ADANI GAS LIMITED versus PETROLEUM AND NATURAL GAS REGULATORY BOARD AND ORS. on 17 February 2020

108

SUPREME COURT REPORTS[2020] 8 S.C.R. 108

[2020] 8 S.C.R.

A

ADANI GAS LIMITED

v.

PETROLEUM AND NATURAL GAS REGULATORYBOARD AND ORS.

(Civil Appeal No. 3992 of 2019)

B

FEBRUARY 17, 2020

[DR. DHANANJAYA Y CHANDRACHUD ANDHEMANT GUPTA, JJ.]

Petroleum and Natural Gas Regulatory Board (AuthorizingEntities to Lay, Build, Operate or Expand City or Local NaturalCGas Distribution Networks) Regulations, 2008:

Regulations 5 and 7 – Ninth round of bidding for city or localnatural gas distribution networks (CGD) – For the years 2018-2026 – After opening technical bids, Petroleum and Natural GasRegulatory Board, by its Note dated 23 July, 2018, in order to bringDreasonableness to the bidding parameters introduced a criterionstipulating that 2% of total households in terms of census 2011data would be regarded as minimum quote and 100% would beregarded as maximum – The Board Note was not notified to thebidders – On opening the financial bid of technically eligiblebidders, it was found that for 4 Geographical Areas i.e. GAs. 51,E61, 62 and 72, the bidders having highest composite score, wereliable to be disqualified on the ground that they had quoted morethan 100% of the total number of households as per 2011 census –Board decided to give them opportunity to explain – Board thereafteraccepting the quotes of highest bidders in respect of GAs. 51, 61Fand 62 as reasonable issued Letter of Intent (LOI) to them grantingauthorisation – In case of GA 72, quote of highest bidder wasrejected as being unreasonable – The appellant who was sixthhighest bidder in GA 51, third highest bidder in GA 61 and secondhighest bidder in GA 62 challenged grant of authorisation in respectof the three GAs – Second bidder in GA 61 also challenged grantGof authorisation in GA 61 – The Chairperson of the Tribunal allowed the appeals while the technical member dismissed the same – Sincethe Judicial Member of the Tribunal recused himself from the case,the case was transferred to Supreme Court – Held: Regulation 7stipulates the bidding criteria – There is no condition in Regulation H

7 regarding ceiling or providing for a linkage with the census dateof 2011 – A conditionality which was not incorporated in Regulation7 could not have been introduced by Board Note dated 23 July,2018 – Hence the Board Note cannot be construed to have laiddown absolute norms by which bids quoting below2% or above100% of the number of households would automatically be rejectedas unreasonable – Disqualifying a bidder on the basis of criterionwhich was not notified would have been arbitrary and wouldconstitute infraction of Art. 14 of the Constitution – The Board Notetherefore can be construed as formulation of guideline – Hence theaward of authorisation after calling the highest bidders in respectof GAs 51, 61 and 62 to justify their bids in terms of theirreasonableness cannot be faulted – There was also no breach ofprinciples of natural justice in calling only the highest bidders toexplain reasonableness of their bids as other bidders had no locusto participate in the process.

Dismissing the appeals, the Court

Conclusion

Dismissing the appeals, the Court

HELD: 1.1 The Petroleum and Natural Gas RegulatoryBoard (Authorizing Entities to Lay, Build, Operate or ExpandCity or Local Natural Gas Distribution Networks) Regulations,2008 (CGD Authorisation Regulations) postulate that biddersmust submit both technical and financial bids. The procedurespecified in Regulation 5 applies to an invitation by the Board forlaying, building, operating or expanding a CGD network.Regulation 5(6) requires the fulfilment of minimum eligibilitycriteria. For a technical bid to pass muster, the minimum eligibilitycriteria require the bidder to be qualified both with reference totechnical and financial parameters. This is evident from Regulation5(6) under which the Board is to scrutinise the bids of only thoseentities which fulfil the minimum eligibility criteria. The minimumeligibility criteria include the technical capability of the biddingentity to (i) lay and build; and (ii) operate and maintain a CGDnetwork. Both of them are defined with reference to qualifyingcriteria. Besides the technical criteria, the minimum eligibilityrequirements under Regulation 5(6)(e) incorporate the financialability to execute the project and to operate and maintain it inthe authorised area. The financial criteria are defined withreference to the minimum net-worth of the bidding entity. Thenet-worth required is dependent on the population of the A

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AGeographical Area (GA) under the 2011 Census. The minimumnet-worth required is specifically defined with reference to 2011census figures of population for the GA. The bidding entity isalso required to submit a bid bond in the form of a performancebond guarantee. The quantum of the guarantee is dependent onthe population of the GA. [Para 35][149-D-G]B

1.2 The Table incorporated in Regulation 7 provides five-fold criteria for the tabulation and comparison of financial bids.The five criteria are: (i) ‘Lowness’ of transportation rate for CGD;(ii) ‘Lowness’ for transportation rate for CNG; (iii) ‘Highness’of the number of CNG stations to be installed in eight years fromCauthorisation; (iv) ‘Highness’ of the number of domestic PNGconnections to be achieved within eight years of authorisation;(v) ‘Highness’ of inch-kilometre of steel pipeline to be laid withineight years of authorisation. The third and fourth criteria togetheraccount for 70 per cent of the total composite score. Among them,Dthe fourth criterion – ‘highness’ of the number of domestic PNGconnections accounts for 50 per cent of the total composite score.Significantly, the bidding criteria in Regulation 7 are not linkedto the 2011 Census figures. There are two significant facets ofRegulation 7: (i) The absence of a linkage of the projected numberof domestic PNG connections with the 2011 Census data; (ii) TheEabsence of a cap or ceiling on the ‘highness’ norm both in relationto the third and the fourth criteria. [Para 36][150-A-E]

1.3 The provisions contained in the 2008 CGD AuthorisationRegulations, as amended on 6 April 2018, indicate that where aspecific linkage was sought with reference to the 2011 CensusFdata, a clear and categorical provision was made to that effect.Such provisions are found in regard to the financial capability of abidder as part of the minimum eligibility criteria in Regulation5(6)(e) and the extent of the performance bond in Regulation5(6)(h). Absent a condition in Regulation 7 linking the ‘highness’Gof the number of PNG connections to be achieved within eightyears from the date of authorisation with the 2011 Census data, itwould be contrary to basic principles of interpretation to readsuch a restriction into the CGD Authorisation Regulations. Aconditionality which has not been incorporated in Regulation 7

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cannot be introduced as a matter of construction. The court mustfirst and foremost read the Regulation in accordance with its plainand natural meaning. There is evidently a reason why Regulation7 did not introduce a ceiling or provide for a linkage with theCensus data of 2011. Consumers or users, as the case may be, ina CGD network broadly comprise of four categories namely: (i)Domestic; (ii) Commercial; (iii) Industrial; (iv) Vehicular. [Paras38 and 39][151-A-E]

1.4 The Board is correct that in a model of cross/subsidisation, the viability of the project has to be perceived froma twenty- five-year perspective. Gains in one category of userscan offset the losses in another category. The CGD AuthorisationRegulations are intended to subserve the object of establishingthe infrastructure necessary for setting up an operational CGDnetwork. In creating the infrastructure, the successful entity iscontractually bound to set up a project for the future. Theinfrastructure so created would be of service to consumers or, asthe case may be, users. Infrastructural projects cater to futureneeds and can legitimately be forward looking. It is from thisperspective that except for the tariff in the first two bidding criteriaof Regulation 7 (the transportation rates for CGD and CNG), noceiling was provided by the Board for the criteria set out inRegulation 7. More particularly, Regulation 7(3) provided for amandate to tabulate and compare the bids of all entities whichhad met the minimum eligibility criteria upon their qualifying in acompetitive bidding process. The Regulations did notcontemplate the disqualification of a bidder with reference to anorm which would limit a bid to 100 per cent of the populationfigures provided by the 2011 Census data. For the Board tostipulate an absolute norm to that effect, when it has not beenspecifically incorporated in the Regulations would have renderedthe decision making process vulnerable to a challenge on theground that it was not consistent with Regulation 7. [Para 40][151-F-H; 152-A-B]

1.5 The main plank of the submissions of the appellants isthat the map contained a reference to population and householdfigures on the basis of the 2011 Census. Clause 1.1.3 of the BidDocument places the responsibility on the bidder to obtain AB

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Ainformation about the present gas supply availability, the pipelineconnectivity and the existing customers in the GA. Significantly,the scope of work in Clause 1.2 required bidding entities “to lay,build, operate or expand the CDG networks” to meet therequirement of natural gas “in domestic, commercial andindustrial segments including natural gas in the vehicular segmentBin the said Geographical Area to be authorised.” Bidders arerequired under Clause 2.1.1 to examine the contents of the BidDocument including instructions, terms and conditions andregulations of the Board. The bidder was required to carefullystudy the GA and the charge area before submitting the bid. InCother words, bidders were on notice of the actions required to betaken to implement the Regulations. The Bid Documentnecessarily had to be in conformity with the CGD AuthorisationRegulations. The map, at best was a compendium of the latestofficial record of the GA. The map did not dictate how the number of domestic PNG connections was to be calculated. There is noDsuch indication particularly in Clause 1 of the Bid Document wherethe map is referenced. The mere attachment of a map to the BidDocument would not result in the imposition of conditions ofeligibility or qualification. These have been provided in theRegulations which have a statutory character. The depiction ofEthe GA in a map attached to the bid document does not over-ridethe specific requirements of the bidding criteria as defined inRegulation 7. [Para 41][152-C-G]

2.1 The CGD Authorisation Regulations, as amended on 6April 2018, reveals that the Regulations did not contain anyFstipulation determining a range of 2 to 100 per cent of the numberof households under the 2011 Census as the criterion to evaluatebids. The Regulations in fact do not link the ‘highness’ factor ofdomestic PNG connections to the 2011 Census data. In Clause4.4.1 of the Bid Document, the Board reserved to itself the rightto reject any unreasonably high or low bid. In Addendum-1 to theGBid Document, the Board clarified to all prospective bidders thatthe evaluation of whether a bid was unreasonably low or highwould be conducted on a case to case basis at the time of bidevaluation. It is in the above background that the Board Notedated 23 July 2018 must be assessed. The Board Note wasformulated after the last date for the submission of bids. TheH

criterion which the Board Note proposed had not been notifiedto bidders. Bidders were not on notice that this would be thebasis on which their bid would be evaluated. The Board Notetook notice of Clause 4.4.1 of the Bid Document and stipulatedthat since technical bids for some GAs were about to be evaluated,it was necessary to decide upon the reasonableness of the biddingparameters which constituted the work programme. It was in thisbackground that the Board Note proposed that; “…2 per cent oftotal households (as per the 2011 Census data) may beconsideredas minimum”. As regards the maximum, the Board note proposedthat: “beyond 100 per cent households may betreated asunreasonably quote”. The terminology adopted by the BoardNote indicates that the 2-100 per cent range was not laid down asan absolute or inflexible basis for disqualifying bids below theminimum or in excess of the maximum. On the contrary, the useof the expression “may be” is one indicator that a bid which wasbelow 2 per cent or in excess of 100 per cent may trigger theexercise of the power which the Board had reserved to itself inclause 4.4.1 of the Bid Document. On its plain terms, the BoardNote cannot be construed to have laid down an absolute norm bywhich bids quoting below the minimum of 2 per cent or above theceiling of 100 per cent of the number of households under the2011 Census data would automatically be rejected asunreasonable. [Paras 43 and 44][155-A-H]

2.2. If the Board Note of 23 July 2018 were to be construedin the manner in which the appellants urged, the automaticdisqualification of bidders based on a criterion introduced by theBoard Note would raise serious doubts about its fairness andlegality. This is because the Board Note was not notified to biddersas a basis for the evaluation of bids before the date for thesubmission of the bids had closed. To disqualify a bidder on thebasis of a criterion which was not notified and of which biddershad no knowledge would be arbitrary and would constitute aninfraction of Article 14. The Board was thus correct in determiningthat the automatic disqualification of a bid on the basis of a criterionspecified in the Board Note (which was never notified to thebidders) would not be “legally correct”. Hence, it would bereasonable to interpret the Board Note dated 23 July 2018 asbeing the formulation of a guideline for the Board. As a guideline ABC

