supra) on 25.03.2004 and in the teeth ofthe said decision, other state governments framed policies in regard toFnatural gas distribution and issued local permissions to private entities oftheir choice, in the face of the Central Government having alreadyauthorized PSU-promoted entities to undertake distribution of naturalgas. So, on one hand, there were PSU-promoted Central Governmentauthorized entities with gas allocation awaiting local permissions fromGState Government to implement the CGD project. On the other hand,the State Government did not grant local permissions to such entities andinstead permitted private entities of their choice to setup the CGDinfrastructure, albeit without any gas allocation.

16 1979 (4) SCC 294.17 2005 (13) SCC 213.H18 2000 (2) SCC 699.

52. Learned counsel referred to an affidavit by the CentralGovernment filed in I.A. No.270/2008 in the larger batch matter in M.C.Mehta v. Union of India[19], seeking clarification and declaration that allsuch State Government NOCs/permissions were unconstitutional in viewof Special Reference (supra). That application (I.A. No.270/2008) wasdisposed of by the court’s order dated 07.04.2017, in the following terms:

“The primary prayer made in this application is for adeclaration that the Central Government is exclusivelyempowered to formulate and implement policy with regard toall matters pertaining to Natural Gas, including transmissionand supply of Natural Gas, City Gas Distribution, etc.

Learned Solicitor General says that in view of the decision ofthis Court in Presidential Reference in Special Reference No.1of 2001 reported in (2004) 4 SCC 489 as well as the provisionsof the Petroleum and Natural Gas Regulatory Board Act, 2006,no further orders are required to be passed in this applicationand the application is accordingly disposed of in terms of thedecision of this Court as well as the Act.”

53. Mr. Agarwal contested as erroneous, the submission of Adanithat the “deemed authorization” provision in Section 16 was conceivedin larger public interest, to save all existing entities who were operating.It was urged that an entity selected by the State Government, withoutfollowing any due process and without any authority under law, couldnot be saved merely because of the investments made or the lapse oftime as it was plainly contrary to public policy. All private entities whichwere selected by the State Governments were so selected withoutfollowing any due process and most, if not all were given NOC or gasallocation by the Central Government. If such entities were conferred“deemed authorization” status, then it would be tantamount to legalizingan illegal action.

Points for consideration

54. The following points arise for consideration by this Court:

(i) The scope of the “deemed authorisation” clause under theproviso to Section 16 of the PNGRB Act;

(ii) Validity of Regulation 18; and

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1188SUPREME COURT REPORTS

A(iii)Whether the exclusion of the disputed areas fromthe authorisation granted to Adani was justified.

Analysis & Conclusions

Re: Point No. 1: The scope of the “deemed authorization”clause under the proviso to Section 16 of the PNGRB ActB

55. The PNGRB Act came in the wake of declaration of law bythe opinion of this Court[20] under Article 143 of the Constitution of India.This Court held that Entry 53, List I of the Seventh Schedule shall regulatethe development of oil fields and mineral oil resources, petroleum andpetroleum products, other liquids, and substances declared by ParliamentCby law to be “dangerously inflammable”, and that this entry exclusivelyenabled Parliament alone, to the exclusion of state legislatures to enactlaws in relation to natural gas. The Special Reference became necessarydue to the states asserting that by Entry 25 of List II[21], state legislatureshad exclusive domain over the subject of natural gas. The PresidentialDreference was also made with respect to the competence of the Gujaratstate legislature to enact a law regulating transmission, supply anddistribution of gas[22].This Court, in its opinion, noted that several lawsrelating to petroleum and petroleum products had been enacted bothbefore and after the Constitution came into force[23]. This Court, afterexamining the previous decisions with respect to interpretation ofElegislative entries in the context of rival claims to exclusive power,proceeded to consider what was meant by the expression “petroleumand petroleum products” and “mineral oil resources” in Entry 53 of ListI. After examining various technical encyclopaedias and reference booksthis Court held:F“38. All the materials produced before us would only showthat the natural gas is a petroleum product. It is also importantto note that in various legislations covering the field ofpetroleum and petroleum products, either the word‘petroleum’ or ‘petroleum products’ has been defined in an G

20 Special Reference No.1/2001.

21 Relating to ‘gas and gas works’.

22 Gujarat Gas (Regulation, Transmission, Supply and Distribution Act, 200123 Notably the Petroleum Act, 1934; the Mines Act, 1952; Mines and Minerals(Development) Act, 1957; Oil Fields (Regulation and Development) Act, 1948; Petroleumand Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962; Oil andHNatural Gas Development Act, 1974; Petroleum and Natural Gas Rules, 1959.

inclusive way, so as to include natural gas. In EncyclopaediaBritannica, 15th Edn. Vol. 19, page 589 (1990), it is statedthat “liquid and gaseous hydrocarbons are so intimatelyassociated in nature that it has become customary to shortenthe expression ‘petroleum and natural gas’ to ‘petroleum’ whenreferring to both.” The word petroleum literally means ‘rockoil’. It originated from the Latin term petra-oleum. (petra-means rock or stone and oleum-means oil). Thus, Natural Gascould very well be comprehended within the expression‘petroleum’ or ‘petroleum product’.”

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“44. Under Entry 53 of List I, Parliament has got power tomake legislation for regulation and development of oil fields,mineral oil resources, petroleum, petroleum products, otherliquids and substances declared by Parliament by law to bedangerously inflammable. Natural gas product extracted fromoil wells is predominantly comprising of methane. Productionof natural gas is not independent of the production of otherpetroleum products; though from some wells the natural gasalone would emanate, other products may emanate fromsubterranean chambers of earth. But all oil fields are exploredfor their potential hydrocarbon. therefore, the regulation ofoil fields and mineral oil resources necessarily encompassesthe regulation as well as development of natural gas. Forfree and smooth flow of trade, commerce and industrythroughout the length and breadth of the country, naturalgas 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 riverswas described as a right ‘publici juris’, i.e., a right of public.So also the people of the entire country has a stake in thenatural gas and its benefit has to be shared by the wholecountry. There should be just and reasonable use of naturalgas for national development. If one State alone is allowed toextract and use natural gas, then other States will be deprivedof its equitable share. This position goes on to fortify the standadopted by the Union and will be a pointer to the conclusionthat “natural gas’ is included in Entry 53 of List I. Thus, the AB

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legislative history and the definition of ‘petroleum’, ‘petroleumproducts’ and ‘mineral oil resources’ contained in variouslegislations and books and the national interest involved inthe equitable distribution of natural gas amongst the States -all these factors lead to the inescapable conclusion that“natural gas” in raw and liquefied form is petroleum productand part of mineral oil resource, which needs to be regulatedby the Union.

46. Natural gas being a petroleum product, we are of the viewthat under Entry 53 List I, Union Govt. alone has got legislativecompetence. Going by the definition of gas as given in Section2(g) of the Gujarat Act wherein “gas” has been defined as“a matter of gaseous state which predominantly consists ofmethane”, it would certainly include natural gas also. We areof the view that under Entry 25 List II of the Seventh Schedule,the State would be competent to pass a legislation only inrespect of gas and gas-works and having regard tocollocation of words ‘gas and gas works’, this Entry wouldmean any work or industry relating to manufactured gas whichis often used for industrial, medical or other similar purposes.Entry 25 of List II, as suggested for the States, will have to beread as a whole. The expressions therein cannot becompartmentally interpreted. The word ‘gas’ in the Entry willtake colour from other words ‘gasworks’. In Ballantine’s LawDictionary, 3rd edition, 1969 ‘Gas Works’ is defined as “aplant for the manufacture of artificial gas”. Similarly inWebster’s New 20th Century dictionary, it is defined as “anestablishment in which gas for heating and lighting ismanufactured”. In the www.freedictionary.com ‘gas works’is explained as “a manufactory of gas, with all the machineryand appurtenances; a place where gas is generated.” Themeaning of the term ‘gas works’ is well understood in thesense that the place where the gas is manufactured. So it isdifficult to accept the proposition that ‘gas’ in Entry 25 ofList II includes Natural Gas, which is fundamentally differentfrom manufactured gas in gas works. therefore, Entry 25 ofList II could only cover manufactured gas and does not coverNatural Gas within its ambit. This will negative the argumentof States that only they have exclusive powers to make laws dealing with Natural Gas and Liquefied Natural Gas. Entry25 of List II only covers manufactured gas. This is the clearintention of framers of the Constitution. This reading will noway make that entry a ‘useless lumber’ as feared by the States,because Natural Gas was never intended to be covered bythat entry. It is also difficult to accept the argument of Statesthat all ‘gas’ could be categorized as dangerously inflammableand thus arriving at the conclusion that Natural Gas is alsocovered in State List because this differentiation is based noton the characteristics of gas, but on the manner of its origin.Entry 25 of List II covers the gas manufactured and used ingas works. In view of this specific Entry 53, for any petroleumand petroleum products, the State Legislature has no legislativecompetence to pass any legislation in respect of natural gas.To that extent, the provisions-contained in the Gujarat Actare lacking legislative competence.”

56. The Court categorically held that States had no legislativecompetence to enact laws on the subject of natural gas and liquefiednatural gas. It also held that the Gujarat enactment of 2001, insofar as itrelated to natural gas or liquefied natural gas was without legislativecompetence and that the act was ultra vires the Constitution. The opinionof the Court was rendered on 25.03.2004. As a result, all activitiesrelating to natural gas that relied upon authorizations by the States becameexposed to the vice of illegality. Having regard to the opinion of thisCourt and the previous policies of the Central Government, Parliamentthought it fit to enact the PNGRB Act. Significantly, this Act does notdeal with any aspect relating to extraction of petroleum or liquefied naturalgas. It deals with what may be termed as “downstream activities “suchas refining, processing, storage, transportation, distribution, marketingand sale of petroleum and petroleum products and natural gas. The mainaim of the Act is to regulate all these activities in a comprehensive andwide-ranging manner. When parliament enacted the PNGRB Act, it wasaware that several entities were in the process of setting up variouskinds of networks which the law governed (i.e., transmission, storage,distribution, marketing etc.). Parliament, therefore, devised a uniformstandard by which entities that were laying networks or were in theprocess of setting up such activities had to be considered. The statutorydevice adopted was through Sections 16 and 17. By virtue of the powerconferred by Section1(3) upon the Central Government, all provisions of AB

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Athe 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 beento allow some breathing time to entities which were in the process oflaying, building and operating any pipeline, to first apply to the PNGRB.If Section 16 were to be brought into force at once, all activities whichhad started before the enactment of the PNGRB Act would necessarilyBhave been rendered illegal and would have had to cease. The delayedenforcement of this provision meant that existing entities could do whatwas required of them in terms of other provisions of the Act and seeknecessary authorisation.

57. The non-implementation or absence of enforcement of SectionC16 led to a public interest litigation before the Delhi High Court[24]. TheHigh Court declared that by virtue of absence of notification of Section16, the PNGRB lacked the power to grant authorisation to entities whichhad applied to it for laying, building, operating or expanding city or localnatural gas networks. The judgement was carried in appeal by specialDleave[25] in which notice was issued. In the meanwhile, pending decisionon the Special Leave Petition, the Central Government brought into forceSection 16 of the Act by notification dated 12.07.2010 with effect from15.07.2010.

58. If one considers the background of the enactment, it is evidentEthat the Parliament wished to decisively declare that only entitiesauthorised in accordance with the provisions of the Act by the PNGRBcould function. Section 16 by itself does not classify or make anydistinction between entities who are permitted or authorised by the CentralGovernment or any other authority. However, by the proviso, itdistinguishes two categories of entities, i.e., (i) those laying, building,Foperating or expanding any pipeline as common carriers or contractcarriers and (ii) any city or local natural gas distribution 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 theGappointed date shall be deemed to have such authorization”.However, this deeming provision is expressly made subject to theprovisions 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.H25 SLP 5408/2010

59. Parliament enacted the PNGRB Act to regulate refining,processing, storage, transportation, distribution, marketing, and sale ofpetroleum, petroleum products, and natural gas excluding the productionof crude oil and natural gas. The objectives of the enactment are interalia, setting up of the Board, regulation of refining, storage, processing,transportation, distribution, marketing, and sale of petroleum, petroleumproducts, and natural gas except for the production of crude oil andnatural gas. An important objective is the protection of consumer’sinterests in certain activities related to petroleum, its products, and naturalgas and ensuring a sufficient and continuous supply of petroleum, itsproducts, and natural gas all around the country. The other importantobjective is promotion of competitive business.

