Adani Gas Limited vs Petroleum and Natural Gas Regulatory Board and Ors.

7 could not have been introduced by Board Note dated 23 July, 2018 – Hence the Board Note cannot be construed to have laid down absolute norms by which bids quoting below2% or above 100% of the number of households would automatically be rejected as unreasonable – Disqualifying a bidder on the basis of criterion which was not notified would have been arbitrary and would constitute infraction of Art. 14 of the Constitution – The Board Note therefore can be construed as formulation of guideline – Hence the award of authorisation after calling the highest bidders in respect of GAs 51, 61 and 62 to justify their bids in terms of their reasonableness cannot be faulted – There was also no breach of principles of natural justice in calling only the highest bidders to explain reasonableness of their bids as other bidders had no locus to participate in the process.

Dismissing the appeals, the Court

HELD: 1.1 The Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008 (CGD Authorisation Regulations) postulate that bidders must submit both technical and financial bids. The procedure specified in Regulation 5 applies to an invitation by the Board for laying, building, operating or expanding a CGD network. Regulation 5(6) requires the fulfilment of minimum eligibility criteria. For a technical bid to pass muster, the minimum eligibility criteria require the bidder to be qualified both with reference to technical and financial parameters. This is evident from Regulation 5(6) under which the Board is to scrutinise the bids of only those entities which fulfil the minimum eligibility criteria. The minimum eligibility criteria include the technical capability of the bidding entity to (i) lay and build; and (ii) operate and maintain a CGD network. Both of them are defined with reference to qualifying criteria. Besides the technical criteria, the minimum eligibility requirements under Regulation 5(6)(e) incorporate the financial ability to execute the project and to operate and maintain it in the authorised area. The financial criteria are defined with reference to the minimum net-worth of the bidding entity. The net-worth required is dependent on the population of the Geographical Area (GA) under the 2011 Census. The minimum net-worth required is specifically defined with reference to 2011 census figures of population for the GA. The bidding entity is also required to submit a bid bond in the form of a performance bond guarantee. The quantum of the guarantee is dependent on the population of the GA. [Para 35][149-D-G]

1.2 The Table incorporated in Regulation 7 provides fivefold 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 from authorisation; (iv) ‘Highness’ of the number of domestic PNG connections to be achieved within eight years of authorisation;

(v) ‘Highness’ of inch-kilometre of steel pipeline to be laid within eight years of authorisation. The third and fourth criteria together account for 70 per cent of the total composite score. Among them, the fourth criterion – ‘highness’ of the number of domestic PNG connections accounts for 50 per cent of the total composite score. Significantly, the bidding criteria in Regulation 7 are not linked to the 2011 Census figures. There are two significant facets of Regulation 7: (i) The absence of a linkage of the projected number of domestic PNG connections with the 2011 Census data; (ii) The absence of a cap or ceiling on the ‘highness’ norm both in relation to the third and the fourth criteria. [Para 36][150-A-E]

1.3 The provisions contained in the 2008 CGD Authorisation Regulations, as amended on 6 April 2018, indicate that where a specific linkage was sought with reference to the 2011 Census data, a clear and categorical provision was made to that effect. Such provisions are found in regard to the financial capability of a bidder as part of the minimum eligibility criteria in Regulation 5(6)(e) and the extent of the performance bond in Regulation 5(6)(h). Absent a condition in Regulation 7 linking the ‘highness’ of the number of PNG connections to be achieved within eight years from the date of authorisation with the 2011 Census data, it would be contrary to basic principles of interpretation to read such a restriction into the CGD Authorisation Regulations. A conditionality which has not been incorporated in Regulation 7 cannot be introduced as a matter of construction. The court must first and foremost read the Regulation in accordance with its plain and natural meaning. There is evidently a reason why Regulation

7 did not introduce a ceiling or provide for a linkage with the Census data of 2011. Consumers or users, as the case may be, in a CGD network broadly comprise of four categories namely: (i) Domestic; (ii) Commercial; (iii) Industrial; (iv) Vehicular. [Paras

38 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 from a twenty- five-year perspective. Gains in one category of users can offset the losses in another category. The CGD Authorisation Regulations are intended to subserve the object of establishing the infrastructure necessary for setting up an operational CGD network. In creating the infrastructure, the successful entity is contractually bound to set up a project for the future. The infrastructure so created would be of service to consumers or, as the case may be, users. Infrastructural projects cater to future needs and can legitimately be forward looking. It is from this perspective that except for the tariff in the first two bidding criteria of Regulation 7 (the transportation rates for CGD and CNG), no ceiling was provided by the Board for the criteria set out in Regulation 7. More particularly, Regulation 7(3) provided for a mandate to tabulate and compare the bids of all entities which had met the minimum eligibility criteria upon their qualifying in a competitive bidding process. The Regulations did not contemplate the disqualification of a bidder with reference to a norm which would limit a bid to 100 per cent of the population figures provided by the 2011 Census data. For the Board to stipulate an absolute norm to that effect, when it has not been specifically incorporated in the Regulations would have rendered the decision making process vulnerable to a challenge on the ground that it was not consistent with Regulation 7. [Para 40][151F-H; 152-A-B]