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Ain the process of evaluation, the decision taken by the Board on23 July 2018 was not to the effect that every bid below 2 per centor above 100 per cent would necessarily stand disqualified.Consistently with the use of the word ‘may be’, the decision ofthe Board meant that the power which the Board reserved toitself in Clause 4.4.1 could be invoked if it came to the conclusionBthat the bid had not been justified to be reasonable. In otherwords, the breaching of the range of 2-100 per cent was a triggerfor the Board to scrutinise the bid and determine whether thepower under Clause 4.4.1 should be invoked. Hence, the courseof action which the Board followed of calling upon the biddersCwith the highest composite scores in GAs 51, 61 and 62 to justifytheir bids in terms of their reasonableness cannot be faulted. Onthe contrary, if the Board had rejected these bids solely on theground that they were above the limit of 100 per cent ofhouseholds under the 2011 Census data, the decision would havebeen seriously flawed for having applied a criterion which wasDnot a part of the Regulations, was not embodied in the BidDocument and in any event, was not notified to bidders beforethey had submitted their bids. [Para 45][156-A-F]

3. It is an incorrect reading of the agenda that note withrespect to GA 62, three out of the four members of the BoardEhad in the Board agenda dated 9 August 2018 recommended thatH1 bidder was not qualified and that H2 bidder i.e. the appellantbe declared as the successful bidder. The agenda note dated 9August 2018 was a recommendation which was prepared on thebasis of the 2–100 per cent criterion contained in the Board NoteFdated 23 July 2018. Obviously in the light of that decision, arecommendation was made which was still to be deliberated uponby the Board as a body. When the Board met on 10 August 2018,it correctly came to the conclusion that the lower and upperthresholds were not to be applied mechanically to disqualifybidders. This decision was justified not only by the terms of theGBoard Note dated 23 July 2018 but was intrinsic to a fair exerciseof power by the Board. The Board decided that it would call thebidders with the highest composite score to explain thereasonableness of their bids. This was a fair opportunity whichwas granted to the bidders who had the highest composite score H

to justify the basis of their computation of projected householdsover the eight-contract years. [Para 46][156-G-H; 157-B-D]

4. There was no breach of the principles of natural justicein calling only the bidders with the highest composite score toexplain the reasonableness of their bids. None of these bidderswas being called upon to revise or improve their bids. In termsof the CGD Authorisation Regulations, the bidder with the highestcomposite score has to be declared as the successful bidder. Ifdespite having the highest composite score, a bidder was beingconsidered for rejection by the Board, it was that bidder who wasjustifiably called to explain the reasonableness of the bid. Theother bidders had no locus to participate in the process. It is asettled principle of law that the rules of natural justice areattracted where a decision affects a right of a party against whomthe decision has to be made. After the composite score of allbidders is calculated, the second highest bidder has no rightsvis-à-vis the highest bidder or the Board unless the method ofcalculating the highest composite score itself is impugned. Callingupon the bidders with the highest composite score to explain thereasonableness of their bid did not alter the composite score ofthe H1 bidders or any other bidder for the same GA. The questionof hearing any other bidder would have arisen only if the H1 bidderstood disqualified, and the bidder with the next highest compositescore also breached the 2-100 per cent range, thereby warrantingscrutiny from the Board. In the present situation, when the Boarddecided to call the bidders with the highest composite score inorder to allow them an opportunity to explain reasonableness oftheir bid, the administrative decision taken by the Board cannotbe faulted as being in violation of the principles of natural justice.[Para 47][157-E-H; 158-A-B]

5. In its minutes dated 29 August 2018, the Board notedthat the four GAs: 51, 61, 62 and 72 were compared with theupper limit fixed by the agenda note dated 23 July 2018 andprojected households in 2026. The penetration of PNG domesticconnections based on the upper limit fixed by the Board withreference to the projected number of households in 2026 variedfrom 45 per cent to 59 per cent. However, the penetration of AB

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APNG domestic connections based on quoted PNG connectionswith reference to the projected number of households in 2026varied from 55 per cent to 99 per cent. The variation betweenthe two sets of numbers was between 7 per cent to 54 per cent.The Board noted that it was in GA 72 where the highest variationBof 54 per cent took place. The bid submitted by H1 bidder for GA72 was consequently rejected. The Board observed that thecomputation for GA 72 by the H1 bidder was based on untenableassumptions. According to these assumptions, the PNG domesticconnections quoted by the H1 bidder was 99 per cent of theprojected households by 2026 which was taken as an unreasonablyChigh penetration figure. However, for the remaining three GAs,the variation was between 7 per cent to 23 per cent of theprojected households in 2026, and PNG penetration would be inthe range of 55 per cent to 79 per cent. This exercise was carriedout by the Board to enable it to consider the reasonableness ofthe bids. The Company whose bid was accepted for GA 62, wasDhowever not considered for acceptance for GA 72 since itscomputation of the number of projected households andpenetration rate was deemed unreasonable. The Board hascertainly given a possible basis for coming to the conclusion thatthe bids submitted by the bidders with the highest compositeEscore for GAs 51, 61 and 62 were reasonable and ought not to berejected. The decision was taken after hearing the bidders onwhether their bids were reasonable or not. The Board did notreject all other bidders or presumptively announce these entitiesas successful bidders before making a determination as to thereasonableness of their bids. In light of this chronology of events,Fat no point did the Board reverse its decision with respect to theGAs in question. [Paras 49 and 50][158-G-H; 159-A-G]

6. The appeals before APTEL pertained to GAs 51, 61 and62. The present proceedings were not in the nature of a publicinterest litigation instituted under Article 226 of the ConstitutionGbefore a High Court challenging the entirety of the tenderingprocess. Both before this Court and APTEL, it was contendedthat the Board had rejected bids in other GAs which were not-qualified on the ground that they were either below 2 per cent orabove 100 per cent of the number of households as per the 2011H

Census figures. On clarification, the Board has stated that therewere only 9 bids with H-1 bidders quoting below 2% and above100% limits of 2011 census. These 9 bids were accordinglyhighlighted to the Board, and final decisions were taken on these9 bids by the Board after proper application of mind, hearing theparties and taking an objective decision. Out of 9 bids, 4 bidshaving lower than 2% connections were accepted after raisingtheir bids through discussions with the bidders, otherwise, theseGAs would have gone dry. In GA-37, IOC’s bid was rejectedbecause of lower than 2% quote, but this decision of the Boardhas not been challenged by IOC. Out of the remaining 4 GAswhere H-1 bidders quoted more than 100% of PNG connectionsof 2011 census household numbers for 3 GAs (51, 61 & 62), H-1bidders were declared successful bidders after hearing them ontheir reasonableness of quotes. For GA No. 72, the bid of the H-1 bidder was rejected having found its bid unreasonable and theGA was awarded to the next highest bidder and the H-1 bidderhad not challenged that decision. This clarification by the Boardas well as the findings which have been recorded by the MemberTechnical (Petroleum and Natural Gas) commends itself foracceptance. [Para 51][159-G-H; 160-A-G]

7. It was also argued that the Compounded Annual GrowthRate considered by the Board for the period between 2001 and2011 was higher than the actual annual growth rate, leading theBoard to project a higher number of households for 2026 thanmay actually exist. For the purpose of projecting the number ofPNG connections within a GA, it is the number of householdsand not the overall population that is relevant as each householdis unlikely to have more than one PNG connection. Moreover, asneither the CGD Regulations nor the Bid Document requiredthe number of projected households to be calculated on the basisof 2011 Census data, the decision of the Board to accept thejustification provided by the bidders cannot be attacked on theground that the figures provided did not strictly match thenumbers extrapolated from the 2011 Census data. [Paras 52 and53][160-H; 161-A-D]

8. The power granted to the Board under Clause 14.2 ofthe Bid Document is an enabling clause that allows the Board to AB

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Aapply its mind to a quote and determine its reasonableness. Thequotes submitted by all bidders with respect to the projectednumber of households in 2026 are admittedly estimates. Similarly,the Board’s own determination of a baseline for comparing thereasonableness of various quotes is also an estimate. Therefore,the Board’s use of the baseline figure and its consequentBacceptance of the reasonability of a quote cannot be faultedbecause it did not strictly adhere to one particular methodologyof arriving at a number of projected households unless themethodology used is arbitrary, having no correlation with theresult sought to be achieved. Therefore the finding of the MemberCTechnical with respect to the calculation of the number ofhouseholds is approved. [Para 53][161-G-H; 162-A-B]

9. The Chairperson’s findings are based on three keyassumptions: (i) The Board Note dated 23 July 2018 was bindingon the Board and the agenda note dated 9 August 2018 wasDevidence of the Board Note’s binding nature; (ii) Because theBoard disqualified certain other bidders by applying the 2 – 100per cent range, it was bound to do so against the successful biddersin GAs 51, 61 and 52; (iii)Because the assessment of reasonabilitywas a “subjective assessment”, the Board was obligated to hearother bidders in the disputed GAs before declaring successfulEbidders. On a bare construction of the Board Note dated 23 July2018 and the fact that the Board Note was formulated after thelast date for the submission of bids, the Board Note did not setout absolute criteria for disqualification of bids. The agenda notedated 9 August merely tabled a proposal to apply the criteria ofF2-100 per cent range but the Board did not subsequently adoptthis course of action, a decision within its power and indeednecessary to preserve the integrity of the bidding process. Havingestablished that the Board Note was not an absolute bindingcriteria, and the Tribunal was approached only with respect to GAs 51, 61 and 62, the Board’s treatment of other GAs cannotGbe decisive in determining the legality of the authorisationsgranted in GAs 51, 61 and 62, especially where the Board’s actionsin respect of these other GAs have not been independentlychallenged. Lastly, the Chairperson has construed the assessmentof the reasonability of the highest bidder’s quote as a decisionHaffecting the rights and liabilities of all other bidders for the GAs, thus requiring them to be heard. The assessment of thereasonability of the bid was a matter solely between the highestbidder and the Board. Such an assessment would not alter thescores of the highest bidder vis-à-vis the scores of the otherbidders. The sole question was whether the highest bidder’squote was reasonable, and the power to determine suchreasonability resided solely with the Board by virtue of Clause14.2 of the Bid Document. Thus, the presence and hearing ofother bidders was not necessary. [Paras 54 and 55][163-B-H;164-A]

10. The Court disagrees with the opinion of the Chairpersonand concurs with the view which was taken by the MemberTechnical (Petroleum and Natural Gas) to dismiss the appeals.[Para 56][164-B]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3992of 2019.

From the Judgment and Order dated 28.02.2019 of the AppellateTribunal for Electricity at New Delhi in Appeal No. 292 of 2018.

With

Civil Appeal Nos. 3234-3235, 3247-3248, 3289, 4527 of 2019, 106of 2020, Transferred Case (Civil) Nos. 27 and 26 of 2019.

Kapil Sibal, P.S. Narasimha, Dr. A.M. Singhvi, Vikash Singh,Sanjay Sen, Gopal Shankarnarayanan, Paras Kuhad, Sr. Advs., NitinKala, Sumanto Basu, Pukhrambam Ramesh Kumar, Rohan Sareen, RahulG. Tanwani, Gaurav Mitra, Rohan Ganapathy, Karun Sharma, Ms. ShenizaFarid, Aditi Tripathi, Gaurav Juneja, Aayush Jain, Dibyanshu, Ms. DeepaChawan, M/s. Khaitan & Co., Buddy Rangnathan, Mahesh Agarwal,Ms. Aanchal Mullick, Ms. Deepika Kalia, Shubham Kulshreshtha, E. C.Agrawala, Ms. Bhargavi Kanan, Ms. Ashwarya Modi, Ms. NafisaKhaudeparkar, Parth Chopra, Harpreet Singh Ajmani, Sanjeet Singh,Anish Sethi, Ms. Divya Roy, Prashant Bezboruah, Utkarsh Sharma, JitinChaturvedi, Rakesh Dewan, Shuaib Hussain, Advs. for the appearingparties.

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AThe Judgment of the court was delivered byDR DHANANJAYA Y CHANDRACHUD J.

1. In 2018 the Petroleum and Natural Gas Regulatory Board[1]conducted theninth round of bidding for City or Local Natural GasBDistribution Networks[2]. On 14 September 2018, a press release wasplaced on the Board’s website notifying details of the successful biddersin various Geographical Areas[3]. The contest in the present batch ofappeals has arisen over the grant of authorisation for laying, building,operating or expanding CGD networks in the following GAs:

C(i) GA 51 - Puducherry District;

(ii) GA 61 - Kanchipuram District; and

(iii) GA 62 – Chennai & Tiruvallur Districts.