60. The PNGRB’s functions are (under Section 11):

(a) registration of entities to market notified petroleum and itsproducts that are subject to contract by Central government,and natural gas; (b) registration of entities establishing and operating LPGterminals;

(c) registration to entities to set up storage facilities petroleum,its products, and natural gas, if it exceeds the capacity providedby 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 tocommon or contract carriers to ensure fair trade and competition amongthe entities, specifying the pipeline access code regulating transportationrates for common or contract carriers and regulating access to city orlocal natural gas distribution networks to ensure fair trade and competitionamong the competitors according to the pipeline access codes.

61. Chapter V of the Act deals with the settlement of disputes. Abench consisting of a member (legal) and one or more member(s) asnominated by the Chairperson of the PNGRB is empowered to settledisputes under the PNGRB Act. Section 24 empowers the Bench to A

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Aexercise its power as a Civil Court on matters such as refining, processing,storage, transport, distribution, marketing and sale of petroleum, petroleumproducts, and natural gas, quality of service and security of supply to theconsumers by the entities, and disputes arising under Sections 15 and19. Under Section 25, complaints can be filed by any person before theBoard to refer to the dispute between entities or any matter of the entitiesBor any other matter relating to the provisions of the Act. The complaintmust be filed within sixty days from the date of any contravention, act,or conduct that took place. The complaint shall be accompanied by feesas provided under the regulation. Section 26 empowers the PNGRB toappoint an officer having qualifications and experience, as anCInvestigating Officer to investigate in the matters as specified by theregulations. If any person contravenes any directions of the PNGRB, itis empowered to impose a civil penalty on that person and the orderpassed by the Board can be deemed to be a decree. Section 27 of thePNGRB Act deals with certain factors that the Board takes into accountwhile deciding any dispute. These factors are (a) amount ofDinappropriate gain and unfair advantage obtained because of a default;(b) amount of loss suffered by an entity because of a default, and (c) therepetitive nature of the default.

62. Adani and the intervenors supporting it argue that the deemingfiction (in Section 16) should be given full effect. To say so, they pointEout that the deeming fiction should be taken to extend to all entities whowere laying, building, or expanding any pipeline, regardless of whethersuch entities received Central Government authorization or not. In theabsence of any distinction, the fullest effect should be given toParliament’s intent, to ensure that work that had commenced on layingFor building, etc. of pipelines, was to be preserved as that was beneficialto the national economy. It is also urged that the expression “subject tothe provisions of this chapter” should be harmoniously construed, whichmeans that entities that apply under Section 17 (1) or 17 (2) forauthorization should not be denied it without reasonable cause, given that the PNGRB is bound to respect and give effect to the mandate ofGthe 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 obtainedNOC with regard to gas distribution network for Udaipur and Jaipur.Adani had, after coming into force of the PNGRB Act, applied forH

authorization under Section 17 on 28.08.2008. The PNGRB which wasseized 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 Boardrequired Adani to show-cause as to why its applications should not berejected. After issuing notice, the State Government on 18.05.2011withdrew the NOC granted and forfeited the commitment fee given byAdani. Later the PNGRB rejected the application seeking authorizationfor Udaipur and Jaipur. Both these actions i.e., withdrawal of NOC andthe rejection of the application under Section 17 were challenged alongwith a challenge to the vires of Regulation 18. This Court in Adani GasLtd. (supra) considered the scope of the PNGRB Act and observed asfollows:

“15. Section 16 of the 2006 Act, which came into force on12-7-2010, relates to “authorisation”. It puts an embargo onlaying, building, operating or expanding in city or localnatural gas distribution network without obtainingauthorisation under the Act. Proviso (ii) of the said Section16 provides for” deemed authorisation” in case an entity hadbeen 1aying, building, operating or expanding any city orlocal gas distribution network, immediately before theappointed date, which shall be deemed to have suchauthorisation. In the present case, the appointed date is1-10-2007 when the 2006 Act was brought into force, exceptthe provision contained in Section 16 of the 2006 Act, whichcame into force on 12-7-2010.

16. The 2008 Regulations were framed before Section 16 ofthe 2006 Act came into force. Regulation 18 of the 2008Regulations provides that an entity, not authorised by theCentral Government for laying. building, operating orexpanding CGD network before the appointed date, shallapply or obtaining an authorisation in the form as in ScheduleI and the Board may take into consideration the criteria forconsidering the application for grant of authorisation in termsspecified in clauses (a) to (j) of Regulation 18(2).”

64. Then, noticing Regulation 18 and the various requirementsspelt out by it which the PNGRB Act took into account, the judgmentfurther held as follows:

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“18. It is noteworthy that the language used in Regulation18(2) is that “the Board may take into consideration... “. Assuch, the language in which the Regulation has been coucheddoes not make the consideration in the said clauses, includingclause (d), to be mandatory, but no doubt the same would berelevant considerations. On a careful perusal of the orderpassed by Board, we find that the application of the appellanthas been rejected for reasons mentioned in para 5 of theimpugned order dated 19-5-2011, which are extractedhereunder:

“5.The committee found that you do not satisfy the conditionslaid down under Regulation 18(1) of the Petroleum andNatural Gas Regulatory Board (Authorising Entities to Lay,build, Operate or Expand City or Local Natural GasDistribution Networks)Regulations,2008onaccount of thefollowing:

(a) Physical and financial progress achieved by M/s AdaniGas Ltd. before the appointed day in the GA of Jaipur doesnot satisfy the proviso 18(2)(d) of Regulation 18(1) of thePetroleum and Natural Gas Regulatory Board (AuthorisingEntities to Lay, Build, Operate or Expand City or Local NaturalGas Distribution Networks) Regulations, 2008; (b) Even after clear instructions of PNGRB vide Press Notedated 30-10-2007 to stop all incremental activities M/s AdaniEnergy Ltd. had continued with laying of MDPE pipeline andthus violating the directions of the Board.”

19. From the above, it is clear that the application of theappellant has been rejected primarily on the ground of non-compliance with clause (d) of Regulation 18(2) of the 2008Regulations. It was incumbent on the Board to take intoconsideration various factors as specified in clauses(a)to (j)ofRegulation 18(2) of the 2008 Regulations, and the same hasto be considered in the backdrop of the fact that the pressnote was issued on 30-10-2007 to stop all incremental activitiesand as such it was necessary to consider whether the appellantcould have been faulted for non-compliance with clause (d)of Regulation 18(2), and whether it was a mandatory requirement or merely one of the factors to be consideredalong with all the other factors. Other relevant aspects ascontained in the other clauses have not been adverted to bythe Board while deciding the application of the appellant,which were also equally significant. It was necessary toconsider whether the appellant is compliant with various otherfactors as provided in clauses (a) to (j) of Regulation 18(2)of the2008 Regulations. The non-compliance, if any, withclause (d) ought to have been considered in the light of thepress note dated 30-10-2007 which required stopping of allincremental activities.

20. The peculiar factual position is that the 2006 Act hadbeen notified on 3-4-2006 but came into force on 1-10-2007and the NOC was issued on 27-3-2006, after the Governmentof Rajasthan had invited open bids on19-11-2005 for layingof city gas distribution network in the cities of Udaipur andJaipur, in which the appellant had been selected. Besidesdepositing the sum of Rs 2 crores immediately towardscommitment fee, the appellant had thereafter incurredmammoth expenditure alter it was successful in the bids, whichaspect has not been considered by the Board while decidingthe application of the appellant. In our considered view, thesame should not have normally been overlooked. Besides thesame, in the factual circumstances of the present case, theprovision of “deemed authorisation contained in proviso (ii)to Section 16 had also been enforced on 12-7-2010 and itwas necessary for the Board to have considered whether itwas a case where only certain safeguards were required tobe observed in view of the “deemed authorisation”.

65. An overall reading of the judgment (Adani Gas Ltd.) disclosesthat this Court was not cognizant of the background in which Parliamenthad enacted the PNGRB Act. This Court did not consider the exclusivelegislative competence that Parliament possessed, and as a corollary,executive authority that the Central Government exercised by virtue ofEntry 53 List I of the Seventh Schedule of the Constitution. More crucially,the decisive and unanimous opinion of this Court rendered in SpecialReference (supra) was not considered or even adverted to. In light ofthe above circumstances this Court should now consider the correctness AB

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Aof the approach and view recorded in the previous review i.e., AdaniGas Ltd (supra).

66. Parliament did not enact the PNGRB Act on a blank slate, asit were. In the Presidential Reference [Special Reference (supra)]under Article 143 elicited the Court’s opinion in the background ofBassertions by some States that they had the legislative competence todeal with natural gas. This Court’s unanimous judgment was categorical,in that it upheld the primacy of Parliament under Entry 53 List I of theSeventh Schedule of the Constitution of India. Importantly, this Courtalso recollected enactments (including the pre-constitution PetroleumAct of 1934) that dealt with petroleum, natural gas, mineral oils etc. andCsought to regulate various facets and aspects thereof and related productsand their regulations. Given this background, the Parliament felt thecompelling need to enact a comprehensive legislation that would regulatesalient aspects of all activities pertaining to petroleum products andmineral oils. The PNGRB Act was thus enacted. As noticed earlier, itDregulates all activities after extraction of petroleum, natural gas and otherpetroleum products starting with refining and going right up to distributionto the ultimate consumer. When Parliament enacted the Act, it wasconfronted with a factual situation where several entities had begunvarious activities towards laying pipelines and setting up networks inrelation to natural gas. If one read the proviso to Section 16 in isolation,Ethe inference undoubtedly would be that every entity which had startedlaying and building pipelines and networks was the recipient of the deemedauthorization clause- or in the words of Adani, that provision sought toretrospectively regularize activities by all entities. However, such a plainand facial construction is unacceptable given that in the same provision F(i.e., proviso to Section 16) the deemed authorization is immediatelyfollowed by phrase “subject to provisions of this chapter”.

67. At this stage, it would be necessary to notice the scope of aproviso. Proviso ordinarily carves out a field of operation, but does nottravel beyond the main enacted provision. Therefore, the golden rule ofGinterpretation is to read the whole section, inclusive of the proviso, insuch a manner that they mutually throw light on each other and result ina harmonious construction. This was held in Dwarka Prasad v. DwarkaDas Saraf[26]:

H26 (1976) 1 SCC 128.

“18. We may mention in fairness to counsel that the following,among other decisions, were cited at the Bar bearing on theuses of provisos in statutes: Commissioner Income Tax v. Indo-Mercantile Bank Ltd. [1959 Supp (2) SCR 256]; Ram NarainSons Ltd. v. Commissioner Sales Tax (1955) 2 SCR 483];Thompson v. Dibdin [1912 AC 533]; R. v. Dibdin [1910 P 57(CA)] and Tahsildar Singh v. State of U.P. [1959 Supp (2) SCR875. The law is trite. A proviso must be limited to the subject-matter of the enacting clause. It is a settled rule of constructionthat a proviso must prima facie be read and considered inrelation to the principal matter to which it is a proviso. It isnot a separate or independent enactment. ‘Words aredependent on the principal enacting words to which they aretacked as a proviso. They cannot be read as divorced fromtheir context’ (Thompson v. Dibdin [1912 AC 533]. If the ruleof construction is that prima facie a proviso should be limitedin its operation to the subject-matter of the enacting clause,the stand we have taken is sound. To expand the enactingclause, inflated by the proviso, sins against the fundamentalrule of construction that a proviso must be considered inrelation to the principal matter to which it stands as a proviso.A proviso ordinarily is but a proviso, although the goldenrule is to read the whole section, inclusive of the proviso, insuch manner that they mutually throw light on each other andresult 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 interpretation of aproviso is that a proviso may have three separate functions.Normally, a proviso is meant to be an exception to somethingwithin the main enactment or to qualify something enactedtherein which but for the proviso would be within the purviewof the enactment. In other words, a proviso cannot be tornapart from the main enactment nor can it be used to nullify orset at naught the real object of the main enactment.