1.5 The main plank of the submissions of the appellants is that the map contained a reference to population and household figures on the basis of the 2011 Census. Clause 1.1.3 of the Bid Document places the responsibility on the bidder to obtain information about the present gas supply availability, the pipeline connectivity 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 the requirement of natural gas “in domestic, commercial and industrial segments including natural gas in the vehicular segment in the said Geographical Area to be authorised.” Bidders are required under Clause 2.1.1 to examine the contents of the Bid Document including instructions, terms and conditions and regulations of the Board. The bidder was required to carefully study the GA and the charge area before submitting the bid. In other words, bidders were on notice of the actions required to be taken to implement the Regulations. The Bid Document necessarily had to be in conformity with the CGD Authorisation Regulations. The map, at best was a compendium of the latest official record of the GA. The map did not dictate how the number of domestic PNG connections was to be calculated. There is no such indication particularly in Clause 1 of the Bid Document where the map is referenced. The mere attachment of a map to the Bid Document would not result in the imposition of conditions of eligibility or qualification. These have been provided in the Regulations which have a statutory character. The depiction of the GA in a map attached to the bid document does not over-ride the specific requirements of the bidding criteria as defined in Regulation 7. [Para 41][152-C-G]

2.1 The CGD Authorisation Regulations, as amended on 6 April 2018, reveals that the Regulations did not contain any stipulation

determining a range of 2 to 100 per cent of the number of households under the 2011 Census as the criterion to evaluate bids. The Regulations in fact do not link the ‘highness’ factor of domestic PNG connections to the 2011 Census data. In Clause

4.4.1 of the Bid Document, the Board reserved to itself the right to reject any unreasonably high or low bid. In Addendum-1 to the G Bid Document, the Board clarified to all prospective bidders that the evaluation of whether a bid was unreasonably low or high would be conducted on a case to case basis at the time of bid evaluation. It is in the above background that the Board Note dated 23 July 2018 must be assessed. The Board Note was H formulated after the last date for the submission of bids. The criterion which the Board Note proposed had not been notified to bidders. Bidders were not on notice that this would be the basis on which their bid would be evaluated. The Board Note took notice of Clause 4.4.1 of the Bid Document and stipulated that since technical bids for some GAs were about to be evaluated, it was necessary to decide upon the reasonableness of the bidding parameters which constituted the work programme. It was in this background that the Board Note proposed that; “…2 per cent of total households (as per the 2011 Census data) may be considered as minimum”. As regards the maximum, the Board note proposed that: “beyond 100 per cent households may be treated as unreasonably quote”. The terminology adopted by the Board Note indicates that the 2-100 per cent range was not laid down as an absolute or inflexible basis for disqualifying bids below the minimum or in excess of the maximum. On the contrary, the use of the expression “may be” is one indicator that a bid which was below 2 per cent or in excess of 100 per cent may trigger the exercise of the power which the Board had reserved to itself in clause 4.4.1 of the Bid Document. On its plain terms, the Board Note cannot be construed to have laid down an absolute norm by which bids quoting below the minimum of 2 per cent or above the ceiling of 100 per cent of the number of households under the 2011 Census data would automatically be rejected as unreasonable. [Paras 43 and 44][155-A-H]

2.2. If the Board Note of 23 July 2018 were to be construed in the manner in which the appellants urged, the automatic disqualification of bidders based on a criterion introduced by the Board Note would raise serious doubts about its fairness and legality. This is because the Board Note was not notified to bidders as a basis for the evaluation of bids before the date for the submission of the bids had closed. To disqualify a bidder on the basis of a criterion which was not notified and of which bidders had no knowledge would be arbitrary and would constitute an infraction of Article 14. The Board was thus correct in determining that the automatic disqualification of a bid on the basis of a criterion specified in the Board Note (which was never notified to the bidders) would not be “legally correct”. Hence, it would be reasonable to interpret the Board Note dated 23 July 2018 as being the formulation of a guideline for the Board. As a guideline in the process of evaluation, the decision taken by the Board on