2. The Appellate Tribunal for Electricity[4]wasseized of two appeals– Appeal No 292 of 2018, instituted by Adani Gas Limited and AppealDNo 323 of 2018, instituted by IMC Limited. These appeals were institutedbefore the APTEL under Section 30(1) of the Petroleum and NaturalGas Regulatory Board Act 2006[5]. By their separate judgments dated 28February 2019, the Chairperson and Member Technical (Petroleum andNatural Gas) rendered divergent findings, following which theEChairperson directed that the proceedings in the two appeals be placedbefore the judicial member. The judicial member recusedfrom hearingthe appeals on 7 March 2019. This led to the institution of the presentappeals before this Court. Noting that no other judicial member wasavailable in the APTEL to conduct the hearing, this Court by its orderdated 1 April 2019 admitted the appeals and issued directions in exerciseFof its powers under Article 142 of the Constitution for the transfer of theproceedings before the APTEL to this Court in order to bring finality tothe present dispute. In assessing the merits, the Court has had the benefitof appraising the differing views which have been expressed by theChairperson and by the Member Technical (Petroleum and Natural Gas).G3. The APTEL has been constituted in terms of sub-Section (1)of Section 30 of the PNGRB Act which is extracted below:

1 “the Board”

2 “CGD Networks”

3 “GAs”

4 “APTEL” or “Tribunal”H

5 “PNGRB Act”

“30. Appellate Tribunal. (1) Subject to the provisions of thisAct, the Appellate Tribunal established under section 110 of theElectricity Act, 2003 (36 of 2003) shall be the Appellate Tribunalfor the purposes of this Act and the said Appellate Tribunal shallexercise the jurisdiction, powers and authority conferred on it byor under this Act:

Provided that the Technical Member of the Appellate Tribunal forthe purposes of this Act shall be called the Technical Member(Petroleum and Natural Gas) and shall have the qualificationsspecified in sub-section (2) of section 31.”

Section 33 stipulates that any person aggrieved by an order ordecision of the Board has recourse to an appeal to the Tribunal. Thejurisdiction of the APTEL while hearing an appeal is spelt out in sub-Section (6) of Section 33 in the following terms:

“33.(6) The Appellate Tribunal may, for the purpose of examiningthe legality or propriety or correctness of any order or decision ofthe Board referred to in the appeal filed under sub-section (1),either on its own motion or otherwise, call for the records relevantto disposing of such appeal and make such orders as it thinks fit.”

An appeal lies to this Court against an order of the APTEL, otherthan an interlocutory order, under Section 37 on the grounds set out inSection 100 of the Code of Civil Procedure 1908. With this background,we now turn to the PNGRB Act under the aegis of which the ninthround of CGD bidding occurred.

PNGRB Act and regulations

4. The content of the PNGRB Act is summarised by its long title as:

“An Act to provide for the establishment of Petroleum and NaturalGas Regulatory Board to regulate the refining, processing, storage,transportation, distribution, marketing and sale of petroleum,petroleum products and natural gas excluding production of crudeoil and natural gas so as to protect the interests of consumers andentities engaged in specified activities relating to petroleum,petroleum products and natural gas and to ensure uninterruptedand adequate supply of petroleum, petroleum products and naturalgas in all parts of the country and to promote competitive marketsand for matters connected therewith or incidental thereto.”

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The PNGRB Act came into force, in terms of the provisionscontained in Section 1(3) on 1 October 2007, save and except for Section16. Section 16 which provides for the authorisation for building orexpanding CGD Networks, came into force on 15 July 2010. Section 16,insofar as is material contains the following stipulations:

B“16. Authorisation.—No entity shall—

(a) lay, build, operate or expand any pipeline as a common carrieror contract carrier, (b) lay, build, operate or expand any city or local natural gasdistribution network, without obtaining authorisation under this Act:C… ’’

Under Section 19 of the PNGRB Act, the Board may grant anauthorisation for a city or local natural gas distribution network either onthe basis of an application or suo moto. Before it does so in a specifiedGA, the Board is under a mandate to give wide publicity of its intent toDdo so. Upon inviting applications from interested parties, the Board mayselect an entity “in an objective and transparent manner as specified byregulations for such activities”.

5. On 19 March 2008, the Petroleum and Natural Gas RegulatoryBoard (Authorizing Entities to Lay, Build, Operate or Expand City orELocal Natural Gas Distribution Networks) Regulations 2008[6] werenotified. The CGD Authorisation Regulations were amended on 21 June2013, 7 April 2014 and 6 April 2018. The CGD Authorisation Regulations,as amended in 2018, substituted new criteria for bidding which appliedto the ninth round of bidding with which the present batch of appeals isconcerned.F

6. Regulation 6 of the CGD Authorisation Regulations providesfor the invitation by the Board for laying, building, operating or expandingof a CGD network in a specific city or GA. The procedure stipulated inRegulation 5 is to apply, except for those aspects relating to expressionsof interest. Under Regulation 5(6), the Board can scrutinise only thoseGbids which are received in response to an advertisement and from entitieswhich fulfil certain minimum eligibility criteria. Regulation 5(6)(b) spellsout the criteria, which are designed to ensure that the entity bidding istechnically capable of laying and building a CGD network in the

H6 “CGD Authorisation Regulations”

relevant city or GA. Regulation 5(6)(c) enunciates criteria which ensurethat the entity is technically capable of operating and maintaining aCGD network. Besides the technical criteria, the Regulations also spellout certain financial criteria which potential bidders must satisfy.Regulation 5(6)(e) provides:

“(6) The Board shall scrutinise the bids received in response tothe advertisement in respect of only those entities which fulfil thefollowing minimum eligibility criteria, namely:- …

(e) the entity has adequate financial strength to execute theproposed project, operate and maintain the same in the authorisedarea and shall meet the following financial criterion to qualify forbidding for a single CGD network namely:- ’’

The minimum net-worth of the bidding entity is thus linked to thepopulation of the GAthe entity is bidding for, as set out in2011 Censusdata.

7. Regulation 7 of the CGD Authorisation Regulations providesthe criteria for determining how the Board should evaluate rival bids forthe same GA. Regulation 7 is quoted below, in its entirety:

“7. Bidding criteria.

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D

E

F

G

H

A1(a) The Board, while considering the proposal for authorisation,shall tabulate and compare all financial bids meeting the minimumeligibility criteria, as per the bidding criteria specified below,namely:- B

C

D

GProvided that in the case of the geographical areas of (i) Bilaspur,Hamirpur and Una Districts; (ii) Panchkula (Except area alreadyauthorised), Shimla, Solan and Sirmaur Districts and (iii) Barmer, Jaisalmerand Jodhpur Districts, it is not mandatory to supply natural gas throughsteel-pipes. However natural gas has to reach in all charge areas. Thebidding parameters and their respective weightage will, accordingly, beHas under:-

Sl.Bidding CriteriaWeightageExplanationNo%1Lowness of transportation 10Bidder is required to quote rate for CGD – in rupees transportation rate for CGD per million British only for the first contract year Thermal Unit which shall not be less than (Rs./MMBTU) Rs.30/MMBTU. Rates for the subsequent contract years shall be derived considering the quoted rate and escalation as per Note. 2Lowness of transportation 10Bidder is required to quote rate for CNG – in rupees transportation rate for CNG per kilo gram (Rs./kg) only for the first contract year which shall into be less than Rs.2/kg. Rates for the subsequent contract years shall be derived considering the quoted rate and escalation as per Note. 3Highness of number of 25-CNGstations (online and daughter booster stations) to be installed within 8 contract years from the date of authorisation 4Highness of number of 55-domestic piped natural gas connections to be achieved within 8 contract years from the date of authorisation Note: Annual escalation shall be considered from the second contract year and onwards based on the “Wholesale Price Index (WPI) Data (2011-12=100)” for “All Group / Commodity”, as normally available on the website of the Office of the Economic Adviser, Government of India, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion (DIPP) on the link “http://eaindustry.nic.in/home.asp.”

1(b) Successful bidder shall be required to achieve the year-wisework programme within 8 contract years as per details given below,namely:- A

B

C

D

E

F

G

AProvided that in the case of the geographical areas of (i) Bilaspur,Hamirpur and Una Districts; (ii) Panchkula (Except area alreadyauthorised), Shimla, Solan and Sirmaur Districts and (iii) Barmer,Jaisalmer and Jodhpur Districts, successful bidder shall be requiredto achieve the year-wise work programme within 10 contract yearsas per details given below, namely:- B

C

DNote – In case derived numbers are in fraction, the same shall be rounded off to the nearest whole number and fraction 0.5 shall be rounded off to next higher whole number.

(2) ***********

(3) Bidder entity with the highest composite score, consideringEthe criteria under sub-regulation (1) and as illustrated in ScheduleC (1), shall be declared as successful bidder.

Provided that in case of tie in the evaluated composite score, thesuccessful bidder shall be decided based on the highness ofnumbers of PNG connections among the tied bidding entities. InFcase there is tie on number of PNG connections also, highness ofinch-kilometer steel pipeline shall be considered and thereafter incase of tie in inch-kilometer as well, highness of numbers of CNGstations shall be considered;”

Under Regulation 7, the Board while considering proposals forGauthorisation,shall tabulate and compare all financial bids which meetthe minimum eligibility criteria in accordance with the bidding criteria setout as enunciated. The table set out in Regulation 7(1)(a) provides forthe tabulation of all eligible financial bids on the basis of five parameters.The table enunciates the five bidding criteria and the weightage which isto be ascribed to each of them. The criteria are as follows:H

(i) The first criterion is the ‘lowness’ of the transportation rateAfor CGD computed in rupees per million for a BritishThermal Unit. The weightage ascribed to this criterion is10 per cent. The explanation stipulates that a bidder isrequired to quote the transportation rate for CGD only forthe first contract year at a rate not less than Rs 30 perBMMBTU;

(ii) The second criterion is the ‘lowness’ of the transportationrate for CNG expressed in rupees per kilogram.Theweightage ascribed to this criterion is 10 per cent. The bidderis required to quote the transportation rate only for the firstCcontract year at a rate of not less than Rs 2 per kilogram;

(iii) The third criterion is the ‘highness’ of the number of CNGstations to be installed within eight contract years from thedate of authorisation. The weightage ascribed to thisparameter is 20 per cent; D

(iv) The fourth criterion is the ‘highness’ of the number ofdomestic piped natural gas connections to be achieved withineight contract years from the date of authorisation. Theweightageascribed to this criterion is 50 per cent; and E

(v) The fifth criterion is the ‘highness’ of the inch-kilometre ofsteel pipeline to be laid within eight contract years from thedate of authorisation. The weightage ascribed to thisparameter is 10 per cent.

Regulation 7(1)(b) sets out a year-wise work programme indicatingthe progress which must be achieved by the successful bidder everyyear during the course of eight contract years from the date ofauthorisation. Under Regulation 7(3), a bidding entity with the highestcomposite score, in terms of the criteria contained in sub-regulation (1),is to be declared as the successful bidder. This is illustrated in ScheduleC(1) of the CGD Authorisation Regulations. Schedule C(1) contains thefollowing illustration of the manner in which the weightage for PNGconnections is to be ascribed:

F

G

“(E) Number of PNG domestic connections

Let,

H

AP1 = Number of PNG domestic connections by the 1[st] entity P2 = Number of the PNG domestic connections by the 2[nd]entity P3 = Number of the PNG domestic connections by the 3[rd]entityB

Assume P1 is higher than P2 and P2 is higher than P3.; The highest number of PNG domestic connections bid (HP1) shallbe given a score of 100% and the number of the other PNGdomestic connections bids shall be given a score in relation toCHP1 on a pro-rata basis as under :- D

’’

This illustration shows that the entity which has quoted the highestEnumber of PNG domestic connections to be achieved is allotted a scoreof 100 per cent. The entities below the highest will be assigned a scorein relation to the first entity on a proportionate basis.

8. Under Regulation 9, the grant of an authorisation is to be issuedto a successful entity after it furnishes a performance bond. The quantumFof the performance bond is based on the population of the GA asdetermined with reference to the census data of 2011. Regulation 9states:

“9. Performance bond.

(1) Grant of authorisation shall be issued to the successful entityGafter it furnishes the performance bond in the form of demanddraft or pay order or bank guarantee from any scheduled bankfor the amount as per details given below, namely:- H

’’

E

Under Regulation 10, the successful entity is to be issued a letterof intent[7] upon the finalisation of the bid. Under the CGDAuthorisation Regulations, the authorised entity must also obtainfinancial closure for the projectfrom a bank or financial institutionwithin 270 days of authorisation.

F

9. The period of implementation of the project under the ninthround of CGD bidding is 2018 to 2026. The period for commercialoperation is between 2018 and 2043.