28. Craies in his book ‘Statute Law’ (7th Edn.) while explainingthe purpose and import of a proviso state at page 218 thus:

27 (1985) 1 SCC 591.

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A“The effect of an excepting or qualifying proviso, accordingto the ordinary rules of construction, is to except out of thepreceding portion of the enactment, or to qualify somethingenacted therein, which but for the proviso would be withinit...The natural presumption is that, but for the proviso, theenacting part of the section would have included the subject-Bmatter of the proviso.”

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30. Sarathi in ‘Interpretation of Statutes’ at pages 294-295has collected the following principles in regard to a proviso:- C“(a) When one finds a proviso to a section the naturalpresumption is that, but for the proviso, the enacting part ofthe section would have included the subject-matter of theproviso.

(b) A proviso must be construed with reference to the precedingDparts of the clause to which it is appended.(c) Where the proviso is directly repugnant to a section, theproviso shall stand and be held a repeal of the section as theproviso speaks the later intention of the makers.

(d) Where the section is doubtful, a proviso may be used as aEguide to its interpretation; but when it is clear, a proviso cannotimply the existence of words of which there is no trace in thesection.

(e) The proviso is subordinate to the main section.

(f) A proviso does not enlarge an enactment except forFcompelling reasons.(g) Sometimes an unnecessary proviso is inserted by way ofabundant caution.

(h) A construction placed upon a proviso which brings it intogeneral harmony with the terms of section should prevail.G(i) When a proviso is repugnant to the enacting part, the provisowill not prevail over the absolute terms of a later Act directedto be read as supplemental to the earlier one.

(j) A proviso may sometimes contain a substantive provision.”

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33. The above case was approved by this court in CIT v. IndoMercantile Bank Ltd[28]., where Kapur, J. held that the properfunction of a proviso was merely to qualify the generality ofthe main enactment by providing an exception and taking out,as it were, from the main enactment a portion which, but forthe proviso, would fall within the main enactment. In ShahBhojraj Kuverji Oil Mills & Ginning Factory v. SubhashChandra Yograj Sinha[29 ]Hidayatullah, J, indicated theparameters of a proviso thus:

“As a general rule, a proviso is added to an enactment toqualify or create an exception to what is in the enactment,and ordinarily, a proviso is not interpreted as stating a generalrule.”

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“37. In short, generally speaking, a proviso is intended tolimit the enacted provision so as to except something whichwould have otherwise been within it or in some measure tomodify the enacting clause. Sometimes a proviso may beembedded in the main provision and becomes an integral partof it so as to amount to a substantive provision itself.”

69. The Central Government did not immediately bring into forceSection 16 of the PNGRB Act, as its imperative and negative terms(“no entity shall” lay build, operate a city or local gas network) wouldhave led to a virtual standstill of all network laying or constructing activity.Instead, it notified all provisions, except Section 16, as to grant time tothe newly established Board to consider and examine the feasibility ofapplications for authorization, based on which entities were then layingand constructing networks, the soundness of their scheme in technicaland economic terms, etc. Adani and intervenors supporting it, have urgedthat this Court should give full scope to the proviso, and the fiction of adeemed authorization, since Parliament’s intent was to clearly authorizeall entities, subject to certain modalities, because not doing so wouldresult in waste of precious national resources.

70. This Court recollects that while interpreting a proviso, notonly should the main provision be kept in mind, but the purpose for enacting 28 [1959] 2 Supp. SCR 256.

29 [1962] 2 SCR 159.

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Athe proviso should not be lost sight of. In N.K. Sharma (supra) thisCourt rejected an argument that under the Haryana Co-operativeSocieties Act, 1984, a Managing Director could not be prosecuted withoutsanction, as he was a deemed public servant. The Court held that Section123, which created the legal fiction of treating some employees as publicservants, was restricted in its application to those engaged in recoveryBof loans or those appointed as liquidator or arbitrator. It was held that:

“Section 117 of the said Act enumerates offences. Section118 limits taking of cognizance of offences which come withinthe purview of the said Act, as would be evident from sub-section (1) thereof, and not under the provisions of the PenalCCode or any other statute. The said provision, therefore, hasno application. In terms of Section 123, only an employeewho is engaged in the recovery of loans or a person who hasbeen appointed as a liquidator or an arbitrator only shall betreated as a public servant. By reason of the said provision, aDlegal fiction has been created. A legal fiction, as is well known,is created for a specific purpose and, thus, applicability thereofcannot be extended for a purpose other than those for whichit has been created. As the Managing Director of HaryanaState Cooperative Land Development Bank Ltd., the appellantwas not engaged in the recovery of loans or appointed as aEliquidator or an arbitrator and in that view of the matter, thelimited purpose for which the legal fiction has been createdwould 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:F

“In interpreting a provision creating a legal fiction, the courtis to ascertain for what purpose the fiction is created [Stateof Travancore-Cochin v. Shanmugha Vilas CashewnutFactory, AIR 1953 SC 333; State of Bombay v. PandurangVinayak, AIR 1953 SC 244] , and after ascertaining this, theGCourt is to assume all those facts and consequences whichare incidental or inevitable corollaries to the giving effect tothe fiction. [East End Dwellings Co. Ltd. v. Finsbury BoroughCouncil, (1951) 2 All ER 587 (HL); CIT v. S. Teja Singh, AIR1959 SC 352] But in so construing the fiction it is not to beHextended beyond the purpose for which it is created [Bengal

Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC661; CIT v. Amarchand N. Shroff, AIR 1963 SC 1448] , orbeyond the language of the section by which it is created.[CIT v. Shakuntala, AIR 1966 SC 719; Mancheri PuthusseriAhmed v. Kuthiravattam Estate Receiver, (1996) 6 SCC 185]It cannot also be extended by importing another fiction.[CIT v. Moon Mills Ltd., AIR 1966 SC 870] The principlesstated above are ‘well-settled’. [State of W.B. v. Sadan K.Bormal, (2004) 6 SCC 59] A legal fiction may also beinterpreted narrowly to make the statute workable.[Nandkishore Ganesh Joshi v. Commr., Municipal Corpn. ofKalyan and Dombivali, (2004) 11 SCC 417]”

72. The distinction between Central Government authorizedentities and others does not appear in Section 16; however, it clearlydoes in Section 17, where different regimes and standards of scrutinyare prescribed for the PNGRB in considering applications. This statutoryclassification is important because it harks back to the genesis of thePNGRB Act, i.e., Parliament’s intention to enact a comprehensive lawto regulate important aspects of the petroleum and natural gas sector ofthe economy, in the wake of a decisive opinion of this Court that it is theParliament alone that always had the competence to legislate in thefield, and the Central Government, to frame policies. The statutorydistinction, which is a classification no less, between Central Governmentapproved entities and others, therefore, is manifest in Section 17, whichoccurs after Section 16.

73. The opening words of Section 16 are cast in negative terms(“no entity shall”). In a series of judgments, this Court hasruled that negative words are prohibitory. As held in M. Pentiahv. Muddala Veeramallappa & Ors[30], “Negative imperative words are clearly prohibitory and areordinarily used as a legislative device to make a statuteimperative.”

74. In Superintendent and Legal Remembrancer of LegalAffairs to Govt. of West Bengal vs. Abani Maity[31], this Court observedas follows:

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31 (1979) 4 SCC 85.

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A“Exposition ex visceribus actus is a long-recognised rule ofconstruction. Words in a statute often take their meaning fromthe context of the statute as a whole. They are therefore, notto be construed in isolation. For instance, the use of the word‘may’ would normally indicate that the provision was notmandatory. But in the context of a particular statute, this wordBmay connote a legislative imperative, particularly when itsconstruction in a permissive sense would relegate it to theunenviable position, as it were, ‘of an ineffectual angelbeating its wings in a luminous void in vain’. ‘If the choice isbetween two interpretations’, said Viscount Simon, L.C. InCNokes vs. Doncaster Amalgamated Collieries, Ltd. (AC at p.1022):

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‘The narrower of which would fail to achieve the manifestpurpose of the legislation, we should avoid a constructionwhich would reduce the legislation to futility and should ratherDaccept the bolder construction based on the view thatParliament would legislate only for the purpose of bringingabout an effective result.’”

75. The enacting part of Section 16 thus prohibits anyone or anyentity from starting or carrying on any activity covered by the PNGRBEAct and requires authorisation from it. The proviso then is meant tooperate in an extremely restricted manner, i.e., to deal with entities interalia that were engaged in laying, building, operating etc., inter alia, gaspipelines “at the time when the Act came into force”. The proviso,unlike the main part of Section 16, was not intended to grantauthorisation to entities which had not started any activity thus far. SuchFentities had to now apply for authorisation. In any case, by the combinedoperation of Sections 16 and 17, the proviso to Section 16 is not unqualified- the “deemed authorisation” clause is subject to other provisions ofChapter IV. Section 17 is one such provision under Chapter IV. As noticedpreviously, this provision brings home clearly that only Central GovernmentGauthorised entities were deemed to have been authorised. The omissionof any reference to authorisation in Section 16 is significant because thequalifier for application of the proviso is that it was subject to otherprovisions of the chapter. The scheme of Section 17 intrinsically classifiesthe two, i.e. Central Government authorised entities, and others. Theunderlying basis for this statutory classification is that only entities whichH

had been cleared or authorised by the Central Government prior to thecoming into force of the Act were deemed to have authorization underthe Act, and therefore, had to furnish certain details. As with regard tothe others, i.e., entities not authorised by the Central Government, freshapplications were necessary [Section 17(1) and Section 17(2)] whichwere to be assessed by the Board on a case-by-case basis and inaccordance with uniform standards.

76. The other reason for holding that the deeming fiction ofauthorization in the proviso to Section 16 does not apply to all entities, isthat the clause is “subject to other provisions of this chapter”. Thismeans that not all entities can be termed as “deemed authorized” entities.In K.R.C.S. Balakrishna Chetty v. State of Madras[32]this Courtexplained the use of the term “subject to” in the following manner:

“The use of the words “subject to” has reference toeffectuating 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 Courtheld that “subject to” is an expression of subordination:

“93. Furthermore, the expression ‘subject to’ must be giveneffect to.

94. In Black’s Law Dictionary, Fifth Edition at page 1278 theexpression “Subject to” has been defined as under:

“Liable, subordinate, subservient, inferior, obedient to;governed or affected by; provided that; provided, answerablefor. 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 theproviso to Sections 17(1) and Section 17(2) the former (i.e., proviso toSection 16) only states that entities that had been previously authorizedby the Central Government could claim deemed authorization.Therationale for this is that the provisos to Section 17(1) and 17(2) merelyrequire such entities (as were authorized by the Central Governmentprior to coming into force of PNGRB Act) to intimate certain details tothe PNGRB -but do not require any fresh authorization.This distinction 32 1961 (2) SCR 736.33 (2004) 3 SCC 1.

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Ai.e., between authorization and intimation is crucial because it states thatentities which received Central Government authorization before thecommencement of the Act, and which had started to lay, build or operateCGD networks were deemed to be authorized under the PNGRB Act.This is the only logical and reasonable construction, given this Court’sdeclaration in Special Reference (supra), that States did not have theBcompetence to enact any laws or frame policies in respect of naturalgas. It was the Parliament alone that could do so. The Court also declaredultra vires the Gujarat enactment, in light of this reasoning. Parliamentwas conscious that authorizations for CGD networks were being grantedby the Central Government, and it sought to save only these authorizations,Cwhich had the support of the Constitution. Authorizations granted bystate governments were not legal and did not have the support of theConstitution, and such authorizations were to be obtained afresh, underthe regime put in place by the PNGRB Act.