23 July 2018 was not to the effect that every bid below 2 per cent or above 100 per cent would necessarily stand disqualified. Consistently with the use of the word ‘may be’, the decision of the Board meant that the power which the Board reserved to itself in Clause 4.4.1 could be invoked if it came to the conclusion that the bid had not been justified to be reasonable. In other words, the breaching of the range of 2-100 per cent was a trigger for the Board to scrutinise the bid and determine whether the power under Clause 4.4.1 should be invoked. Hence, the course of action which the Board followed of calling upon the bidders with the highest composite scores in GAs 51, 61 and 62 to justify their bids in terms of their reasonableness cannot be faulted. On the contrary, if the Board had rejected these bids solely on the ground that they were above the limit of 100 per cent of households under the 2011 Census data, the decision would have been seriously flawed for having applied a criterion which was not a part of the Regulations, was not embodied in the Bid Document and in any event, was not notified to bidders before they had submitted their bids. [Para 45][156-A-F]

3. It is an incorrect reading of the agenda that note with respect to GA 62, three out of the four members of the Board had in the Board agenda dated 9 August 2018 recommended that H1 bidder was not qualified and that H2 bidder i.e. the appellant be declared as the successful bidder. The agenda note dated 9 August 2018 was a recommendation which was prepared on the basis of the 2–100 per cent criterion contained in the Board Note dated 23 July 2018. Obviously in the light of that decision, a recommendation was made which was still to be deliberated upon 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 thresholds were not to be applied mechanically to disqualify bidders. This decision was justified not only by the terms of the Board Note dated 23 July 2018 but was intrinsic to a fair exercise of power by the Board. The Board decided that it would call the bidders with the highest composite score to explain the reasonableness of their bids. This was a fair opportunity which was granted to the bidders who had the highest composite score to justify the basis of their computation of projected households over the eight-contract years. [Para 46][156-G-H; 157-B-D]

4. There was no breach of the principles of natural justice in calling only the bidders with the highest composite score to explain the reasonableness of their bids. None of these bidders was being called upon to revise or improve their bids. In terms of the CGD Authorisation Regulations, the bidder with the highest composite score has to be declared as the successful bidder. If despite having the highest composite score, a bidder was being considered for rejection by the Board, it was that bidder who was justifiably called to explain the reasonableness of the bid. The other bidders had no locus to participate in the process. It is a settled principle of law that the rules of natural justice are attracted where a decision affects a right of a party against whom the decision has to be made. After the composite score of all bidders is calculated, the second highest bidder has no rights vis-à-vis the highest bidder or the Board unless the method of calculating the highest composite score itself is impugned. Calling upon the bidders with the highest composite score to explain the reasonableness of their bid did not alter the composite score of the H1 bidders or any other bidder for the same GA. The question of hearing any other bidder would have arisen only if the H1 bidder stood disqualified, and the bidder with the next 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 composite score in order to allow them an opportunity to explain reasonableness of their bid, the administrative decision taken by the Board cannot be 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 noted that the four GAs: 51, 61, 62 and 72 were compared with the upper limit fixed by the agenda note dated 23 July 2018 and projected households in 2026. The penetration of PNG domestic connections based on the upper limit fixed by the Board with reference to the projected number of households in 2026 varied from 45 per cent to 59 per cent. However, the penetration of PNG domestic connections based on quoted PNG connections with reference to the projected number of households in 2026 varied from 55 per cent to 99 per cent. The variation between the 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 variation of 54 per cent took place. The bid submitted by H1 bidder for GA

72 was consequently rejected. The Board observed that the computation for GA 72 by the H1 bidder was based on untenable assumptions. According to these assumptions, the PNG domestic connections quoted by the H1 bidder was 99 per cent of the projected households by 2026 which was taken as an unreasonably high penetration figure. However, for the remaining three GAs, the variation was between 7 per cent to 23 per cent of the projected households in 2026, and PNG penetration would be in the range of 55 per cent to 79 per cent. This exercise was carried out by the Board to enable it to consider the reasonableness of the bids. The Company whose bid was accepted for GA 62, was however not considered for acceptance for GA 72 since its computation of the number of projected households and penetration rate was deemed unreasonable. The Board has certainly given a possible basis for coming to the conclusion that the bids submitted by the bidders with the highest composite score for GAs 51, 61 and 62 were reasonable and ought not to be rejected. The decision was taken after hearing the bidders on whether their bids were reasonable or not. The Board did not reject all other bidders or presumptively announce these entities as successful bidders before making a determination as to the reasonableness of their bids. In light of this chronology of events, at no point did the Board reverse its decision with respect to the GAs in question. [Paras 49 and 50][158-G-H; 159-A-G]