10. From an analysis of the CGD Authorisation Regulations, itbecomes evident that the 2011 census figures have been utilised to pegGthe net-worth requirement in Regulation 5(6)(e) and the value of theperformance bond to be submitted to the Board post authorisation inRegulation 9. Significantly, Regulation 7, which provides a table specifying 7 “LOI”

H

Athe five bidding criteria to evaluate competing bids, does not link the saidcriteria with the census figures of 2011.

Facts of the present appeals

11. On 12 April 2018, the Board initiated the bidding process forauthorising entities to lay, build, operate or expand CGD networks forBthe ninth round. The bids were invited by means of an application-cum-bid-document for each GA.[8 ]The bidding process covered various GAs,including those of (i) GA 51 - Puducherry District; (ii) GA – 61Kanchipuram District; and (iii) GA 62 -Chennai-Tiruvallur.

12. Clause 1.1. of the Bid Document was titled ‘GeographicalCarea and related information’. Clause 1.1.1 stipulated that the Boardhad identified a GA and was accordingly inviting applications-cum-bidsfor the grant of authorisation for developing a CGD network in theGA.Each GA was depicted in a map at Annexure-1 of the Bid Documentfor the relevant GA. Under Clause 1.1.3, it was the responsibility ofDeach bidder to obtain all information related to the present gas supplyavailability, pipeline connectivity and information about existing customers,if any, in the specified GA. Clause 1.1.3 stated:

“1.1.3.It is the bidder’s responsibility to obtain allinformation related to the presentgas supply availabilityEand pipeline connectivity and also existing customers, ifany, in the specified geographical area. The bidder can alsorefer to list of NOCs/Permissions granted by PNGRB to variousentities under the provisions of the Internal Guidelines for grant ofNOC/Permission for (i) supply/distribution of CBM/natural gasthrough cascades; and (ii) setting up of CNG/LNG DaughterFBooster Stations (DBS), in theareas where the Board has not yetauthorized any entity for developing or operating CGD networksat http://www.pngrb.gov.in/CGD-NOCs.html.”

G

The scope of work was defined in Clause 1.2 of the Bid Document:“The entities bidding for this work shall be required to lay, build,operate or expand the CGD networks to meet requirement of H8 With respect to the relevant GA, “Bid Document”

natural gas in domestic, commercial and industrial segmentsincluding Natural Gas in the vehicular segment in the saidgeographical area to be authorized and also comply with therelevant regulations notified from time to time.

The entities shall be required to carry out the development ofCGD project in line with the regulations laid down by thePNGRB.”

13. Clause 2.1.1 required the bidders to examine the contents ofthe Bid Document and the regulations of the Board. Clause 2.1.2described Annexure-1 as the map depicting the GA and charge areas.Under Clause 2.2.1, any clarifications were required to be obtained fromthe Secretary of the Board on or before the bid closing date. Clause 4.2stipulated that all financial bids would be tabulated and compared inaccordance with the bidding criteria specified in Regulation 7 andSchedule-C(1) of the CGD Authorisation Regulations. Moreover, thebidder with the highest composite score would be declared as successfulin the bid. Under Clause 4.4 of the Bid Document, the Board reservedthe right to accept or reject any bid which it considered to be“unreasonably high or low”:

“4.4 PNRGB’S RIGHT TO ACCEPT OR REJECT ANYOR ALL APPLICATION-CUM-BIDS

4.4.1 PNRGB reserves the right to reject any Application-cum-Bid comprising quoted work programme considered by it to beunreasonably high or low.”

On 31 May 2018, Addendum-1 to the Bid Documentwas issuedby the Board. Clause 14.2, inserted as a result of Addendum-1, containedthe following clarification:

“14.2 What should be considered to be the level of “unreasonablyhigh” or “unreasonably low” quotes shall be decided by Board atthe time of bid evaluation on a case to case basis after consideringthe relevant factors.”

According to the above stipulation, the Board clarified that thedetermination of an unreasonably high or low quote would be made bythe Board at the time of bid evaluation on a case to case basis afterconsidering the relevant factors.

A

BC

D

E

F

G

H

A14. On 10 July 2018, three bid evaluation committees[9] werenominated by the Board for evaluating the bid documents. On 12 July2018, a press release was issued by the Board setting out the date andtime for the opening of technical bids for different GAs. The technicalbids for GA 51 (Puducherry) were to be opened on 16 July 2018 at14.00 hours; for GA 61 (Kanchipuram) on 17 July 2018 at 12.30 hours;Band for GA 62 (Chennai-Tiruvallur) on 17 July 2018 at 13.30 hours. Thetechnical bids were opened by the Board in the presence of the bidders’representatives.

15. On 23 July 2018, a note[10] was moved for the approval of themembers of the Board with a view to encourage serious bidders and toCavoid unrealistic/unreasonable bidding in terms of Clause 4.4.1 of theBid Document. The Board Note, insofar as is material provided:

“Subject: Reasonability of Bidding Parameters Bid evaluation for technical bid is under progress for all 86 GAs.DTechnical bid queries are being issued and it is expected that theFinancial bid opening may be started from this week (24[th] Julyonwards) for various GAs. The bidding parameters have beencompletely changed in current round.

In order to promote serious bidders and to avoid any unrealistic/Eunreasonable bidding number committed by entity, PNGRB hasincluded a rejection clause in Para 4.4.1 of application-cum-biddocuments. The clause is reproduced below:

“PNGRB reserves the right to reject any Application-cum-Bidcomprising quoted work programme considered by it to beunreasonably high or law.”F

Since technical bids for some of the GAs are about to be concluded,it is essential to decide upon the reasonability of the biddingparameters which are constituting work programme. In this regard,following is proposed:

G1. No of PNG Domestic connections:

Lower Limit: Ministry of Petroleum and Natural Gas(MoP&NG) vide letter No L-16021/9/2013-GP-1 (pt.) dated16[th] August 2016, constituted a committee to examine the 9 (“BECs”)H10 “Board Note”

City Gas Distribution (CGD) bidding related issues. Thecommittee in its report recommended minimum workprogramme (MWP) for inter-alia PNG domesticconnections as 7.5% of within district headquarters/municipal limit. Prior to 9[th] round, MWP for PNG domesticconnections was fixed for 5 % total household. Consideringabove it is proposed that 2 % of total Household (Census2011 data) may be considered as minimum.

Maximum Limit: In order to reach at maximum valuevarious possibilities has been discussed in house whichincludes conversion of LPG to PNG, maximum penetrationat present in GAs etc. It is proposed to keep maximumlimit of PNG Domestic connections as 100 % of Household(Census 2011 data). Beyond 100 % household may betreated as unreasonable quote.”

The Board Note was approved by the members of the Boardincluding the Chairperson. Between 24 July 2018 and 18 August 2018,the financial bids submitted by the bidders for various GAs were openedby the Board.

16. The Board Note of 23 July 2018 adopted the Census 2011data on the total number of households as the basis for computing theminimum and maximum limits for the purpose of determiningunreasonably low or unreasonably high quotes. The Board Note stipulatedthat 2 per cent of the total households in terms of the Census 2011 datawould be regarded as the minimum quote. Anything below 2 per centwould be considered unreasonably low. Similarly, on the upper end ofthe spectrum, the Board Note proposed that 100 per cent of the totalhouseholds in terms of the Census 2011 data would be regarded as themaximum. A quotation beyond this upper limit would be construed to beunreasonably high. Now, two features of the note of the Board Notedated 23 July 2018 must be noted. First,the Board Note was generatedafter the last date for the submission of bids. Second, the Board Notewas an internal document of the Board which was not notified to thebidders.

17. The Board commenced the process of opening the financialbids on 24 July 2018. On 2 August 2018, an agenda note was preparedfor the Board. The agenda note outlined that three BECs were nominatedfor evaluating the bids received. Technical bids submitted by the bidders AB

C

DE

F

G

H

Awere evaluated by ICF, a consultant, based on the requirements of theRegulations and the Bid Documents. A summary sheet of the technicalbid evaluation was prepared and checked by the BEC. Thirty-eight entitieshad submitted bids against 86 GAs. The financial bids of technicallyeligible bidders were recommended for opening. The agenda note dated2 August 2018 spelt out the stipulation contained in paragraph 4.4.1 ofBthe Bid Document, and of the previous decision of the Board, to adopt 2per cent of the total households as the minimum and 100 per cent as themaximum, both on the basis of 2011 Census data. The agenda notecontained a tabulation of the bids of technically qualified entities. Theagenda note indicated that for four GAs: 35, 46, 48 and 49 where twoCbids had been received for each, the highest bidder had quoted anunreasonably low number of projected PNG connections at the end ofeight contract years. Where the bid below 2 per cent was the sole bidfor the GA, the bid was accepted as the GA would have gone ‘dry’otherwise. The agenda note proposed the adoption of three courses ofaction with respect to the remaining bids:D

(i) Rejection of the bids received for the above four GAs asbeing unreasonably low;

(ii) Acceptance of the bids for the four GAs by extending tothem the same logic that was applied for single bid GAs; orE

(iii) Inviting the concerned entities with the highest scores foreach of the GAs for negotiation to improve the quoted workprogramme.

18. The agenda note dated 2 August 2018 was presented beforethe Board for deliberation on 3 August 2018. In its meeting, the BoardFaccepted the proposal for the issuance of LOIs to entities of 48 GAsmentioned in table 3 of the agenda note. The proposal to invite entitieswith the highest scores which had submitted unreasonably low bids foreach of the GAs for negotiations and to improve the quoted workprogramme was approved. Accordingly, on 3 August 2018, the BoardGissued a press release recording that it had approved the issuance ofLOIs to 18 successful bidders for 48 GAs. The press release indicatedthat the remaining GAs were being evaluated and the outcome would benotified shortly.

19. On 9 August 2018, an agenda note was issued by the Boardnoting that in pursuance of the decisions which were taken by the BoardH

on 3 August 2018, letters have been addressed to the entities which hadobtained the highest composite score but had quoted unreasonably lowPNG connections, to confirm their acceptance of the minimumrequirement of 2 per cent of households as per the 2011 Census data.Table5 to the agenda note contained a tabulation of bids which wereliable to be rejected due to unreasonably high or as the case maybe,unreasonably low quotes. Among these bids were the bids receivedfrom H1 bidders who had quoted unreasonably high PNG connectionsfor thethreeGAswhich form the subject matter of the present appeals.These were:

A

B

“Table -5

F

…

From the above Table-5, it can be seen that in 3 GAs haveunreasonably High PNG Connections quoted have been received& also happens to be H1 bidder and are liable for rejection.”

20. At this stage it may also be necessary to note that table4contained a tabulation of bids among them being those of bidders whowere treated as not “Not-Qualified”. The agenda note recommendedthat in threeGAs, the bids of the highest bidders were liable to be rejectedsince they had quoted an unreasonably high number of PNG connectionsto be achieved at the end of eight contract years. Consequently, the G

H

Anames of the entities which were to be declared as successful bidderswere tabulated in table 6 of the agenda note. According to the agendanote, after the names of the entities with the highest bids were removed,IMC Limited was recommended for being declared as the successfulbidder for GA 61 (Kanchipuram District). Similarly, for GA 62 (Chennai& Tiruvallur Districts), Adani Gas Limited was recommended to be theBsuccessful bidder after the highest bid was declared as “Not Qualified”.The agenda note was prepared by the Authorisation Division and recordsthat it was concurred with by the Member (I&T) and Member (C&M)and was approved by the Chairperson “for deliberations and approval ofthe Board”.

C

21. On 10 August 2018, a meeting was held by the Board. Theminutes of the Board meeting recorded that out of four cases where thequotes for projected PNG domestic connections were higher than 100per cent of the households under the 2011 Census, one of the bidders forGA 63 was not under consideration as its composite score was not theDhighest amongst the bids received for the GA. The other three bidderswho had quoted more than 100 per cent of the households for PNGdomestic connections were reflected in the following table:

“Sl GA GA name Bidding Entity Quoted for PNG No. No. Domestic Econnections as % of households as per 2011 census 1. 61 Kanchipuram Distt. Consortium of 114% AG&P LNG marketing Pte Ltd. and Atlantic Gulf F& Pacific Company of Manila Inc. 2. 62 Chennai & Tiruvallur Torrent Gas Pvt 157% Districts Ltd. 3. 72 Medchal, Torrent Gas Pvt 220% Rangareddy&Vikarabad Ltd. GDistricts G

’’

The minutes of the meeting went on to record that:

“During deliberations in the Board, the Board referred to clauseH4.4.1 of ACBD which reads, “PNGRB reserves the right to reject any application cum bid comprising quoted work programconsidered by it to be unreasonably high or low.” In terms ofthis clause vide note dated 23.07.2018 (i) lower and upper limitswere decided for PNG domestic connections (ii) lower limitswas decided for CNG Stations and (iii) no limit (higher or lower)was decided for Inch-KM of Steel pipeline. The Boarddeliberated that though lower and upper households weredecided, the same need not be a mechanical exercise and anopportunity be given to affected entities to explainreasonableness of their quotes.”