79. The appellant’s reliance on Section 17(4), to urge that theDPNGRB has limited options and can either reject an application seekingauthorization or allow it, and that there is no statutory indication apartfrom the deemed authorization under the proviso to Section 16, is withoutbasis. In the overall scheme of the PNGRB Act, what appears clearly isthat:

E(1) After coming into force of the PNGRB Act, all activitiescovered by it (refining, processing, storage, transportation,distribution, marketing and sale of petroleum products and naturalgas) can be carried out only with the authorizationof the PNGRB,in accordance with provisions of the Act; F(2) The PNGRB’s functions are delineated in Section 11 whichinclude granting authorization to entities to lay, build, operate orexpand common carriers, contract carriers or local natural gasdistribution network;

(3) The PNGRB’s functions also include the control throughGregulation, access to city or local natural gas distribution networkto ensure fair trade and competition amongst entities;

(4) The PNGRB has adjudicatory powers under Section 12 and24;

(5) The PNGRB has regulation making powers under Sections 11Hand 61;

(6) Pursuant to its regulatory powers, and regulation makingpowers, PNGRB in fact has framed several regulations[34],including the CGD Regulations of 2008;

(7) Sections 16 and 17 are of crucial importance because theymanifest Parliament’s intention of meting out uniform treatment,in regard to entities that were in the process of laying, building,operating or expanding any city or local natural gas distributionnetwork or any pipeline as a common carrier or contract carrier;and

(8) Section 17 (4) itself alludes to the policies of the CentralGovernment, which are to apply and guide the PNGRB, whileconsidering applications under Section 17 (2).

80. As discussed earlier, petroleum was always within the exclusivedomain of the Parliament and Central Government. The enactment ofthe Petroleum Act, 1934 (pre-Constitutional law) and more importantly,the Petroleum and Natural Gas Rules, 1959 (hereafter called “the 1959Rules”) shows that Union primacy always existed in this field. The 1959Rules, 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 afree State whether in the form of natural gas or in a liquid viscousor solid form.” By Rule 4, all prospecting or mining except under alicense or a lease was prohibited. The Petroleum Rules, 2002in Part Vbrought in a regime (Rules 87-101) for regulation and transportation ofpetroleum, again defined broadly to include natural gas. Rule 89 is castin negative terms and expressly prohibits pipelines without prior approval:

“89. Approval of the design and route of the pipeline-Nopipeline shall be laid without the prior written approval ofthe Chief Controller of the route of the pipeline, and of thedesign, construction and working thereof.”

34 Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build,Operate or Expand Natural Gas Pipelines) Regulations, 2008; Petroleum and NaturalGas Regulatory Board (Procedure for Development of Technical Standards andSpecifications including Safety Standards) Regulations, 2009; Petroleum and NaturalGas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand Petroleumand Petroleum Products Pipelines) Regulations, 2010; Petroleum and Natural GasRegulatory Board (Procedure for Development of Technical Standards and Specificationsincluding Safety Standards) Regulations, 2009; Petroleum and Natural Gas RegulatoryBoard (Gas Exchange)Regulations, 2020

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A81. Rule 90 provides certain technical specifications with respectto design of the pipeline as well as location; Rule 91 states that pipelinesare to be laid in the most favourable route, avoiding obstructions andareas which have no unusual external conditions. Other criterion suchas hydrostatic testing, protection against corrosion, laying pipelinesunderground, shutting down of pipelines, checking of gauges,Bprovisions for alterations, additions, repairs and maintenance, and thepower of inspection and examination as well as obligation to reportaccidents are provided for.

82. The Policy for Development of Natural Gas Pipeline andCity or Local Natural Gas Distribution Network, 2006 was framedCby the Central Government. In para 1.3, the policy’s objective is topromote public and private sector investment in natural gas pipelinesand city or local natural gas distribution networks to facilitate openaccess to all entities to the pipeline network on a non-discriminatorynetwork, promotion of competition amongst entities to prevent abuse ofDdominant position and to secure consumer interest in terms of gasavailability and reasonable tariff for natural gas pipeline and city or localnatural gas distribution networks. Para 6.1 states that any entity wantingto build, operate or expand common or contract carrier gas pipelines hasto undertake that if it has business interest in related areas of gasmarketing or city or local gas distribution network or has a related entityE(a parent company, group company, JV, subsidiary etc.), it would ensurean arm’s length relationship between pipeline activity and those activities.Such entities were obliged to follow an Affiliate Code of Conduct, andthe PNGRB had the right to enquire about managerial structure/ownershippatterns and accounts of the authorized entity and its related entities toFensure that such relationship is at arm’s length. Para 6.2 envisions thatauthorized entities will have transportation of natural gas as their solebusiness activity and not have any business interests in gas marketing orcity or local gas distribution networks. Para 6.3 aims at ensuring thatpipeline ownership would not provide any competitive advantage to anygas seller and abuse of market power in establishing an efficient gasGgrid with open access on a non-discriminatory basis. By reason of para7.1, gas grid connectivity “[I]s with a view to harmonizing the operations and providinginterconnectivity to different gas pipelines. For thedevelopment of the gas sector in India, including the H

establishment of Gas Grid with open market access for allplayers on a non-discriminatory basis, a comprehensive setof technical requirements and safety standards as well as acode for gas grid connectivity, to be developed by the Board,is necessary to ensure operational compatibility. Adherenceto such standards and codes will be an integral condition ofAuthorization for gas pipelines as well as city or local naturalgas distribution networks. The Board may refuse access tothe gas grid on technical considerations.”

In para 9, the Central Government or PNGRB, in consultationwith the Oil Industry Safety Directorate (hereafter called “OISD”), hasto “[R]eview the existing rules & standards, their applicabilityand develop a comprehensive set of technical & HSEstandards in respect of natural gas transmission & distributionpipelines and city or local natural gas distribution network.These standards shall cover technical & HSE parameters indesign, laying, operation & maintenance of natural gaspipelines and city or local natural gas distribution networksincluding associated facilities & equipment considering, interalia gas grid connectivity issues. The Board shall lay downthe standards as per Section 11 (i) of the Act to ensure seamlessdevelopment of natural gas pipeline & distributioninfrastructure in the country.”

83. All these- the objectives and the provisions of the PNGRBAct and the Policy of 2006 - afford sufficient guidance to the Board,along with the regulations framed by it, for deciding which applicantentities can be granted authorization, and if so, to what extent of theirrespective projects. The decision by the PNGRB under Section 17(4)therefore, to decide upon any authorization application is not based on itsconsideration of the subjective factors relating to each application, buton an overall analysis of all the above relevant factors.

84. Adani’s contention as indeed that of the interveners withrespect to orders of this Court (especially made in the public interestlitigation, in M.C. Mehta) or authorizations granted by the State cannotbe read as overriding or in any manner undermining the provisions of thePNGRB Act in terms of the opinion of this Court, in In re. Special A

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AReference 2001 as well as the decision in Association of Natural Gas&Ors. (supra). Parliament had exclusive competence to enact laws andthe Union had the corresponding sole executive powers to frame policiesin relation to petroleum and petroleum products. As noticed in the previouspart of the judgment, though the Petroleum Act, 1934 continued as a“law in force”, was used several times by framing specific rules in relationBto various aspects, containing a legal regime for regulation of laying ofgas pipelines, etc. for which Central authorities always exercised exclusivecontrol prior to the enactment of the PNGRB Act. The Act creates amodern-day regulation intended to create All-India guidelines and policiesfor due implementation, ensuring that market dominance in the field isCnot abused and fairness in dealings of various entities takes place. PNGRBAct was intended to have primacy in regard to grant of authorizations onthe subject over which it exercises jurisdiction. To facilitate due exerciseof 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 limitedDtaking into account local factors - no more no less. In these circumstances,any contention on behalf of Adani or the intervenors to the effect that noobjection had been granted to them by a State authority or orders ofCourt had permitted any entity to either function or continue to functiondoes not per se amount to an authorization in terms of the PNGRB Act.EIt does not also follow that authorization of the Central Government canbe assumed. Such entities had to secure authorization, under the PNGRBAct, in respect of any area, after coming into force of the Act.

85. Having regard to all these, this Court is of the opinion that theprevious ruling in Adani Gas (supra) did not correctly interpret the law.FIt did not discuss whether the “deemed authorisation” (in the proviso toSection 16) was qualified or unqualified. The previous ruling in AdaniGas(supra)also did not notice the important condition that thedeemed authorization clause applied subject to other provisions ofChapter IV, including Section 17; and lastly it overlooked the decisive

ruling of a five-judge bench in Special Reference (supra).GAccordingly, the interpretation of Section 16 and the deemed authorizationclause in its proviso, in Adani Gas is held to be incorrect. The judgmentin Adani Gas is therefore overruled. For the same reasons, thesubmissions of the appellants as well as the supporting interveners arerejected. H

Re Point No. 2: Validity of Regulation 18

86. As discussed in the previous section of this judgment, by virtueof Sections 16 and 17, only those entities that were carrying out CGDactivities, which had been authorized prior to the appointed day, aredeemed to be authorized under the PNGRB Act. Section 19 providesthat the Board may grant authorization either on the basis of an applicationfor authorization, or on a suo motu basis, where the Board finds itnecessary or expedient to lay, build, operate or expand a city or localnatural gas distribution network in a specified geographic area.

87. In respect of entities that seek to set up such operations afterthe Act came into effect, Regulation 4 provides as follows:

“4. Initiation of proposal through expression of interest routeor suo-motu by Board.

(1) An entity desirous of laying, building, operating orexpanding a CGD network shall submit an expression ofinterest to the Board in the form of an application at ScheduleB alongwith an application fee as specified under thePetroleum and Natural Gas Regulatory Board (Levy of Feeand Other Charges) Regulations, 2007.

(2) The Board may suo-motu invite bids from entities interestedin laying, building, operating or expanding a CGD networkfor any specified geographical area.

88. Therefore, such entities are required to either submit anexpression of interest, followed by acceptance of the proposal andinvitation of bids by the Board (under Regulation 5(5)), or bid forauthorization when such bids are invited suo-motu by the Board (underRegulation 6). Entities that satisfy all the requisite conditions shall begranted authorization, under Regulation 10.

89. Regulation 17 provides for the further monitoring and regulationof entities that have prior authorization by the Central Government, whichare deemed to be authorized under the PNGRB Act. The regulationimposes requirements to comply with all terms and conditions of theauthorization, and relevant technical standards and specifications, etc.The Board may grant exclusivity to such entities; the Board also fixestransportation tariffs. Regulation 18 pertains to entities that were carryingout CGD activities prior to the coming into effect of the PNGRB Act, A

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Abut were not authorized by the Central Government. Such entities do notenjoy “deemed authorization” under the Act; they are required to applyfor fresh authorization under the provisions of Regulation 18.

90. The PNGRB Act and Regulations, thus create three categoriesof entities for the different ways in which authorization can be obtained:B(1) Entities authorized by the Central Government prior to the appointedday, are deemed to be authorized, and are merely required to submitcertain information in the relevant forms; (2) Entities that were carryingout 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.,Call entities seeking to set up operations afresh, after the PNGRB Actcame into effect, would be required to either submit an expression ofinterest, followed by participation in the bidding process, or participate inthe suo-motu invitation of bids by the PNGRB.