6. The appeals before APTEL pertained to GAs 51, 61 and

62. The present proceedings were not in the nature of a public interest litigation instituted under Article 226 of the Constitution before a High Court challenging the entirety of the tendering process. Both before this Court and APTEL, it was contended that the Board had rejected bids in other GAs which were notqualified on the ground that they were either below 2 per cent or above 100 per cent of the number of households as per the 2011 Census figures. On clarification, the Board has stated that there were only 9 bids with H-1 bidders quoting below 2% and above 100% limits of 2011 census. These 9 bids were accordingly highlighted to the Board, and final decisions were taken on these

9 bids by the Board after proper application of mind, hearing the parties and taking an objective decision. Out of 9 bids, 4 bids having lower than 2% connections were accepted after raising their bids through discussions with the bidders, otherwise, these GAs would have gone dry. In GA-37, IOC’s bid was rejected because of lower than 2% quote, but this decision of the Board has not been challenged by IOC. Out of the remaining 4 GAs where H-1 bidders quoted more than 100% of PNG connections of 2011 census household numbers for 3 GAs (51, 61 & 62), H-1 bidders were declared successful bidders after hearing them on their reasonableness of quotes. For GA No. 72, the bid of the H1 bidder was rejected having found its bid unreasonable and the GA was awarded to the next highest bidder and the H-1 bidder had not challenged that decision. This clarification by the Board as well as the findings which have been recorded by the Member Technical (Petroleum and Natural Gas) commends itself for acceptance. [Para 51][159-G-H; 160-A-G]

7. It was also argued that the Compounded Annual Growth Rate considered by the Board for the period between 2001 and 2011 was higher than the actual annual growth rate, leading the Board to project a higher number of households for 2026 than may actually exist. For the purpose of projecting the number of PNG connections within a GA, it is the number of households and not the overall population that is relevant as each household F is unlikely to have more than one PNG connection. Moreover, as neither the CGD Regulations nor the Bid Document required the number of projected households to be calculated on the basis of 2011 Census data, the decision of the Board to accept the justification provided by the bidders cannot be attacked on the ground that the figures provided did not strictly match the G numbers extrapolated from the 2011 Census data. [Paras 52 and 53][160-H; 161-A-D]

8. The power granted to the Board under Clause 14.2 of the Bid Document is an enabling clause that allows the Board to apply its mind to a quote and determine its reasonableness. The quotes submitted by all bidders with respect to the projected number of households in 2026 are admittedly estimates. Similarly, the Board’s own determination of a baseline for comparing the reasonableness of various quotes is also an estimate. Therefore, the Board’s use of the baseline figure and its consequent acceptance of the reasonability of a quote cannot be faulted because it did not strictly adhere to one particular methodology of arriving at a number of projected households unless the methodology used is arbitrary, having no correlation with the result sought to be achieved. Therefore the finding of the Member Technical with respect to the calculation of the number of households is approved. [Para 53][161-G-H; 162-A-B]

9. The Chairperson’s findings are based on three key assumptions: (i) The Board Note dated 23 July 2018 was binding on the Board and the agenda note dated 9 August 2018 was evidence of the Board Note’s binding nature; (ii) Because the Board disqualified certain other bidders by applying the 2 – 100 per cent range, it was bound to do so against the successful bidders in GAs 51, 61 and 52; (iii)Because the assessment of reasonability was a “subjective assessment”, the Board was obligated to hear other bidders in the disputed GAs before declaring successful bidders. On a bare construction of the Board Note dated 23 July 2018 and the fact that the Board Note was formulated after the last date for the submission of bids, the Board Note did not set out absolute criteria for disqualification of bids. The agenda note dated 9 August merely tabled a proposal to apply the criteria of 2-100 per cent range but the Board did not subsequently adopt this course of action, a decision within its power and indeed necessary to preserve the integrity of the bidding process. Having established that the Board Note was not an absolute binding criteria, and the Tribunal was approached only with respect to GAs 51, 61 and 62, the Board’s treatment of other GAs cannot be decisive in determining the legality of the authorisations granted in GAs 51, 61 and 62, especially where the Board’s actions in respect of these other GAs have not been independently challenged. Lastly, the Chairperson has construed the assessment of the reasonability of the highest bidder’s quote as a decision affecting the rights and liabilities of all other bidders for the GAs, thus requiring them to be heard. The assessment of the reasonability of the bid was a matter solely between the highest bidder and the Board. Such an assessment would not alter the scores of the highest bidder vis-à-vis the scores of the other bidders. The sole question was whether the highest bidder’s quote was reasonable, and the power to determine such reasonability resided solely with the Board by virtue of Clause

14.2 of the Bid Document. Thus, the presence and hearing of other bidders was not necessary. [Paras 54 and 55][163-B-H; 164-A]

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