22. The Board thus took a decision that the disqualification ofbidders on the basis of the lower and upper thresholds of 2 per cent and100 per cent of the 2011 households which it had decided earlier “neednot be a mechanical exercise”. Hence, a decision was taken to offer tothe three affected entities for GAs 61, 62 and 72, an opportunity topresent their case on why their bids should not be rejected for beingunreasonably high. The Board appears to have done so on the basis thatthe rejection of their bids, without an opportunity to present their casewould not be “legally correct”. This is reflected in the following decisionwhich was taken by the Board on 10 August 2018:

“(a) To call the bidding entities for GA- 61, GA-62 and GA-72which quoted for PNG domestic connections higher than fixedvide note that 23.07.2018 for discussion on 14.08.2018 to presenttheir case as to why the bids submitted by them for PNG domesticconnections be not considered unreasonably high. The Board alsodecided that under these circumstances, it would not be legallycorrect to reject their bids without providing them a chance topresent their case.”

23. On 10 August 2018, a press release was issued by the Board.In pursuance of the decision which was taken by the Board, on 14 August2018 presentations were made before it by the three entities for GAs61,62 and 72 which had quoted more than 100 per cent of the number of2011 households. Apart from the above three GAs, the financial bid forPuducherry (GA 51) was opened on 18 August 2018. The bidder withthe highest composite score for GA 51 had also quoted more than 100per cent of the total 2011 households and was called on 23 August 2018for a presentation before the Board.

AB

C

D

E

F

G

H

A24. On 28 August 2018, an agenda note was prepared with respectto the Board’s decision on four GAs: 51, 61, 62 and 72. The agenda notecontained a summation of the submissions made by each of the fourbidders who had been called upon to explain why their bids in excess of100 per cent of the total number of households as per 2011 Census datashould not be considered unreasonably high. The agenda note containedBa tabulation of the percentage of PNG penetration in the projectedhouseholds in 2026 with respect to the number of households as per the2011 Census. The comparative table is extracted below:

Sl No. GGA PNG HH as Projected PNG PNG A connectionper 2011 HH in penetration penetration CID s quoted by Census 2026* in 2026 as in 2026 as the bidder i.e. Upper per per H1 Limit of PNGRB bidder PNG upper limit Connections fixed by PNGRB DA B C D E F G=(E/F) H=(D/F) *100 *100 1 51 Puducherry2,75,000 2,31,513 3,91,852 59% 70% 2 61 Kanchipuram 11,51,111 10,06,245 20,89,765 48% 55% E3 62 Chennai 12,70,391 20,87,729 Tiruvallur 10,63,109 21,34,971 Total (Chennai & 33,00,000 23,33,500 41,87,734 56% 79% Tiruvallur) 4 72 Ranga Reddy 10,05,300 4,56,557 10,17,097 45% 99% (except authorised Farea) Presently, Medhchal, Rangareddy&Vikarabad Districts

25. The Board held a meeting on 29 August 2018. During themeeting, the Board approved the submission of the following three biddersGwho had made presentations before the Boardwith respect to thereasonableness of their quotes:

“GA-51: Consortium of SKN Haryana City Gas Distribution Pvt.Ltd.

H

GA-61: Consortium of AG&P LNG Marketing Pte Ltd. & AtlanticGulf & Pacific Company of Manila Inc.

GA-62: Torrent Gas Private Limited.”

The Board however rejected the submission of Torrent Gas PrivateLimited in respect of the reasonableness of its quote for GA72 anddecided to award the LOI to Megha Engineering & Infrastructure PrivateLimited, the entity with the highest composite score after Torrent GasPrivate Limited was disqualified. The basis of the decision of the Boardis contained in the following extracts from the minutes of 29 August2018 meeting:

“2. The Board further deliberated as under:

(a) Following the earlier decisions, the three bidders i.e. TorrentGas Private Limited, Consortium of AG&P LNG and SKNHaryana City Gas Private Limited were called for discussionon 14[th] and 23[rd] August 2018 to explain reasonableness ofhigh PNG connections quoted by them for the above GAs.

(b) The Board referred to table in Para 15 of the agenda notewherein quoted PNG domestic connections for the above fourGAs were compared with the upper limit fixed vide noteddated 23.07.2018 and projected households in 2026(considering the number of households as per 2011 Censusand the historical growth rate during 2001 to 2011 as per censusdata of 2001 to 2011). It was observed that penetration ofPNG domestic connections based upon upper limit fixed byPNGRB with reference to projected number of householdsin 2026 varied from 45% to 59%. However, penetration ofPNG domestic connections based upon quoted PNGconnections with reference to projected number of householdsin 2026 varied from 55% to 99%. The variation between twosets of numbers is 7% to 54%.

(c) The Board observed that the highest variation of 54% is inGA-72, which is based on untenable assumptions made bythe bidder as described in Para 14.3 of the agenda note. Dueto this, 10,05,300 PNG domestic connections quoted by thebidder are 99% of the projected households by PNGRB in2026, which is unreasonably high. It was also observed thatfor the remaining 3 GAs, the variation between two sets of A

B

C

D

E

F

G

H

Anumbers given in para 15 of the Agenda note is 7% to 23% ofprojected number of households in 2026 and PNG penetrationwould be in the range of 55% to 79%.

(d) The Board also referred to regulation 16(2) of CGDAuthorisation Regulations, which provides for rates of pre-Bdetermined penalty for shortfall in achieving cumulative workprogram targets for each contract year. The entities biddingaggressive number of PNG domestic connections would beliable to pay pre-determined penalties under afore-mentionedregulation 16(2).

C(e) In view of the above, it was decided to accept the quotedPNG domestic connections and award the Chennai &Tiruvallur District GA (GA-62) to Torrent Gas Private Limited,Kanchipuram District GA (GA-61) to Consortium of AG & PLNG Marketing Pte. Ltd & Atlantic Gulf & Pacific Co. ofManila Inc. and Puducherry District GA (GA-51) toDConsortium of SKN Haryana City Gas Distribution Pvt. Ltd.and Chopra Electricals to the bidders with highest compositescore for respective GAs, where the variation in two sets ofnumbers is in the range of 7 to 23%. Regarding Medchal,Rangareddy (except area already authorised) & VikarabadEDistrict GA (GA-72), where the variation is around 54% andthe bid by Torrent Gas Pvt. Ltd. is based on untenableassumptions and incorrect map, the bid of the entity withhighest composite score may be considered as unreasonablyhigh and rejected in terms of Clause 4.4.1 of ACBD.Accordingly, the GA may be awarded to the bidder with secondFhighest composite score and LOI may be issued to MeghaEngineering & Infrastructure Pvt. Ltd. Subsequently, on receiptof PBG, authorisation letter (Schedule D) may be issued tothe above entities.”

The Board issued LOIs to SKN Haryana City Gas DistributionGPrivate Limited and Chopra Electricals[11], AG&P LNG Marketing PrivateLimited and Atlantic Gulf & Pacific Company of Manila[12] and TorrentGas Private Limited on 30 August 2018 as successful bidders for GAs51, 61 and 62 respectively. On 6 September 2018 Adani Gas Limited 11 “SKN Haryana”H12 “AG & P LNG”

wrote to the Board requesting a copy of the decision with respect to theissuance of LOIs for the above three GAs. Subsequently, the Boarduploaded the details of the successful bidders under the ninth CGD roundon its website on 14 September 2018.

26. On 19 September 2018, Appeal No 292 of 2018 was institutedbefore the APTEL by Adani Gas Limited, aggrieved by:

(i) The decision to award LOIs, in respect of the three GAs –51 (Puducherry District), 61 (Kanchipuram District), and62 (Chennai & Tiruvallur Districts) on the ground that thesuccessful bids were beyond the unreasonably high limitadopted by the Board; and

(ii) The action of the Board in issuing the LOIs without uploadingthe decision on the website and without communicating itto Adani Gas Limited.

Following the institution of proceedings by Adani Gas Limited,IMC Limited also instituted proceedings before the APTEL (Appeal No323 of 2018) challenging the grant of authorisation by the Board in respectof GA 61. The prayers in both appeals were identical and the Tribunalheard both appeals together.

27. During the pendency of the appeal, by an order dated11 October 2018 the APTEL directed the Board to file an affidavitexplaining its decision taken on 23 July 2018 and the reasons on thebasis of which bids were rejected, including on the ground of high andlow quotes. In pursuance of the above order, the Board filed an affidavitby which it disclosed the Board Note dated 23 July 2018 together with acompilation of documents containing board agenda notes, minutes ofmeetings and press releases. On a perusal of the documents submittedby the Board, the competing standing of the various bidders is summarisedbelow for convenience:

A

B

C

D

E

F

G

H

A

In GA 51, Adani Gas Limited was the sixth highest bidder and inGA 61 Adani Gas Limited was the third highest bidder. In Appeal No292 of 2018 Adani Gas Limited challenged the grant of authorisation inGAs 51, 61 and 62 and in Appeal No 323 of 2018 IMC Limited challengedthe grant of authorisation in GA 61.

B28. On 28 February 2019, the APTEL pronounced a split decision.While the Chairperson allowed the appeals filed by Adani Gas Limitedand IMC Limited, the Member Technical (Petroleum and Natural Gas)dismissed the appeals. In view of the divergence of opinion between theChairperson and Member Technical (Petroleum and Natural Gas), theappeals were referred to the Judicial Member of the APTEL. The JudicialCMember recused from hearing the appeal on 7 March 2019, as a resultof which proceedings were instituted before this Court. As noted earlier,the appeals pending before the APTEL have been transferred to thisCourt.

AnalysisD

29. Having set out the facts, we now turn to the issues raised bythe present dispute before this Court. The first aspect which forms thesubject matter of the controversy is the relevance of the 2011 Censusdata in the bidding process. The primary plank on which the appellantscontend that the 2011 Census data was relevant to the bidding processEwas the reference to population/household figures derived from 2011Census data in the map annexed to the Bid Document.

30. Dr A M Singhvi, learned Senior Counsel appearing on behalfof Adani Gas Limited, submitted that:

(i) The map which was attached to the Bid Document did notonly describe the land area but also the population andhouseholds comprised in it; F

(ii) The rationale for this was that the authorisation is to lay theCGD network in a defined land area and to service thedefined households in that area; G

(iii) The figures for population and number of households in themap attached to the Bid Document were drawn from the2011 Census; H

(iv) In several areas out of the 86 GAs which were a part ofthe ninth round of bidding, certain parts of the GAs wereexcluded from the zone of authorisation;

(v) Whenever certain parts of the GAs were excluded fromthe zone of authorisation, the population/household numberwas proportionally reduced to reflect the population/households as per the reduced area. Examples of the aboveare Surendranagar (GA-8); and Medchal-RangaReddy(GA-72).

(vi) In GA 72, Medchal-Ranga Reddy:

(a) The original map attached to the Bid Document showedthe entire district with a corresponding number ofhouseholds of 13,47,118 according to the 2011 Census; (b) The Bid Document was amended to exclude the areain which an existing entity was already laying a CGDnetwork as a result of which not only was the landarea reduced but even the number of households wasreduced to 4,56,557;

(c) Torrent Gas Limited Private Limited, which was thehighest bidder for the reduced area had bid 10,05,300PNG connections, which worked out to 74.6 per centof the original number of households (13,47,118) and220 per cent of the reduced number of households(4,56,557); (d) The Board, at its meeting on 29 August 2018 rejectedthe H1 bidder for GA 72 on the ground that the bid of220 per cent of the households was unreasonably high;and (e) The bid of the H1 bidder for GA 72 was in fact 99 percent of the estimated households for 2026 but was yetrejected as the ‘unreasonably high’ norm was withreference to the 2011 census and not 100 per cent ofthe 2026 estimate because if it was the latter, the H1bidder would have been declared to be successful.