91. Regulation 18 is part of the CGD Regulations framed underDSection 61 of the PNGRB Act. This regulation, on a plain reading, appliesto entities not authorised by the Central Government for laying, building,operating or expanding pipelines beyond the appointed date. Regulation18(1) requires such entities (who did not possess Central Governmentauthorisation as on the appointed date) to apply immediately for obtainingEauthorisation in the format prescribed in Schedule I to the CGDRegulations. 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 eligibility criteriaspecified in Regulation 5(6)(a) to (e) and (i); Regulation 18(2)(b) statesthat entities which were not registered as companies at the time of comingFinto force of the Regulations were to undertake to become companies;Regulation 18(2)(c) states that a satisfactory assessment of the actualphysical progress made and the financial commitment in respect of itimmediately before the appointed date in comparison with the entitiesDFR appraised by the financial institutions funding the project may beGtaken into consideration by the PNGRB for grant of authorization. If theproject is not funded, the Board could appraise the DFR which had toclearly indicate the specific geographical area of the project and alsospecify the coverage for CNG and PNG. Regulation 18(2)(d)prescribes that the actual physical progress and the financialdemand referred to in clause (c) would mean at least 25% of the capitalH

expenditure identified for the CGD Project in terms of DFR immediatelybefore the appointed date. Apart from these, the entity should havearranged by way of acquisition or lease, lands for the next project (Clause(e)). The PNGRB reserves the right to have the actual physical progresscertified and, having regard to the progress achieved, authorise the entityonly for the authorised area as per the (i) geographical area in its DFR;or (ii) geographical area actually covered under implementation till theappointed day; or (iii) any area as specified by the Board(Clause (f)).The Board has to be satisfied of the adequacy of the entities ‘capacitiesto meet the applicable technical standard and safety standards specifiedin the regulations or the technical standards, including the quality of safetystandards. Clause (g) also refers to Clause 15. Regulation 18(3) isimportant because it obliges overall evaluation and is in the followingterms:

“Regulation 18 (3) - the evaluation of the application in termsof the Clauses (a) to (j) shall be done in totality consideringthe composite nature and inter-linkages of the criteria.”

92. Apart from sub-regulation (3), it is also noteworthy thatRegulation 18 applies only to one category, i.e., entities which were notauthorised by the Central Government prior to coming into force of thePNGRB 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 provisoto Section 16 and the main parts of Section 17. Before the coming intoforce of the PNGRB Act, the existing norms for grant of approval orauthorisation evolved by the Central Government were found in thePetroleum Act, Petroleum Rules as well as the existing policies, i.e. thepolicy of 2002 and the later policy of 2006. Keeping this in mind,Regulation 18 was meant to cater to an extremely limited class ofapplicants and the intention of framing this regulation was to apply itto those entities whose projects existed and whose projects wereunknown to the central government. The ruling in Special Reference(supra) was only a declaration of what always was the correct legalposition, i.e., that Parliament had exclusive legislative competence toenact laws in relation to petroleum, mineral oil and oil and natural gasand that the Central Government had exclusive control over the subjectmatter. The infraction of this constitutional position by the States, someof which had granted authorizations, would mean that such entities which AB

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Ahad been authorised by the State but not the Central Government, in alllikelihood would not have conformed to the overall policy of the CentralGovernment with respect to inter alia laying, operating, and building ofnatural gas pipelines and city or local natural gas distribution networks.

93. Regulation 18 was meant to provide a uniform standardBwhereby such State authorised entities’ projects could be evaluated andgranted authorization, if need be. Apart from technical and safetystandards which the regulation necessitated, final standards wereprescribed; common yardstick of 25% of actual physical progress withcorresponding financial commitment was, therefore, insisted upon.

C94. The PNGRB has been granted the flexibility of either approvingthe entire project or curtailing it or approving that part of the projectwhich is actually performed. In the opinion of this Court, this discretionis essential inasmuch as the PNGRB had to consider the overall positionof not only the area or areas in question, but the feasibility of theconcerned network and its integration with the state and national network.DRegulation 18 is to be seen, therefore, as a special feature to deal withthe applications made by entities not authorised by the CentralGovernment. With the coming into force of Section 16 and the conclusionof evaluation of all those existing entities, there would be little or noscope for applying Regulation 18. This is also evident from RegulationE17 which reads as follows: “17. Entity authorized by the Central Government for laying,building, operating or expanding CGD network before theappointed day.

(1) The entity shall submit relevant information along withFsupporting documents in the form as in Schedule H within aperiod of one hundred and eighty days from the appointedday.

(2) The entity shall abide by the terms and conditions of theauthorization by the Central Government includingGobligations, if any, imposed by the Central Government.

(3) The entity shall abide by the relevant regulations fortechnical standards and specifications, including safetystandards and the quality of service standards****.

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(4) The Board may consider grant of exclusivity on such termsand conditions as per the provisions in the Petroleum andNatural Gas Regulatory Board (Exclusivity for City or LocalNatural Gas Distribution Networks) Regulations, 2008.

(5) The transportation tariff shall be as determined by theBoard as per regulation under section 22 of the Petroleumand Natural Gas Regulatory Board Act, 2006.

(6) The activities of the entity may be subject to such otherregulations as may be applicable as per the provisions of theAct.”

95. The ruling cited, i.e., Adani Gas(supra) in supportof the submission noticed in the previous part of the judgement statedthat Regulation 18(2) is not couched in mandatory terms and it held that:

“…but no doubt the same would be relevant considerationshaving regard to the express terms of regulation 18(3) whichclearly spelt out that PNGRB has to take into considerationan application and test whether all criteria are satisfied havingregard to their inter-linkages. There can be no room for doubtthat these conditions were meant to be mandatory.”

In view of the above scheme of the regulations, this Court wouldfirst consider whether the phrase “may take into consideration” inRegulation 18 (2), before setting out the various criteria, is compulsiveor only by way of guidance. In Adani Gas (supra), this Court held thatthe term was not mandatory, and that the PNGRB had to neverthelessbe generally guided by the various criteria in clauses (a) to (j).

96. As noticed earlier, the PNGRB Act is intended to regulate allactivities post extraction – i.e., refining, processing, storage, transport,distribution, marketing and sale. Power, when conferred, has to beconstrued in the overall context of the parent statute, and the specificpowers conferred on the regulatory agency. Section 11 and Section 61of the PNGRB Act confer regulation making powers on the Board. It isin the exercise of this power that Regulation 18 was framed, for theapplication of uniform criteria to consider applications for authorization,made by entities which did not have Central Governmentauthorization on the appointed date. It is in this context that one has toconsider the interpretation of the phrase “may take intoconsideration”.

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A97. In Sri Sitaram Sugar Company Limited v. Union of India[35],this Court had to consider and interpret the expression “having regardto” in the statute, which conferred power upon the government todetermine the price of sugar. This Court observed as follows:

“29. (….) Be that as it may, the expression “having regardto” must be understood in the context in which it is used inthe statute. See Union of India v. Kamlabhai HarjiwandasParekh [(1968) 1 SCR 463, 471]. These words do not meanthat the government cannot, after taking into account thematters mentioned in clauses (a) to (d), consider any othermatter which may be relevant. The expression is not “havingregard only to” but “having regard to”. These words are nota fetter; they are not words of limitation, but of generalguidance to make an estimate. The government must, of course,address itself to the questions to which it must have regard,and, having done so, it is for the government to determinewhat it is empowered to determine with reference to what itreasonably considers to be relevant for the purpose. TheJudicial Committee in CIT v. Williamson Diamonds Ltd. [LR1958 AC 41, 49 : (1957) 3 WLR 663] observed with referenceto the expression “having regard to”: (AC p. 49)

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E“The form of words used no doubt lends itself to thesuggestion that regard should be paid only to the twomatters mentioned, but it appears to their Lordships that itis impossible to arrive at a conclusion as to reasonablenessby considering the two matters mentioned isolated fromother relevant factors. Moreover, the statute does not sayF“having regard only” to losses previously incurred by thecompany and to the smallness of the profits made. Noanswer, which can be said to be in any measure adequate,can be given to the question of “unreasonableness” byconsidering these two matters alone.”

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See CIT v. Gungadhar Banerjee and Co. (P) Ltd. [(1965) 3SCR 439, 444-45 : AIR 1965 SC 1977 : 57 ITR 176] Seealso Saraswati Industrial Syndicate Ltd. v. Union of India[(1974) 2 SCC 630, 633 : (1975) 1 SCR 956, 959]. In Stateof Karnataka v. Ranganatha Reddy [(1977) 4 SCC 471, 488H35 (1990) 3 SCC 223.

: (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 regardto” and “shall have regard to” have been the subject matterof consideration in various decisions of the courts in Englandas also in this country. We may refer only to a few.In Illingworth v. Walmsley [(1900) 2 QB 142 : 16 TLR 281] itwas held by the Court of Appeal, to quote a few words fromthe judgment of Romer C.J. at page 144:

“All that clause 2 means is that the tribunal assessing thecompensation is to bear in mind and have regard to theaverage weekly wages earned before and after the accidentrespectively. Bearing that in mind, a limit is placed on theamount of compensation that may be awarded ....”

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“29. (…) It is worthwhile to quote a few words from thejudgment of Fletcher Moulton, L.J. at page 458. Under thephrase ‘Regard may be had to’ the facts which the courts maythus take cognizance of are to be ‘a guide, and not a fetter’.This Court speaking through one of us (Beg, J., as he thenwas), has expressed the same opinion in the case of SaraswatiIndustrial Syndicate Ltd. v. Union of India [(1965) 3 SCR 439,444-45 : AIR 1965 SC 1977 : 57 ITR 176]. Says the learnedJudge at page 959 (SCC p. 633, para 3):‘The expression“having regard to” only obliges the government to consideras 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 thegovernment to consider as relevant data material to whichit must have regard...”.

In O’May v. City of London Real Property Co. Ltd. [(1982) 1All ER 660, 665 : (1982) 2 WLR 407 (HL)], Lord Hailshamstated:

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“A certain amount of discussion took place in argumentas to the meaning of ‘having regard to’ in Section 35.Despite the fact that the phrase has only just been used bythe draftsman of Section 34 in an almost mandatory sense,I do not in any way suggest that the court is intended orshould in any way attempt to bind the parties to the terms A

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of the current tenancy in any permanent form....”.

30. The words “having regard to” in the sub-section are thelegislative instruction for the general guidance of thegovernment in determining the price of sugar. They are notstrictly mandatory, but in essence directory. TheCreasonableness of the order made by the government inexercise of its power under sub-section (3-C) will, of course,be tested by asking the question whether or not the mattersmentioned in clauses (a) to (d) have been generally consideredby the government in making its estimate of the price, but theDcourt will not strictly scrutinise the extent to which those matters D

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or any other matters have been taken into account. There issufficient compliance with the sub-section, if the governmenthas addressed its mind to the factors mentioned in clauses (a)to (d), amongst other factors which the government mayreasonably consider to be relevant, and has come to aEconclusion, which any reasonable person, placed in theposition of the government, would have come to. (…)”

98. In the present case, having regard to the contextual setting ofRegulation 18, the expression “may take into consideration” cannotbe placed in the straightjacket of either a mandate or a directory rule.FThere are numerous decisions which hold that “may” could mean “shall”and vice versa; much depends upon the context and object of the provisionas well as its statutory setting. As discussed by this Court in ShriSitaram Sugar Company (supra) the phrase “having regard to”followed by enumeration of criteria, is the legislature’s or rule maker’sGindicator of how discretion is to be exercised. Likewise, the terms “mayconsider” or “may take into consideration” or even the enumerationof criteria prefaced by the phrase “it shall be lawful to consider” aremethods by which the law or rule maker would like the authority toexercise discretion, taking into consideration certain criteria whiledischarging its duties.H

99. In the present case, Regulation 18(3) specifically states that“evaluation of the application in terms of the Clauses (a) to (j)shall be done in totality considering the composite nature and inter-linkages of the criteria.” This, coupled with the listing of “any othercriteria considered as relevant by the Board based on theexamination of the application.”(Regulation 18 (2) (j)), in the opinionof this Court, brings more precision to the task of evaluation of applications(preferred by entities which did not possess Central authorization whenthe Act came into force) by the PNGRB. If one keeps in mind the factthat all enumerated criteria deal with distinct matters, some of themtechnical, and others with financial capability of the applicant entity, thePNGRB is duty bound to further consider how and to what extent theapplicant’s project- ongoing, or at a nascent stage - had progressed.This is because “laying, building, operating or expanding”, coversall stages i.e., from conceptualization and initial work, to advancedexecution of a project, with deployment of optimal men, material andresources. Therefore, one criterion prescribed is the 25% threshold forexecution of ongoing work, as well as expending such percentage offinance. The flexibility given to the PNGRB at the stage of evaluation isevident from Regulation 18(2)(f)(iii) which empowers it to specify thegeographical 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 thesemean that the PNGRB is to be guided by the composite of factorsenumerated in Regulation 18(2) while evaluating applications forauthorization; how important one factor is, and the appropriate weightageto 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 ofRegulation 18(2) have to be considered, and wherever necessary, “anyother relevant criteria” (Reg. 18 (2) (j)) which means factors relevantfor the purposes of the Act, having regard to its objects and purposes.The PNGRB also has to consider the composite nature and inter-linkages of the criteria.

100. In regard to the validity of Regulation 18(2), the appellant’sargument is that the regulation is ultra vires, because there is nosubstantive provision giving guidance, leaving the power to rejectapplications at the whims of the PNGRB, which can pick and chooseany or some criterion and ignore the rest. As far as the latter aspect A

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Agoes, this Court has held above, that all criteria have to be considered,-having regard to their interlinkages.Therefore, the question of pickingand choosing one criterion, and ignoring others does not arise. Muchwould depend on the individual facts of the case, the weight given to oneor a set of criteria. This per se does not render the power (underRegulation 18 (2)) arbitrary. In the particular facts of any case, it is openBto an aggrieved applicant to show the exercise of power is arbitrary,and seek judicial review. As held by this Court in Collector of Customsv Nathella Sampathu Chetty[36]:

“The possibility of abuse of a statute otherwise valid doesnot impart to it any element of invalidity. The converse mustCalso follow that a statute which is otherwise invalid as beingunreasonable cannot be saved by its being administered in areasonable manner. The constitutional validity of the statutewould have to be determined on the basis of its provisionsand on the ambit of its operation as reasonably construed. IfDso judged it passes the test of reasonableness, possibility ofthe powers conferred being improperly used is no ground forpronouncing the law itself invalid and similarly if the lawproperly interpreted and tested in the light of the requirementsset out in Part III of the Constitution does not pass the test itcannot be pronounced valid merely because it is administeredEin a manner which might not conflict with the constitutionalrequirements.”

101. The challenge to the regulation on the ground of arbitrariness,and violation of Article 14, therefore, fails.

FPoint No. 2 Whether Regulation 18 is ultra vires the PNGRBAct

102. The next question is with respect to whether Regulation 18is ultra vires the PNGRB Act. In State of Tamil Nadu & Anr. vP. Krishnamurthy & Ors.[37 ]this Court recollected the following principlesGwhile adjudging the validity of subordinate legislation, including regulations:

“15. There is a presumption in favour of constitutionality orvalidity of a subordinate legislation and the burden is uponhim who attacks it to show that it is invalid. It is also well 36 (1962) 3 SCR 786.H37 (2006) 4 SCC 517.

recognized that a subordinate legislation can bechallenged under any of the following grounds:

(a) Lack of legislative competence to make the subordinatelegislation.

(b) Violation of fundamental rights guaranteed under theConstitution of India.

(c) Violation of any provision of the Constitution of India.

(d) Failure to conform to the statute under which it is made orexceeding the limits of authority conferred by the enablingAct.

(e) Repugnancy to the laws of the land, that is, any enactment.

(f) Manifest arbitrariness/unreasonableness (to an extentwhere the court might well say that the legislature neverintended to give authority to make such rules)

16. The court considering the validity of a subordinatelegislation, will have to consider the nature, object and schemeof the enabling Act, and also the area over which power hasbeen delegated under the Act and then decide whether thesubordinate legislation conforms to the parent statute. Wherea rule is directly inconsistent with a mandatory provision ofthe statute, then, of course, the task of the court is simple andeasy. But where the contention is that the inconsistency ornon- conformity of the rule is not with reference to any specificprovision of the enabling Act, but with the object and schemeof the parent Act, the court should proceed with caution beforedeclaring invalidity.”

103. This Court, in PTC India Ltd. v. Central ElectricityRegulatory Commission[38], characterised regulation making as legislative:

“49. On the above analysis of various sections of the 2003Act, we find that the decision-making and regulation-makingfunctions are both assigned to CERC. Law comes into existencenot only through legislation but also by regulation andlitigation. Laws from all three sources are binding. Accordingto Professor Wade, “between legislative and administrative A

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Afunctions we have regulatory functions”. A statutoryinstrument, such as a rule or regulation, emanates from theexercise of delegated legislative power which is a part ofadministrative process resembling enactment of law by thelegislature whereas a quasi-judicial order comes fromadjudication which is also a part of administrative processBresembling a judicial decision by a court of law. (See ShriSitaram 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 C“If the exercise of power is in the nature of subordinatelegislation, the exercise must conform to the provisions of thestatute.”

In Global Energy Ltd. v. Central Electricity RegulatoryCommission[40], a rule disqualifying a company or entity from applyingDfor a license under the Electricity Act, 2003, was impugned as ultravires. The rule, setting out disqualifications inter alia, precluded an entitywhose partners, promoters, directors or associates were “involved inany legal proceedings, and in the opinion of the Commission grantof licence in the circumstances, may adversely affect the interest ofthe electricity sector of the consumers”; or “is not considered a fitEand proper person for the grant of licence for any other reason tobe recorded in writing” from the applying. The phrase “not consideredfit” was amplified in the explanation to include “(i) financialintegrity of the applicant; (ii) his competence; (iii) his reputationand character; and (iv) his efficiency and honesty.” This CourtFproceeded to analyse the challenge to the rule, and observed as follows:“38. When a disqualification is provided, it is to operate atthe threshold in respect of the players in the field of tradingin electricity. When, however, a regulatory statute is soughtto be enforced, the power of the authority to imposeGrestrictions and conditions must be construed having regardto the purpose and object it seeks to achieve. Dealing in anymanner with generation, distribution and supply and tradingin electrical energy is vital for the economy of the country.

39 (1988) 4 SCC 59.H40 (2009) 15 SCC 570.

The private players who are permitted or who are grantedlicence in this behalf may have to satisfy the conditionsimposed. No doubt, such conditions must be reasonable.Concededly, the doctrine of proportionality may have to beinvoked.

39. The superior courts would ensure that the subordinatelegislation has been framed within the four corners of theAct and is otherwise valid. The issue therefore which arisesfor our consideration is as to whether the delegation havingbeen made for the purpose of carrying out the object, couldthe limitation be imposed for ascertaining as to whether theapplicant is fit and proper person and disregarding hiscreditworthiness. There cannot be any doubt whatsoever thata statute cannot be vague and unreasonable.

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41. The question, which, however, falls for our considerationis as to whether the purported legislative policy is valid ornot. Such a question did not arise for considerationin Clariant [(2004) 8 SCC 524].

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43. A legislative policy providing for qualification ordisqualification of a person for obtaining a trading licenceshould not be vague or uncertain. Parameters must be laiddown therefor for determining the financial integrity,reputation, character, efficiency and honesty of the applicant.An Explanation appended to clause (f) of Regulation 6-Apoints out various aspects that may be considered whiledetermining the said criteria. However, what should be thecriteria in regard to financial integrity, character, reputation,etc. have not been defined. How and in what manner the saidcriteria are required to be ascertained have not been laiddown, the criteria are subjective ones.

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under the statute itself. It is well settled that essential legislativefunction cannot be delegated.

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47. The factors enumerated in the Explanation appended toBclause (f) of Regulation 6-A are unlimited. For determiningthe question as to whether the applicant is a fit and properperson, a large number of factors may be taken intoconsideration. It for all intent and purport would be morethan the technical requirement, capital adequacy requirementand creditworthiness for being an “electricity trader” asCenvisaged under Section 52 of the Act. An applicant usuallywould be a new applicant. It is possible that there had beenno dealings by and between the applicant and the licensor.Each one of the criteria laid down in the Explanation refersto creditworthiness.

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51. Regulation 6-A in effect confers powers/discretion onmatters of licensing even in public hearing. Such relevantfactors which provide for the criteria laid down in Regulation6-A could be brought on record. Section 15, however,Eempowers the Commission to specify the form and manner ofthe application and the fees that is required to be attached.The parliamentary object must be read in the context of thePreamble.”

F105. Sections 11 and 61 of the PNGRB Act contain regulationmaking powers. Under Section 11(c)(ii) the Board has power to authorizeentities to “lay, build, operate or expand city or local natural gasdistribution networks”. By Section 11(e)(iii) PNGRB is empoweredto frame regulations to “access to city or local natural gas distributionnetwork so as to ensure fair trade and competition amongst entitiesGas per pipeline access code”. By Section 11(f)(iv) it is enjoined toensure “equitable distribution of petroleum and petroleum products”.Section 11(i) empowers the Board to:

“(i) lay down, by regulations, the technical standards andspecifications including safety standards in activities relating H

to petroleum, petroleum products and natural gas, includingthe construction and operation of pipeline andinfrastructure projects related to downstream petroleum andnatural gas sector.”

All these regulatory powers, coupled with the general power underSection 61(1) to frame regulations are, in the opinion of this court,sufficiently wide to clothe PNGRB with the power to frame Regulation18. Furthermore, Regulation 18 is to be considered as applicable to aspecific class of entities- by their nature, dwindling in numbers, i.e.,entities which had not secured Central Government authorization orapproval before the PNGRB Act came into force. The regulation ismeant to guide the Board to deal with applications of such categories ofentities, which fall under proviso to Section 16 read with Section 17 (2),and apply uniform standards. These considerations further theobjectives of the whole of PNGRB Act as well as enable the PNGRB toobjectively perform its task, while deciding applications, exercising itspowers under Section 17 (4).

106. In Petroleum & Natural Gas Regulatory Board v.Indraprastha Gas Ltd.[41] the issue involved was whether the PNGRBwas empowered to fix or regulate the maximum retail price at whichgas could be sold by entities such as Indraprastha Gas Ltd., to theconsumers and further if the Board was empowered to fix any componentof network tariff or compression charge for an entity having its owndistribution network. This Court noticed the difference between city andlocal gas distribution networks. This Court considered the combinedimpact of Section 20 (declaring, laying, building, etc., of common carrieror contract carrier and city or local natural gas distribution network);Section 21(the right of first use by entities laying, building, operating orexpanding a pipeline for transportation of petroleum and petroleumproducts or local natural gas distribution networks) and Section 22 (theBoard’s power to fix transportation tariff). This Court noted that Section22 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 Sections22 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 ultimateconsumers. In that context, this Court, noticing the general regulationmaking power of the Board, under Section 61, held that A

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A“53. In the case at hand, the Board has not been conferredsuch a power as per Section 11 of the Act. That is thelegislative intent. Section 61 enables the Board to frameRegulations to carry out the purposes of the Act and certainspecific aspects have been mentioned therein. Section 61 hasto be read in the context of the statutory scheme. TheBregulatory provisions, needless to say, are to be read andapplied keeping in view the nature and textual context of theenactment as that is the source of power. On a scanning ofthe entire Act and applying various principles, we find thatthe Act does not confer any such power on the Board and theCexpression “subject to” used in Section 22 makes it aconditional one. It has to yield to other provisions of the Act.The power to fix the tariff has not been given to the Board.In view of that the Board cannot frame a Regulation whichwill cover the area pertaining to determination of networktariff for city or local gas distribution network andDcompression charge for CNG. As the entire Regulation centresaround the said subject, the said Regulation deserves to bedeclared ultra vires, and we do so.”

107. This Court is of the opinion that the above decision is of noEassistance; on the contrary the observations with regard to the term“subject to provisions of this Act” in Section 22 - which are in parimateria with proviso to Section 16, reinforce the conclusions recordedpreviously. The power to fix tariffs, was held to extend only to inter serelationship between parties, to foster competition and fairness, and didnot extend to regulating relationship between the entities and the endFconsumers. The observations with respect to Section 61 not authorizingthe Board to make regulations relating to the tariff at which gas could besold to customers, was made having regard to the specific manner inwhich 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 proviso toGSection 16 is subject to other provisions, notably Section 17. The powerto consider and make appropriate orders on applications forauthorizations, are dependent upon the policies of the Central Government,in addition to the objectives of the Act.

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108. In the present case, this Court notices no express provisionof the kind which the Court in Petroleum and Natural Gas RegulatoryBoard (supra) had to deal with. Section 22 had to be construedrestrictively, as not conferring the power to fix tariffs for products,delivered to the ultimate consumers, having regard to the objectives ofthe Act. On the other hand, Regulation 18 is essential for giving effect tothe scheme of the Act, particularly Sections 16 and 17.