A

B

C

D

E

F

G

A(vii)The map annexed to the Bid Document depicted not onlythe land area but also the population/number of householdswhich were intrinsically intertwined in the bid parameters;

(viii) Clause 1.1.3 of the Bid Document mandated bidders to lookat the “existing population”. Hence, it is incorrect to suggestBthat the bidders had to keep in mind the population in theGAs in 2018. On the contrary, Clause 1.1.1 required biddersto bear in mind the population/households as given in themap annexed to the Bid Document; and

(ix) The reference to ‘charge areas’ in Clause 1.1.2 of the BidCDocument means designated sub-areas which are part ofthe authorised GAs. The designation of ‘charge areas’ isonly to facilitate the Board in determining whether theauthorised entity has created its network in all the GAs forwhich it is authorised.

D31. Opposing the above submissions, Mr Paras Kuhad, learnedSenior Counsel appearing on behalf of the Board submitted a writtennote, explaining the amendments that were made to the CGDAuthorisation Regulations after they were notified initially on 19 March2008:

E(A)2008 CGD Authorisation Regulations:

Regulation 7 of the 2008 CGD Authorisation Regulationsprescribed a four-fold criterion for bidding:

(i) Criteria (a) was the lowness of the present value ofthe overall unit network tariff with a weightage of 40Fper cent;

(ii) Criteria (b) prescribed the lowness of the presentvalue of the compression charge for CNG fordispensing in the CNG stations with a weightage of10 per cent; G

(iii) Criteria (c) prescribed the highness of the presentvalue of the inch-kilometre of steel pipelines proposedto be laid in the CGD network during the period ofexclusivity with a weightage of 20 per cent; and H

(iv) Criteria (d) prescribed the highness of the presentvalue of the number of domestic customers proposedto be connected by PNG with a weightage of 30 percent.

A

Under the Regulations, no upper or lower ceiling was providedfor bidding inrespect of the Criteria (a) to (d) of Regulation 7.

B

(B)2013 Amendment to the CGD AuthorisationRegulations[13]:

(i) The 2013 amendment amended criteria (a) and (b)and substituted bidding criteria (c) and (d) with criteriaC(c);

(ii) The successful bidder was required to achieve aMinimum Work Programme[14] in respect of the PNGdomestic connections and inch-kilometres of steelpipeline; D

(iii) The minimum number of PNG domestic connectionsto be achieved within the first five years ofauthorisation was to be worked out by the Board.This was based on the total number of households tobe calculated as per the basic data sheet of therespective districts of the GA and the populationaccording to the latest census data; E

(iv) The weightage of bidding was shifted to 70 per centfor criteria (a) and 30 per cent for criteria (b). Noweightage was given to PNG domestic connectionsand inch-kilometres of pipeline; and F

(v) The successful bidder was to achieve a target of 15per cent by the second year, 50 per cent by the thirdyear, seventy per cent by the fourth year and 100per cent by the fifth year.

G

(C)2014 Amendment to the CGD AuthorisationRegulations[15]:

13 21 June 201314 “MWP”15 7 April 2014

A(i)The 2014 amendment substituted criteria (c) onceagain;

(ii) Under the 2014 amendment, the Board was to workout the target for infrastructure for PNG domesticconnections as 5 per cent of the households of theBrespective GAs to be achieved by the successfulbidder during the first five years from the grant ofauthorisation; and

(iii) No weightage was given to criteria (c) – PNGdomestic connections and inch-kilometres.

C

(D)On 16 August 2016, the Ministry of Petroleum and NaturalGas constituted a committee to examine alternative modelsfor the bidding criteria to grant authorisation for CGDnetworks. The committee in its report recommended a MWPfor PNG domestic connections at 7.5 per cent, within districtDheadquarters/municipal limits. Prior to the ninth round, theMWP was fixed at 5 per cent of the total households.

(E)2018 Amendment to the CGD AuthorisationRegulations[16]:

(i) The 2018 amendment substituted new criteria forEbidding applicable to the ninth round. The presentbatch of appeals deals with the ninth round of bidding;and

(ii) Under the new criteria applicable to the ninth roundof CGD bidding, 50 per cent weightage was given toFPNG domestic connections. Moreover, no minimumor maximum limits were set for PNG domesticconnections in the 2018 amendment.

Responding to the appellant’s submissions on the binding natureof the Board Note dated 23 July 2018 and the legality of the Board’sGdecision tohear only the highest bidder, Mr Paras Kuhad urgedthat:

(i) The agenda note dated 9 August 2018 is not bindingon the Board as itclearly states that the contents of H16 6 April 2018

the agenda note aresubject to the deliberations andapproval of the Board; A

(ii) Regulation 7 sets out five parameters on which thebids are to be evaluated.Once a bidder fulfils thecriteria set out in Regulations 5 and 7 and emergesas the highest bidder, they have a statutory right toBbe selected;

(iii) The CGD Authorisation Regulations do not set outcriteriafor determining “unreasonably high or low”bids and no such criteria can be read into theRegulations and enforced on the Board; C

(iv) Clause 4.4.1 read with Addendum 1 explicitly statesthat the Board’s power to determine “unreasonablyhigh or low” bids would be exercised on a “case tocase basis after considering the relevant factors”; D

(v) The challenge made by the appellants is an adversarialchallenge and not a Public Interest Litigation. Theappellants cannot try and advance their case byrelying on decisions taken in relation to separate GAswhich are not presently under challenge; and

(vi) The calculations made by the appellantswith respectEto the growth rate and projected number ofhouseholds are based on irrelevant factors.

32. Mr Gopal Subramanium, learned Senior Counsel appearingon behalf of Torrent Gas Private Limited, supported the arguments urgedby the Board and further submitted that:

F

(i) Torrent Gas Limited has attended the hearing beforethe Board, explained its methodology in calculatingits quoted number of PNG connections, and thequoted figure has been accepted by the Board asreasonable;G

(ii) The Board Note dated 23 July 2018 had beenformulated subsequent to the submission of bids.Atthe time of submitting its bid, the only criteria knownto Torrent Gas Private Limited were those specifiedin Regulation 7 and the Bid Document, which did not H

A

prescribe a maximum number of PNG connections;and

(iii) There is no condition in either the CGD AuthorisationRegulations or the Bid Document which require thequoted number of PNG connections to be calculatedBon the basis of 2011 Census data.

33. Mr Gopal Sankaranarayanan, learned Senior Counsel appearingon behalf of SKN Haryana, urged that:

(i) Adani Gas Limited was neither the second nor thirdplaced bidder in GA 51on the basis of the compositeCscore, and therefore has no standing to challenge theLOI granted to SKN Haryana for GA 51;

(ii) Clause 14.2 of the First Addendum makes it clearthat there were no fixed parameters on which an“unreasonably high or low” bid would be determined,Dand specified that such determination would take placeon a case to case basis; and

(iii) According to the calculation of composite scores inSchedule C(1), the bidder with the highest numberof PNG connections is at 100% and all other biddersEare reduced in proportion to the highest bidder’s score.If 100% of the 2011 Census data was a ‘hard upperlimit’ on the quoted number of PNG connections, thecalculation in Schedule C(1) would be renderedredundant.

F34. Mr Kapil Sibal, learned Senior Counsel appearing on behalf ofAG & P LNG, submitted as follows:

(i) AG & P had quoted a figure of 11.51 lakh in its bidfor GA 61. According to the 2011 Census figures,the number of households in GA 61 was only 10.06Glakhs. However, the Tamil Nadu Generation &Distribution Corporation Limited (the state electricityboard) noted that as of 2018, there existed 15.91 lakhhouseholds in GA 61;

(ii) In GA 37, Indian Oil Corporation had quoted a numberof PNG connections below the 2% threshold and was H

the highest bidder. The Board awarded the GA toBharat Gas Resource Limited, which had quotedabove the 2% threshold. However, Indian OilCorporation has not challenged this decision of theBoard before the APTEL or any court, therefore theappellants cannot rely on the case of GA 37; and

(iii) Each GA is a separate tender having its own uniquegeographical and socio-economic factors. Therefore,one cannot compare cases of other GAs with theGA of Kanchipuramwhere AG & P LNG has beenawarded the authorisation.

35. The submission which has been urged on behalf of theappellants in regard to the relevance of the 2011 census data must firstand foremost be assessed in the context of the CGD AuthorisationRegulations as amended on 6 April 2018. The Regulations postulate thatbidders must submit both technical and financial bids. The procedurespecified in Regulation 5 applies to an invitation by the Board for laying,building, operating or expanding a CDG network. Regulation 5(6) requiresthe fulfilment of minimum eligibility criteria. For a technical bid to passmuster, the minimum eligibility criteria require the bidder to be qualifiedboth with reference to technical and financial parameters. This is evidentfrom Regulation 5(6) under which the Board is to scrutinise the bids ofonly those entities which fulfil the minimum eligibility criteria. Theminimum eligibility criteria include the technical capability of the biddingentity to (i) lay and build; and (ii) operate and maintain a CGD network.Both of them are defined with reference to qualifying criteria. Besidesthe technical criteria, the minimum eligibility requirements underRegulation 5(6)(e) incorporate the financial ability to execute the projectand to operate and maintain it in the authorised area. The financial criteriaare defined with reference to the minimum net-worth of the biddingentity. The net-worth required is dependent on the population of the GAunder the 2011 Census. The minimum net-worth required is specificallydefined with reference to the 2011 census figures of population for theGA. The bidding entity is also required to submit a bid bond in the formof a performance bond guarantee. The quantum of the guarantee isdependent on the population of the GA.

36. Regulation 7 requires the Board to tabulate all financial bidswhich meet the minimum eligibility criteria, in accordance with the bidding AB

C

D

E

F

G

H

Acriteria specified in the table. The Table incorporated in the Regulationprovides five-fold criteria for the tabulation and comparison of financialbids. The five criteria are:

(i) ‘Lowness’ of transportation rate for CGD;

(ii) ‘Lowness’ for transportation rate for CNG; B

(iii) ‘Highness’ of the number of CNG stations to be installed ineight years from authorisation;

(iv) ‘Highness’ of the number of domestic PNG connections tobe achieved within eight years of authorisation; and C

(v) ‘Highness’ of inch-kilometre of steel pipeline to be laid withineight years of authorisation.

The third and fourth criteria together account for 70 per cent ofthe total composite score. Among them, the fourth criterion – ‘highness’of the number of domestic PNG connections accounts for 50 per cent ofDthe total composite score. Significantly, the bidding criteria in Regulation7 are not linked to the 2011 Census figures.There are two significantfacets of Regulation 7:

(i) The absence of a linkage of the projected number ofdomestic PNG connections with the 2011 Census data; and E

(ii) The absence of a cap or ceiling on the ‘highness’ normboth in relation to the third and the fourth criteria (iii and ivabove).

37. Regulation 7 (1)(b) requires the successful bidder to achievethe target in terms of an annual work programme within eight contractFyears. The programme is distributed between the first and eighth yearsfor PNG connections’, CNG stations’ and Inch-kilometres of steelpipelines. For PNG connections, the successful bidder must complete10 per cent of the work programme at the end of the second year, 20 percent at the end of the third year, 30 per cent at the end of fourth year, 40Gper cent at the end of the fifth year, 60 per cent at the end of the sixthyear, 80 per cent at the end of the seventh year and 100 per cent at theend of the eighth year. Under Regulation 7(3), a bidding entity with thehighest composite score in terms of the criteria specified in sub-regulation(1) of Regulation 7 is to be declared as the successful bidder.

H

38. The provisions contained in the 2008 CGD AuthorisationRegulations, as amended on 6 April 2018, indicate that where a specificlinkage was sought with reference to the 2011 Census data, a clear andcategorical provision was made to that effect. Such provisionsare foundin regard to the financial capability of a bidder as part of the minimumeligibility criteria in Regulation 5(6)(e) and the extent of the performancebond in Regulation 5(6)(h).

39. Absent a condition in Regulation 7 linking the ‘highness’ of thenumber of PNG connections to be achieved within eight years from thedate of authorisation with the 2011 Census data, it would be contrary tobasic principles of interpretation to read such a restriction into the CGDAuthorisation Regulations. A conditionality which has not beenincorporated in Regulation 7 cannot be introduced as a matter ofconstruction.The court must first and foremost read the Regulation inaccordance with its plain and natural meaning. There is evidently a reasonwhy Regulation 7 did not introduce a ceiling or provide for a linkage withtheCensus data of 2011. Consumers or users, as the case may be, in aCGD network broadly comprise of four categories namely:

(i) Domestic;

(ii) Commercial;

(iii) Industrial; and

(iv) Vehicular.

(i) Domestic;

(ii) Commercial;

(iii) Industrial; and

(iv) Vehicular.