109. It is a well-established principle that the rule or regulationmaking authority cannot travel beyond the scope of the enabling parentAct. (State of Karnataka v. H. Ganesh Kamath[42] ; St. Johns TeachersTraining Institute v. NCTE[43]; Tata Power Co. Ltd. v. Reliance EnergyLtd.[44]). In the decision reported as Indramani Pyarelal Gupta v. W.R.Natu[45] this Court observed that the proper test applicable would be toconsider whether the rule or subordinate legislation is “incompatible”with the purpose for which the body was created or the particular poweris contra-indicated by a specific provision:

“[T]he proper rule of interpretation would be that unless thenature of the power is such as to be incompatible with thepurpose for which the body is created, or unless the particularpower is contra-indicated by any specific provision of theenactment bringing the body into existence, any power whichwould further the provisions of the Act could be legallyconferred on it.”

110. In the present case, the purpose and objective for framingRegulation 18, is compatible to the overall objectives of the PNGRBAct. The various factors mentioned in it, provide an objective basis forthe Board to consider the proper method of granting authorization, underSection 17 (2); in their absence, the PNGRB would have experienceddifficulty in dealing with every application for authorization, on a case-by-case basis. More importantly the content of Regulation 18 is notcontraindicated by any specific provision of the Act.

111. It is recognized, in certain decisions, by this Court, thatregulations 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.

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Aexpert statutory bodies, and regulatory authorities, should be interpreteddeferentially, with the foreknowledge that such bodies know their taskand are best equipped for it. In Keshavlal Khemchand & Sons (P)Ltd. v. Union of India[46] the validity of an amendment, in 2004 to theSecuritisation and Reconstruction of Financial Assets and Enforcementof Security Interest Act, 2002, defining, by Section 2 (o) “non-performingBassets” was challenged, on the ground of excessive delegation, as it leftthe matter of defining what could be such non-performing assets, to thediscretion of the Reserve Bank of India (hereafter called “RBI”).Afternoting that the modern financial system is complex and requires C“[C]onstant monitoring on daily basis sometime even onminute to minute basis. In lieu of the importance andcomplexities, the Reserve Bank, the prime regulator of theIndian economy and banking system, has been issuingguidelines and directions from time to time not only to thebanks but to various other financial institutions which areDamenable to its jurisdiction.”

This Court upheld the amendment, as empowering an expert body,which is experienced and knowledgeable in the sector, to issue appropriateguidelines, and notifications.[47 ]In Bharat Sanchar Nigam Ltd v TelecomRegulatory Authority of India[48] this Court, dealing with the powersEand functions of the Telecom Regulatory Authority of India (hereaftercalled “TRAI”) observed as follows:

“The TRAI Act speaks of many players like the licensors andusers, who do not come within the ambit of the term “serviceprovider”. If TRAI has to discharge its functions qua theFlicensors or users, then it will have to use powers underprovisions other than Sections 12(4) and 13. Therefore, inexercise of power under Section 36(1), TRAI can makeregulations which may empower it to issue directions ofgeneral character applicable to service providers and othersGand 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 AndhraPradesh Limited Vs. Rain Calcining Limited and Ors. 2019 SCC OnLine SC 1537.H48 2014 (3) SCC 222.

36(1) TRAI has encroached upon the field occupied bySections 12(4) and 13 of the TRAI Act.

100. In view of the above discussion and the propositionslaid down in the judgments referred to in the preceding paragraphs,we hold that the power vested in TRAI under Section 36(1) to makeregulations is wide and pervasive. The exercise of this power isonly subject to the provisions of the TRAI Act and the rules framedunder Section 35 thereof. There is no other limitation on the exerciseof power by TRAI under Section 36(1). It is not controlled or limitedby Section 36(2) or Sections 11, 12 and 13.”

A like approach is visible in the recent ruling in Prakash Gupta vSecurities and Exchange Board of India[49 ]where it was observed, inrelation to the Securities Exchange Board of India (hereafter called“SEBI”) that:

“SEBI, as the regulator, is entrusted with diverse roles andfunctions including the power to regulate the securities’market, make regulations and to enforce the provisions ofthe Act. Its functions have been recognized in a panoply ofstatutory provisions. Independent of initiating a prosecution,SEBI has been entrusted with wide ranging powers andfunctions including the power to investigate, to issuedirections and levy penalties and make cease and desist orders.While the statute has entrusted the powers of compoundingoffences to SAT or to the Court, as the case may be, beforewhich the proceedings are pending, the view of SEBI as anexpert regulator must necessarily be borne in mind by theSAT and the Court, and would be entitled to a degree ofdeference.”

112. In the present case too, this Court is of the opinion that as thesectoral regulator, PNGRB is entrusted with the power to frameappropriate regulations to ensure the objectives of the Act, and alsobring about fairness in the marketplace. It has sought to achieve that,through Regulation 18. For the above reasons, it is held that the challengeto Regulation 18 cannot succeed; Adani’s arguments on this aspect areaccordingly rejected.

49 2021 SCC OnLine SC 485.

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ARe Point No. 3:On whether the exclusion of the disputed areasfrom the authorisation granted to Adani was justified.

113. Gujarat Gas has urged before this Court that Adani shouldnot be allowed to urge this aspect, since it took chances on multipleoccasions, was always aware of its rights, and even availed itself of theBopportunity to participate in the bidding for the disputed (excluded) areas,and therefore, cannot be allowed to question the decision of PNGRB togrant a license to it, for some areas. It was urged that having derivedbenefits from the authorization, it was not open to Adani to question thesame order, after unsuccessfully bidding for the excluded areas. AdaniCcountered this argument, by saying that the interpretation of provisionsof the PNGRB Act, were in a state of flux, and that until the law wasclearly laid down, it could not be said that Adani was aware of its legalrights so as to preclude its claims for the disputed areas.

114. The doctrine of approbate and reprobate is based on theDprinciple of estoppel. Paraphrased, it implies that one cannot challenge adecision, from which an advantage is enjoyed. As was tersely stated inanother context, an order “cannot be partly good and partly bad likethe curate’s egg”[50]. In Suzuki Parasrampuria Suitings (P) Ltd.v Official Liquidator[51] this Court described the principle as one whichdoes not permit a litigant to “take contradictory stands in the sameEcase. A party cannot be permitted to approbate and reprobate onthe same facts and take inconsistent shifting stands.” In Amar Singhv Union of India[52]this Court said held that “50. This Court wants to make it clear that an action at law isnot a game of chess. A litigant who comes to court and invokesFits writ jurisdiction must come with clean hands. He cannotprevaricate and take inconsistent positions.”

In Joint Action Committee of Air Line Pilots’ Assn. ofIndia v. DG of Civil Aviation[53] it was observed that G‘‘12. The doctrine of election is based on the rule of estoppel—the principle that one cannot approbate and reprobate 50 Union of India v Shakuntala Gupta,(2002) 10 SCC 694.

51 (2018) 10 SCC 707.

52 (2011) 7 SCC 69.H53 (2011) 5 SCC 435.

inheres in it. The doctrine of estoppel by election is one of thespecies of estoppels in pais (or equitable estoppel), which isa rule in equity. … Taking inconsistent pleas by a party makesits conduct far from satisfactory. Further, the parties shouldnot blow hot and cold by taking inconsistent stands andprolong proceedings unnecessarily.”

115. These decisions, applying the principle of “approbate andreprobate” precluding a party, which derives advantage from an orderor statutory instrument, or even a contract, from assailing a part of it,later, have been applied in other judgments of this court, as well.[54 ]InMBP v LGK[55], the Queen’s Bench Division (Technology and ConstructionCourt), held that:

“53. Codrington v Codrington 1875 LR 7 HL at 866, LordChelmsford referred to the doctrine in these terms:

“He who accepts a benefit under an instrument must adoptthe whole of it, confirming to all its provisions and renouncingevery right inconsistent with it.

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56. More recently, the doctrine has been expressed moregenerally and in broader terms. Notably, in ExpressNewspapers Plc v News (UK) Ltd & others [1990] 1 WLR1320, a breach of copyright case concerned with mutualcopying of news stories, the Court held that the claimant’sresistance to judgment on the counterclaim was whollyinconsistent with its own claim and that on the basis of thedoctrine of approbation and reprobation the claimant wasnot permitted to put forward two inconsistent cases. Whengiving judgment, Sir Nicolas Browne-Wilkinson VC put thedoctrine in these terms:

“The fact is that if the defences now being put forward by thedefendants in relation to the “Daily Star” article are gooddefences to the Ogilvy case, they were and are equally good 54 Union of India v. Assn. of Unified Telecom Service Providers of India, (2020) 3 SCC525; Jal Mahal Resorts (P) Ltd. v. K.P. Sharma (2014) 8 SCC 866.

55 [2020] EWHC 90 (TCC).

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defences to the claim by the “Daily Express” against “Today”newspaper relating to the Bordes claim. I think that whatMr. Montgomery describes as what is sauce for the goose issauce for the gander has a rather narrower legalmanifestation. There is a principle of law of generalapplication that it is not possible to approbate and reprobate.That means you are not allowed to blow hot and cold in theattitude that you adopt. A man cannot adopt two inconsistentattitudes towards another: he must elect between them and,having elected to adopt one stance, cannot thereafter bepermitted to go back and adopt an inconsistent stance.

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To apply that general doctrine to the present case is, I accept,a novel extension. But, in my judgment, the principle is oneof general application and if, as I think, justice so requires,there is no reason why it should not be applied in the presentcase.”

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57. Both parties also referred me to a number of cases inwhich the doctrine has been raised in the context ofadjudication. In particular, I was referred to PT BuildingServices Ltd v ROK Build Ltd 2008 EWHC 3434 (TCC), TwintecLtd v Volkerfitzpatrick Ltd 2014 EWHC 10 (TCC), Rob PurtonEt/a Richwood Interiors v Kilker Projects Ltd 2015 EWHC 2624(TCC), RMP Construction Services Ltd v Chalcroft Ltd 2015EWHC 3737 (TCC) , and Skymist Holdings Ltd v GrandlaneDevelopments Ltd [2018] EHC 3504 (TCC). Save in relationto the PT Building Services case to which I refer further below,FI have not found these decisions particularly pertinent. Thatis because they are concerned with challenges to anadjudicator’s jurisdiction on enforcement based, for instance,on whether the underlying construction contract was mis-described by the referring party or on whether the contractualprovision relied upon to make the referral existed at all. ThisGis not such a case.

58. All the same, certain principles arise from the case lawtaken as a whole:

i) The first is that the approbating party must have elected,that is made his choice, clearly and unequivocally; H

ii) The second is that it is usual but not necessary for theelecting party to have taken a benefit from his election suchas where he has taken a benefit under an instrument such asa will;

iii) Thirdly, the electing party’s subsequent conduct must beinconsistent with his earlier election or approbation.

In essence, the doctrine is about preventing inconsistentconduct and ensuring a just outcome.”

116. In this case, Adani applied for authorization, after being askedby the PNGRB, to do so, in 2008. Its application was not decided by theBoard; in the meanwhile, on 12.07.2010, Section 16 came into force. On18.10.2013, the PNGRB granted authorization to Adani’s CGD networkin Ahmedabad city and Dascroi area, excluding 18 CNG stations ofHPCL, subject to certain conditions. The disputed area was excludedfrom this provisional authorization. Adani was asked to furnish theperformance bond. By its letter dated 28.10.2013, Adani wrote toPNGRB, underlining its position that the excluded areas were under itsoperation, and stating that “In view of the above facts, we areconstrained to accept the Terms and Conditions of authorization”.Adani accepted the grant of authorization and furnished its performancebond, by letter dated 31.10.2013. PNGRB replied to Adani’s letter on28.11.2013 and stated that its position stood clarified by its previous letter(intimating authorization) of 18.10.2013. Adani furnished its performancebond, on 31.10.2013, after which PNGRB issued the authorization on28.11.2013. After receiving the authorization, Adani accepted itexpressing its protest by letter dated 09.12.2013. Though Adani argues,that acceptance of this authorization was under protest, the material onrecord shows that this protest was registered, in terms:

(a) After Adani furnished its performance bond, despite knowledgethat the disputed areas were excluded; and (b) At the time of acceptance of authorization.