40. The Board has submitted with justification that in a model ofcross/subsidisation, the viability of the project has to be perceived froma twenty- five-year perspective.Gains in one category of users can offsetthe losses in another category. The CGD Authorisation Regulations areintended to subserve the object of establishing the infrastructure necessaryfor setting up an operational CGD network. In creating the infrastructure,the successful entity is contractually bound to set up a project for thefuture.The infrastructure so created would be of service to consumersor, as the case may be, users. Infrastructural projects cater to futureneeds and can legitimately be forward looking. It is from this perspectivethat except for the tariff in the first two bidding criteria of Regulation 7(the transportation rates for CGD and CNG), no ceiling was provided bythe Board for the criteria set out in Regulation 7. More particularly,Regulation 7(3) provided for a mandate to tabulate and compare thebids of all entities which had met the minimum eligibility criteria upon AB

C

D

E

F

GH

Atheir qualifying in a competitive bidding process. The Regulations did notcontemplate the disqualification of a bidder with reference to a normwhich would limit a bid to 100 per cent of the population figures providedby the 2011 Census data. For the Board to stipulate an absolute norm tothat effect, when it has not been specifically incorporated in theRegulations would have rendered the decision making process vulnerableBto a challenge on the ground that it was not consistent with Regulation 7.

41. Now it is in this background, that it becomes necessary toevaluate the Bid Document. Clause 1.1.1 incorporates a reference tothe GA as depicted in the map set out inAnnexure-1, forwhich the Boardwas inviting bids for the grant ofan authorisation to develop a CGDCnetwork. The main plank of the submissions of the appellants is that themap contained a reference to population and household figures on thebasis of the 2011 Census. Clause 1.1.3 places the responsibility on thebidder to obtain information about the present gas supply availability, thepipeline connectivity and the existing customers in the GA. Significantly,Dthe scope of work in Clause 1.2 required bidding entities “to lay, build,operate or expand the CDG networks” to meet the requirement of naturalgas “in domestic, commercial and industrial segments including naturalgas in the vehicular segment in the said Geographical Area to beauthorised.” Bidders are required under Clause 2.1.1 to examine thecontents of the Bid Document including instructions, terms and conditionsEand regulations of the Board. The bidder was required to carefully studythe GA and the charge area before submitting the bid. In other words,bidders were on notice of the actions required to be taken to implementthe Regulations. The Bid Document necessarily had to be in conformitywith the CGD Authorisation Regulations. The map, at best was a Fcompendium of the latest official record of the GA. The map did notdictate how the number of domestic PNG connections was to becalculated. There is no such indication particularly in Clause 1 of the BidDocument where the map is referenced. The mere attachment of amap to the Bid Document would not result in the imposition of conditionsof eligibility or qualification. These have been provided in the RegulationsGwhich have a statutory character. The depiction of the GA in a mapattached to the bid document does not over-ride the specific requirementsof the bidding criteria as defined in Regulation 7.

42. The next basis of the challenge by the appellants is that thedecision which was taken in the form of the Board Note dated 23 JulyH

2018 had categorically stipulated a range of 2 per cent to 100 per cent ofthe number of households as per the 2011 Census as the minimum/maximum thresholds to judge the reasonableness of the bids. It has beenurged that despite this, the decision of the Board dated 10 August 2018virtually reversed the earlier decision recorded in the Board Note of 23July 2018, thereby tainting the decision-making process with arbitrariness.The nuances to this challenge have been brought out in the submissionsof Dr AM Singhvi, Mr Vikas Singh, learned Senior Counsel on behalf ofAdani Gas Limited and Mr KV Vishwanathan and Mr BuddyRanganathan, learned Senior Counsel on behalf of IMC Limited andcan broadly be catalogued in the form of the following points:

A

B

C

(i) The 2- 100 per cent criterion based on the 2011 Censusdatais the basis on which the bids for 79 out of 86 GAswere evaluated;

(ii) In respect of the bids for four GAs (out of theremainingseven GAs) where the highest bidder had bid aDnumber of PNG connections below 2 per cent of the numberprovided by the 2011 Census, those four bidders werefurnished with an opportunity to improve their bids andmatch the 2 per cent threshold;

(iii) It is only for the three bidders with the highest compositescores in GAs 51,61 and 62 that the bids were evaluatedwith reference tothe projected number of households in2026; E

(iv) For example, in GA-62 (Chennai-Tiruvallur), there wereten bidders of whom the bids of nine were evaluated withreference to the 2011 Census data on the number ofhouseholds, whereas the bid of one bidder (Torrent GasPrivate Limited) has been evaluated with reference to thenumber of projected households in 2026; F

(v) The agenda note dated 9 August 2018 which was approvedby three out of the four Board members recommended thatTorrent Gas Private Limited was not qualified and AdaniGas Limited be declared as the successful bidder.Yet on 10August 2018, the four Board members including the threewho had approved the Board Note concluded that, thoughthe lower and upper thresholds were decided “the sameneed not be a mechanical exercise”; G

H

A(vi)Neither the Bid Document nor the CGD AuthorisationRegulations contain any provision allowing the Board to callupon bidders to improve their bids;

(vii) The Board Note dated 23 July 2018 which defined theminimum and maximum threshold (2-100 per cent of theBnumber of households as per the 2011 Census) without anycaveat or provision for relaxation has been virtually reversedon 10 August 2018, thereby upsetting the level playing fieldbetween bidders;

(viii) The only reason for the reversal of the decision, which isCthat the criterion need not be a mechanical exercise is notsupported by reasons and this volte face introduced un-canalized subjectivity in the process which was earlierconsidered to be objective and definite;

(ix) The Board decision dated 28 August 2018 wrongly adoptsthe 2011 Census number as 23,33,500 whereas in the BoardNote, the number of households as per the 2011 census is21,01,931; D

(x) There has been a breach of the principles of natural justicefor the following reasons:

E(a)In the Board decision dated 10 August 2018, it was decidedto give a hearing to all affected parties; (b)The Board undertook the exercise of hearing only TorrentGas Limited, AG&P LNG and SKN Haryana; and

(c) The violation of natural justice lies in the fact that theseF“not-qualified” bidders were heard on why their bids werereasonable despite being above 100 per cent of the 2011Census household data. Neither Adani Gas Limited nor anyof the other unsuccessful bidders were heard on why thebids of the “not-qualified” bidders were actuallyGunreasonable.

(xi) This Court is justified in reviewing the process adopted bythe Board in evaluating the bids for the ninth round of CGDbidding. It is well settled that judicial review cannot be deniedeven in contractual matters to prevent arbitrariness.

H

43. Our analysis of the CGD Authorisation Regulations, asamended on 6 April 2018, as explained earlier, reveals that the Regulationsdid not contain any stipulation determining a range of 2 to 100 per centof the number of households under the 2011 Census as the criterion toevaluate bids. The Regulations in fact do not link the ‘highness’ factor ofdomestic PNG connections to the 2011 Census data. In Clause 4.4.1 ofthe Bid Document, the Board reserved to itself the right to reject anyunreasonably high or low bid. In Addendum-1 to the Bid Document, theBoard clarified to all prospective bidders that the evaluation of whethera bid was unreasonably low or high would be conducted on a case tocase basis at the time of bid evaluation.

44. It is in the above background that the Board Note dated 23July 2018 must be assessed. The Board Note was formulated after thelast date for the submission of bids. The criterion which the Board Noteproposed had not been notified to bidders. Bidders were not on noticethat this would be the basis on which their bid would be evaluated. TheBoard Note took notice of Clause 4.4.1 of the Bid Document andstipulated that since technical bids for some GAs were about to beevaluated, it was necessary to decide upon the reasonableness of thebidding parameters which constituted the work programme. It was inthis background that the Board Note proposed that; “…2 per cent oftotal households (as per the 2011 Census data) may beconsidered asminimum”. As regards the maximum, the Board note proposed that:

“beyond 100 per cent householdsmay betreated as unreasonablyquote”

The terminology adopted by the Board Note indicates that the 2-100 per cent range was not laid down as an absolute or inflexible basisfor disqualifying bids below the minimum or in excess of the maximum.On the contrary, the use of the expression “may be” is one indicator thata bid which was below 2 per cent or in excess of 100 per cent maytrigger the exercise of the power which the Board had reserved to itselfin clause 4.4.1 of the Bid Document. On its plain terms, the Board Notecannot be construed to have laid down an absolute norm by which bidsquoting below the minimum of 2 per cent or above the ceiling of 100 percent of the number of households under the 2011 Census data wouldautomatically be rejected as unreasonable.

AB

C

D

E

F

G

H

A45. If the Board Note of 23 July 2018 were to be construed in themanner in which the learned Senior Counsel for the appellants urged,the automatic disqualification of bidders based on a criterion introducedby the Board Note would raise serious doubts about its fairness andlegality. This is because the Board Note was not notified to bidders as abasis for the evaluation of bids before the date for the submission of theBbids had closed. To disqualify a bidder on the basis of a criterion whichwas not notified and of which bidders had no knowledge would be arbitraryand would constitute an infraction of Article 14. The Board was thuscorrect in determining that the automatic disqualification of a bid on thebasis of a criterion specified in the Board Note (which was never notifiedCto the bidders) would not be “legally correct”. Hence, it would bereasonable to interpret the Board Note dated 23 July 2018 as being theformulation of a guideline for the Board.As a guideline in the process ofevaluation, the decision taken by the Board on 23 July 2018 was not tothe effect that every bid below 2 per cent or above 100 per cent would

necessarily stand disqualified. Consistently with the use of the wordD‘may be’, as already noticed, the decision of the Board meant that thepower which the Board reserved to itself in Clause 4.4.1 could be invokedif it came to the conclusion that the bid had not been justified to bereasonable. In other words, the breaching of the range of 2-100 per centwas a trigger for the Board to scrutinise the bid and determine whetherEthe power under Clause 4.4.1 should be invoked. Hence, the course ofaction which the Board followed of calling upon the bidders with thehighest composite scores in GAs 51, 61 and 62 to justify their bids interms of their reasonableness cannot be faulted. On the contrary, if theBoard had rejected these bids solely on the ground that they were abovethe limit of 100 per cent of households under the 2011 Census data, theFdecision would have been seriously flawed for having applied a criterionwhich was not a part of the Regulations, was not embodied in the BidDocument and in any event, was not notified to bidders before they hadsubmitted their bids.

46. Another limb of the submission is that, with respect to GA 62,Gthree out of the four members of the Board had in the Board agendadated 9 August 2018 recommended that Torrent Gas Private Limitedwas not qualified and that Adani Gas Limited be declared as thesuccessful bidder. This, in our view, is an incorrect reading of the agendanote. What this submission misses is the last paragraph of the BoardHagenda note which states:

“20. This Agenda note has been prepared by AuthorizationDivision, concurred by Member (I&T) & Member (C&M) andapproved by Chairperson for deliberations and approval of theBoard.”

The agenda note dated 9 August 2018 was a recommendationwhich was prepared on the basis of the 2–100 per cent criterion containedin the Board Note dated 23 July 2018. Obviously in the light of thatdecision, a recommendation was made which was still to be deliberatedupon by the Board as a body. When the Board met on 10 August 2018,it correctly came to the conclusion that the lower and upper thresholdswere not to be applied mechanically to disqualify bidders. This decision,as we have indicated earlier, was justified not only by the terms of theBoard Note dated 23 July 2018 but was intrinsic to a fair exercise ofpower by the Board. The Board decided that it would call the bidderswith the highest composite score to explain the reasonableness of theirbids. This was a fair opportunity which was granted to the bidders whohad the highest composite score to justify the basis of their computationof projected households over the eight-contract years.