117. By furnishing the performance bond, and accepting theauthorization, Adani acted on the authorization. On 01.10.2015, the Boardinvited bids for development of CGD networks in those disputed(excluded) areas in Ahmedabad. Adani submitted its application-cum- A

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Abid documents in respect of these areas. The auction was conducted;after Adani realized that it was unsuccessful, it articulated its grievancefor exclusion of disputed areas from the authorization granted andapproached the High Court, preferring a petition under Article 226 ofthe Constitution, Adani sought several reliefs; the main relief claimedwas the quashing of the grant of authorization to Gujarat Gas, questioningBthe exclusion of the disputed areas by the earlier authorization dated28.11.2013, and challenging the vires of Regulation 18. It is a matter ofrecord that PNGRB granted authorization to Adani on 04.12.2012 inrespect of the Khurja area, in UP. Given these backgroundcircumstances, its argument about lack of knowledge with respect to itsCrights, is indefensible. Adani accepted and acted on the authorization, byfurnishing the performance bond, after which it registered its protest (inrespect of excluded areas) with the PNGRB. Even then, it proceeded toact upon the authorization.

118. In view of the factual discussion, about the background leadingDto the grant of authorization to Adani, and its acceptance of thatauthorization, furnishing of performance bond, and proceeding to actupon it, even participating in the auction for the excluded areasthere can be no manner of doubt that it acquiesced to the action of thePNGRB, and after having unsuccessfully entered its bid, sought toEchallenge the authorization. Clearly, this conduct amounts to approbatingand reprobating. Adani’s arguments about its lack of knowledge aboutits true rights, in the opinion of this Court, cannot be countenanced, becauseit knew and conformed to the procedure under the PNGRB Act,specifically, the requirements of the regulations, and Regulation 18, whenit applied and obtained authorization in other areas in the country.F

119. During the course of the hearing, Adani had made a two-foldfactual argument. One, that PNGRB’s order rejecting its application forauthorization was unreasoned and that it became aware of the reasonsonly in 2016, when the Board filed its counter affidavit in the High Court.Two, that the reasons do not stand up to judicial scrutiny inasmuch asGfactually Adani fulfilled the criteria spelt out in Regulation 18 inasmuchas it had completed 25% of works in relation to the pipelines which ithad been awarded.

120. So far as the first contention goes, there can be no doubt thatan administrative authority is expected to record its reasons for anydecision that it takes. In Union of India v. E.G. Namboodiri[56], thisCourt observed in the context of the obligation of every statutoryadministrative authority or the executive government that suchauthority had “no license to act arbitrarily.” This Court further heldthat:

“No order of an administrative authority communicating itsdecision is rendered illegal on the ground of absence ofreasons ex facie and it is not open to the Court to interferewith such orders merely on the ground of absence of reasons.However, it does not mean that the administrative authority isat liberty to pass orders without there being any reasons forthe same. In governmental functioning, before any order isissued, the matter is considered at various levels and thereasons and opinion are contained in the comments on thefile. The reasons contained in the file enable the competentauthority to formulate its opinion. If the order ascommunicated to the government servant rejecting therepresentation is not contained in the reasons, the ordercannot be held to be bad in law. If such an order is challengedin Court of law, it is not always open to the competent authorityto place the reasons before the Court which may have led tothe rejection of the representation. It is always open to anadministrative authority to produce evidence aliunde beforethe Court to justify its action.”

121. In the present case, the PNGRB has placed on record itsreasons by way of an affidavit. There is nothing to indicate that prior toapproaching the Court, Adani had sought the reasons for rejection of itsauthorization; all evidence points to the fact that after its initial protest, itdid not represent further and the authorization granted to it, appears tohave been acted upon. It even proceeded to accept the sequitur to theauthorisation, i.e., PNGRB’s jurisdiction to auction the disputed area byparticipating in it. In these circumstances, in the absence of any evidencedisclosing that Adani had sought for reasons or even made any attemptto secure them through the RTI Act, its belated complaint that PNGRB’s ABC

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Aorder rejecting the application for authorization is illegal for the reasonthat it is unreasoned, cannot be countenanced. PNGRB disclosed itsreasons for the decision, before the High Court. Therefore, this argumentis rejected as insubstantial.

122. On the second aspect, i.e., that Adani fulfilled the stipulationsBof 25% development of the areas, there is a serious dispute inasmuch asthe PNGRB has argued that the application for authorization did notcontain any map which included the disputed area. This is a factualaspect. Adani countered this by stating that the boundaries of Ahmedabadarea which was subjected to initial authorization granted by the StateCwhich was held to be untenable [in view of the Constitution Benchdecision Special Reference (supra)], included those areas. In thecircumstances, this Court cannot proceed on the assumption that thedisputed area was in fact included in the Adani’s claim when it appliedfor authorization to the PNGRB. Adani has argued that it was grantedauthorization for the entire Ahmedabad District, including the said areDas under the policy of the State Government, which could not have beencurtailed by relying on a power under the CGD Authorizing Regulations.It was further stated that the fact that the disputed areas were put up forauction on 1.10.2015 with a larger area, showed that the areas were noteconomically viable on a “standalone” basis, and, consequently the basisEfor exclusion of the disputed areas from Adani’s authorized area wasunfounded. Adani disputed PNGRB’s report dated 18.2.2011 and urgedthat on the date of inspection, it had an operational network, and it hadaugmented its network in the said areas of Ahmedabad by undertakingurgent capital works pursuant to PNGRB’s permission dated 11.6.2009.The authorization was also impeached on the ground that for evaluatingFactual physical progress and the financial commitment under Regulation18, presence as on the appointed day was required to be seen in theentire Ahmedabad District, and not apart thereof by curtailing the ambitof Section16. It was submitted that PNGRB failed to appreciate thatwhile undertaking development work of any CGD network, including inthe Ahmedabad District, initiation of development works began in aGlinear manner, generally where city gas station was first established forinlet gas, which then extended to whole of the area. Under currentPNGRB norms, an authorized entity was given at least 8 years to developcharge areas. Adani submitted that consequently, PNGRB wrongfully H

carved out areas out of the Ahmedabad District and tested each sucharea as per Regulation 18, which was not permissible.

123. PNGRB submitted that the state NOC only spoke ofAhmedabad Zone; in Adani’s application to Board (for grant ofauthorization), there was no mention of the disputed areas, i.e., Sanand,Dholka and Bavla, and the NOC only spoke of Ahmedabad city. It wasurged that clause (j) (iii) of application provided for submission of a mapdepicting the area proposed to be covered and upon examination, thePNGRB found that the area of distribution network disclosed in the mapother than Ahmedabad area, was the area of Chadkhera and Motera.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 ofauthorization did not cover, the annexed map or the DFR, the area ofSanand, Bavla and Dholka. It was also urged that Adani admitted to thisfact in its representation dated 16.05.2012under the caption ‘authorization’detailed the infrastructure set up. This made no reference to Sanand,Bavla and Dholka. It was stated that the DFR was a constitutionaldocument of a project. And the absence of these areas from DFR,submitted on 09.05.2008 (application date), showed that as on appointedday, Adani had not even conceived a project for laying distribution networkin Sanand, Bavla and Dholka, and had thus not applied for an authorizationfor these areas.

124. PNGRB urged that the record showed that no distributionnetwork was under construction in these areas as on the appointed date,and relied on minutes of hearing dated 27.08.2010; on site verificationreport dated 18.02.2011; asset block statement filed by Adani whichshowed that as on 01.10.2007 (appointed date) no construction workwas in progress in any of the three disputed areas and CWIP for allthree areas ended only on 31.03.2019.

125. The discussion in the preceding paragraphs would revealthat there is a serious dispute about the extent of development whichAdani had undertaken, as on the appointed day. Adani’s reliance on theextent of areas it was given by State authorization, and whether theexcluded areas, were part of it, is not a matter which can be settled bythis Court. The PNGRB relies on the application form, filed by Adani,when seeking authorization under the CGD Regulations, to say that the AB

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Adisputed areas were not mentioned and were also not shown in the map.This is a factual aspect. Furthermore, as to the exact nature ofdevelopment, when the inspection took place in 2011, again, there is adispute. If one considers the fact that the enactment came into force in2007, there were many ways in which Adani could have established theexact areas it had developed as on the appointed date, such as the accountBof expenditure it had maintained during the relevant years; the rawmaterial procured, the personnel employed for that period, and the periodicprogress it had achieved. The materials it furnished together with theinspection report and minutes of meeting were considered by the PNGRBwhen it granted authorization by excluding the disputed areas. ApartCfrom the fact that these disputes are not fit to be adjudicated in writproceedings, this Court is also cognizant of the fact that had Adani wishedto agitate these issues, it could well have chosen the remedy of an appeal.Its choice of not preferring an appeal, and approaching the Court twoyears after the grant of authorization is an important factor that impels this Court to desist from embarking on a factual enquiry. It is relevant toDnotice here, that appeals against decisions of the PNGRB are providedunder Section 33 of the Act before a tribunal[57]. The period of preferringappeals is 30 days from the date of the decision of the PNGRB (Section33(2) of the Act). Adani’s conscious choice to not exercise its option toappeal against the PNGRB’s order, to the extent it excluded the disputedEareas, is a crucial factor for this Court to refrain from examining thefactual assertions made by it.

126. Before concluding, this Court would observe that althoughthe position in law was clarified by the five judge Constitution Benchruling in Re Special Reference of 2001 as far back as in 2004, andFpursuant to the PNGRB Act, the appellant consciously applied forauthorization in 2008, later secured temporary authorization to completecertain maintenance works, and was denied authorization in 2013, byinitiating the present litigation in 2015, it has in effect stalled theauthorization given to Gujarat Gas. Its challenge to Regulation 18 wasan instance of speculative litigation which has led to avoidable delayG(and the consequential escalation of cost) of the development of thenetwork, in question.

57 The Appellate Tribunal established under Section 110 of the Electricity Act, 2003H(36 of 2003), by reason of Section 30 of the PNGRB Act.

Conclusion

127. To sum up, the points of consideration raised are answeredas follows:

a. On the scope of the “deemed authorisation” clause under theproviso to Section 16 of the PNGRB Act, the decision in AdaniGas (supra) is held to have laid down the law incorrectly, and ishereby overruled.

b. It is held that the “deemed authorization” clause under provisoto Section 16 is subject to other provisions of Chapter IV, includingSection 17 and, further, that only entities granted authorization bythe Central Government, fell in that category. As a sequitur, it isheld that entities which had received authorization from States,had to seek authorization under the PNGRB Act, in terms of Section17(2), and in compliance with the conditions spelt out under theCGD Regulations.

c. The role of the State in granting NOC is only supportive orcollaborative, in terms of the Central Government’s policy, of 2006,and cannot confer any advantage to any entity, which has to seekand be granted specific authorization in terms of the PNGRB Acton 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 theoverall objectives of the PNGRB Act. Regulation 18 is notcontraindicated by any specific provision of the Act. Further, as asectoral regulator, PNGRB is entrusted with the power to frameappropriate regulations to ensure the objectives of the Act, andthus the challenge to Regulation 18 cannot succeed.

e. It is also held that Adani’s claim is precluded by the principle ofapprobate-reprobate, as it accepted authorization granted byPNGRB (including exclusion of disputed areas), furnished theperformance bond and even participated in the auction for theexcluded areas, and only thereafter challenged authorization whenits bid was unsuccessful.

f.It is held, that exclusion of the disputed areas was justified in theoverall facts and circumstances.

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A128. Having regard to the above findings and conclusions, theappeals fail and are dismissed. In the circumstances, Adani shall bearthe costs quantified @ ` 10 lakhs, payable to the Union of India.

BAnkit Gyan

Appeals dismissed.

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