47. There is no merit in the submission that there was a breach ofthe principles of natural justice in calling only the bidders with the highestcomposite score to explain the reasonableness of their bids. None ofthese bidders was being called upon to revise or improve their bids. Interms of the CGD Authorisation Regulations, the bidder with the highestcomposite score has to be declared as the successful bidder. If despitehaving the highest composite score, a bidder was being considered forrejection by the Board, it was that bidder who was justifiably called toexplain the reasonableness of the bid. The other bidders had no locus toparticipate in the process. It is a settled principle of law that the rules ofnatural justice are attracted where a decision affects a right of a partyagainst whom the decision has to be made. After the composite score ofall bidders is calculated, the second highest bidder has no rights vis-à-visthe highest bidder or the Board unless the method of calculating thehighest composite score itself is impugned. Calling upon the bidders withthe highest composite score to explain the reasonableness of their biddid not alter the composite score of the H1 bidders or any other bidderfor the same GA. The question of hearing any other bidder would havearisen only if the H1 bidder stood disqualified, and the bidder with the A

B

C

D

E

F

GH

A

B

C

D

E

F

GH

Anext highest composite score also breached the 2-100 per cent range,thereby warranting scrutiny from the Board. In the present situation,when the Board decided to call the bidders with the highest compositescore in order to allow them an opportunity to explain reasonableness oftheir bid, the administrative decision taken by the Board cannot be faultedas being in violation of the principles of natural justice.B

48. At the 82[nd] meeting of the Board, which was held on 29 August2018, the reasonableness of the bids submitted for GAs 51,61,62 and 72came up for consideration. In GA 62 (Chennai-Tiruvallur) Torrent GasPrivate Limited, relied on the current LPG domestic connections(41,73,073) according to the statistics of the Tamil Nadu government.CThis was extrapolated until 2026 taking the growth rate at 5 per cent perannum. On this basis, Torrent Gas Private Limited as the H1 bidderjustified before the Board its quoted figure of PNG connections of thirty-three lakhs. For GA 61 (Kanchipuram), AG & P LNG explained that itscomputation was based on:D

(i) The urbanisation rates in the Kanchipuram district;

(ii) Extrapolations of the number of households based on historicalgrowth rates;

(iii) The twin city status of Chennai and Kanchipuram; and E(iv) The per capita income growth in Kanchipuram district.

On this basis, AG & P LNG justified its number for projectedPNG connections. For GA-51 (Puducherry), SKN Haryana based itscomputation on the compound yearly growth of households in the previoustwenty years. Based on this growth rate, the bidder calculated theFprojected households till 2026 and accordingly presented this computationto the Board when called upon.

49. In its minutes dated 29 August 2018, the Board noted that thefour GAs: 51, 61, 62 and 72 were compared with the upper limit fixed bythe agenda note dated 23 July 2018 and projected households in 2026.GThe penetration of PNG domestic connections based on the upper limitfixed by the Board with reference to the projected number of householdsin 2026 varied from 45 per cent to 59 per cent. However, the penetrationof PNG domestic connections based on quoted PNG connections withreference to the projected number of households in 2026 varied from 55per cent to 99 per cent. The variation between the two sets of numbersH

was between 7 per cent to 54 per cent. The Board noted that it was inGA 72 where the highest variation of 54 per cent took place.The bidsubmitted by Torrent Gas Private Limited for GA 72 was consequentlyrejected. The Board observed that the computation for GA72 by TorrentGas Private Limited was based on untenable assumptions as describedin para 14.3 of the agenda note. According to these assumptions, thePNG domestic connections quoted by the Torrent Gas Private Limitedwas99 per cent of the projected households by 2026 which was taken as anunreasonably high penetration figure. However, for the remainingthreeGAs, the variation was between 7 per cent to 23 per cent of theprojected households in 2026, and PNG penetration would be in the rangeof 55 per cent to 79 per cent. This exercise was carried out by theBoard to enable it to consider the reasonableness of the bids. TorrentGas Limited, whose bid was accepted for GA 62, was however notconsidered for acceptance for GA 72 since its computation of the numberof projected households and penetration rate was deemed unreasonable.In our view, the Board has certainly given a possible basis for coming tothe conclusion that the bids submitted by the bidders with the highestcomposite score for GAs 51, 61 and 62 were reasonable and ought notto be rejected.

50. The agenda note dated 9 August 2018 merely tabled discussionon the disputed GAs. The highest bidders for GAs 61 and 62 were heardby the Board on 14 August 2018. The highest bidder for GA 51 washeard by the Board on 23 August 2018. The final decision to awardauthorisation in GAs 51, 61 and 62 to AG & P LNG, Torrent Gas PrivateLimited and SKN Haryana (the highest bidders) respectively was finallytaken by the Board in its meeting on 29 August 2018. This decision wastaken after hearing the bidders on whether their bids were reasonable ornot. The Board did not reject all other bidders or presumptively announcethese entities as successful bidders before making a determination as tothe reasonableness of their bids. In light of this chronology of events, atno point did the Board reverse its decision with respect to the GAs inquestion.

51. The appeals before APTEL pertained to GAs 51, 61 and 62.The present proceedings were not in the nature of a public interest litigationinstituted under Article 226 of the Constitution before a High Courtchallenging the entirety of the tendering process. Both before this Courtand APTEL, it was contended that the Board had rejected bids in other AB

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AGAs which were not-qualified on the ground that they were either below2 per cent or above 100 per cent of the number of households as per the2011 Census figures. The Member Technical (Petroleum and NaturalGas) at APTEL examined the submission in paragraph 60 of the decisionand held:

B“60. Though the appeal pertains to only GAs, 51, 61 & 62, theAppellant also submits that the Board rejected 37 numbers ofbids which were not qualified because their bids were below 2%and higher than 100% of 2011 census figures as per the Board’sPress Release dated 10.08.2018 uploaded in its website. Though,the instant appeal also strictly pertains to only highness of PNGCdomestic connections, still for the sake of completeness, let meunderstand the status of these bids. On clarification, the Boardhas stated that there were only 9 bids with H-1 bidders quotingbelow 2% and above 100% limits of 2011 census. These 9 bidswere accordingly highlighted to the Board, and final decisions wereDtaken on these 9 bids by the Board after proper application ofmind, hearing the parties and taking an objective decision. Out of9 bids, 4 bids having lower than 2% connections were acceptedafter raising their bids through discussions with the bidders,otherwise, these GAs would have gone dry. In GA-37, IOC’s bidwas rejected because of lower than 2% quote, but this decision ofEthe Board has not been challenged by IOC. Out of the remaining4 GAs where H-1 bidders quoted more than 100% of PNGconnections of 2011 census household numbers for 3 GAs (51, 61& 62), H-1 bidders were declared successful bidders after hearingthem on their reasonableness of quotes. For the 4th GA (GA No.F72), the bid of the H-1 bidder who is the R-2 in the instant casewas rejected having found its bid unreasonable and the GA wasawarded to the next highest bidder and the H-1 bidder has notchallenged this decision.”

This clarification by the Board as well as the findings which haveGbeen recorded by the Member Technical (Petroleum and NaturalGas) commends itself for acceptance.

52. In addition to their submissions with respect to the bindingnature of the 2 – 100 per cent range set out in the Board Note dated 23July 2018, the appellants also argued that the Compounded Annual H

Growth Rate[17] considered by the Board for the period between 2001and 2011 was higher than the actual annual growth rate, leading theBoard to project a higher number of households for 2026 than may actuallyexist. It was alleged that the Board used the figure of 23,33,500 as thenumber of households existing in 2011 instead of 21,01,931 in calculatingthe growth rate, resulting in an inflated growth rate. This high growthrate, according to the appellants, led the Board to accept the submissionsmade by Torrent Gas Private Limited in justifying an “unreasonably high”quote for the number of households for the year 2026.

53. In his judgement, the Member Technical noted that the appellanthad in fact calculated the CAGR using overall population growth insteadof using household growth. Evidently, for the purpose of projecting thenumber of PNG connections within a GA, it is the number of householdsand not the overall population that is relevant as each household is unlikelyto have more than one PNG connection. Moreover, as neither the CGDRegulations nor the Bid Document required the number of projectedhouseholds to be calculated on the basis of 2011 Census data, the decisionof the Board to accept the justification provided by the bidders cannotbe attacked on the ground that the figures provided did not strictly matchthe numbers extrapolated from the 2011 Census data. Lastly, the MemberTechnical (Petroleum and Natural Gas) observed:

“51. … Moreover, the calculations have been done by an expertbody (the Board) which has been constituted as per StatutoryAct. In addition, the estimates on future PNG domesticconnections made by the 3 bidders based on variousparameters are only estimates. These are not meant to bearrived at by any specified formula or direct mathematicalprecision. The power to weed out unreasonably high or lowquote is only an enabling power and not a yardstick orparameter for evaluation.”

The power granted to the Board under Clause 14.2 of the BidDocument is an enabling clause that allows the Board to apply its mindto a quote and determine its reasonableness. The quotes submitted by allbidders with respect to the projected number of households in 2026 areadmittedly estimates. Similarly, the Board’s own determination of a 17 “CAGR”

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Abaseline for comparing the reasonableness of various quotes is also anestimate. Therefore, the Board’s use of the baseline figure and itsconsequent acceptance of the reasonability of a quote cannot be faultedbecause it did not strictly adhere to one particular methodology of arrivingat a number of projected households unless the methodology used isarbitrary, having no correlation with the result sought to be achieved.BWe therefore approve of the finding of the Member Technical withrespect to the calculation of the number of households.

54. The present batch of appeals arises from two divergent opinionsof the Chairperson and the Member Technical (Petroleum and NaturalGas) of the APTEL. Several arguments urged by the appellants beforeCus find voice in the opinion of the Chairperson. Therefore, for the sakeof completeness it is necessary to briefly advert to the opinion of theChairperson allowing the appeals. The Chairperson observed as follows:

“136. … On 23.07.2018 certain criteria/parameters were indicatedby this so called Evaluation Committee in the Agenda Note. …DThis indicates that the exercise so far as criteria/ parameters wasuniform for all the bids. …. The report on Agenda Note dated09.08.2018, in fact, recommended that the highest biddersof GA 51, 61, and 62 were disqualified since their quote ofPNG connections were beyond 100% of the total households ofE2011 census. … However, the Minutes of the Board dated10.08.2018 indicate that the four members of the Board out ofwhich three had approved Agenda Note, changed their opinion sofar as disqualification of highest bidder of these three GAs 51, 61and 62. It’s also noticed from the affidavit of the Board filed09.11.2018 that the Board has correctly applied theFunreasonable low criteria to all the bidders whose bid wasbelow 2%, but surprisingly the bids which were beyond thelimit of 100% of 2011 census, the Board thought it fit torelax the criteria by calling the high bidders for negotiation. Ifthe Board thought it fit to hear the affected parties, then itGought to have invited all the affected parties of the said GAi.e., all the bidders who stand to lose the bid, since suchprocedure was exercised so far as unreasonably low criteria toall bidders who quoted below 2% of 2011 census. Assessmentof reasonability of a bid cannot be equated with the conceptof rejection of a bid as not qualified for a particular criteria.

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Reasonability of a bid has reference to subjective assessment/satisfaction. The assessment of a bid based on the available materialwould amount to objective assessment.”

It is evident from the above extract that the Chairperson’s findingsare based on three key assumptions:

(i) The Board Note dated 23 July 2018 was binding on theBoard and the agenda note dated 9 August 2018 wasevidence of the Board Note’s binding nature;

(ii) Because the Board disqualified certain other bidders byapplying the 2 – 100 per cent range, it was bound to do soagainst the successful bidders in GAs 51, 61 and 52; and

(iii) Because the assessment of reasonability was a “subjectiveassessment”, the Board was obligated to hear other biddersin the disputed GAs before declaring successful bidders.

55. As noted previously, on a bare construction of the Board Notedated 23 July 2018 and the fact that the Board Note was formulatedafter the last date for the submission of bids, the Board Note did not setout absolute criteria for disqualification of bids. The agenda note dated 9August merely tabled a proposal to apply the criteria of 2-100 per centrange but the Board did not subsequently adopt this course of action, adecision within its power and indeed necessary to preserve the integrityof the bidding process. Having established that the Board Note was notan absolute binding criteria, and the Tribunal was approached only withrespect to GAs 51, 61 and 62, the Board’s treatment of other GAs cannotbe decisive in determining the legality of the authorisations granted inGAs 51, 61 and 62, especially where the Board’s actions in respect ofthese other GAs have not been independently challenged. Lastly, theChairperson has construed the assessment of the reasonability of thehighest bidder’s quote as a decision affecting the rights and liabilities ofall other bidders for the GAs, thus requiring them to be heard. As notedpreviously, the assessment of the reasonability of the bid was a mattersolely between the highest bidder and the Board. Such an assessmentwould not alter the scores of the highest bidder vis-à-vis the scores ofthe other bidders. The sole question was whether the highest bidder’squote was reasonable, and the power to determine such reasonabilityresided solely with the Board by virtue of Clause 14.2 of the Bid A

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ADocument. Thus, the presence and hearing of other bidders was notnecessary.

56. For the above reasons, we disagree with the opinion of theChairperson and concur with the view which was taken by the MemberTechnical (Petroleum and Natural Gas) to dismiss the appeals. TheBAppeals are accordingly dismissed. Transferred Cases Nos 27 of 2019

and 26 of 2019 are disposed of. There shall no order as to costs.

57. Pending application(s), if any, shall stand disposed of.

CKalpana K. Tripathy

Appeals dismissed.

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