Adani Gas Limited vs Union of India & Ors.

(i) It does not require authorization from central government, as by virtue of s. 16 of the PNGRB Act, it was entitled to be treated as an entity with “deemed authorization” reliance was placed on the case of AGL v. Union of India (2019) 3 SCC 641: – (ii) Regulation 18 (which provides for the requirement of Board’s fresh authorization to the entities that were carrying out CGD activities prior to the coming into effect of PNGRB Act, who were not authorized by central government) gave arbitrary power to the Board in granting authorization and it is ultra-vires to the PNGRB Act – (iii) Exclusion of the disputed areas from authorization was unjustified – Held: (i) Deemed authorization clause under proviso to s. 16 is subjected to other provisions – s. 17 is one such provision, which provides that only entities which were previously authorized by central government could claim deemed authorization – Appellant lacked such authorization, therefore cannot be treated as entity with deemed authorization – Adani gas case was overruled as it did not interpret the law correctly – (ii) All criteria provided under regulation 18 have to be considered, having regard to their inter-linkages – Therefore, the question of picking and choosing one criterion, and ignoring others does not arise and moreover it dependent on the individual facts of the case – This per se does not render the power arbitrary – Remedy of judicial review is always available in case of arbitrariness – Further observed, objective for framing Regulation 18, is compatible to the overall objectives of the PNGRB Act – Regulation 18 is not contraindicated by any specific provision of the Act – The various factors mentioned in it, provide an objective basis for the Board to consider the proper method of granting authorization – Further, as the sectoral regulator, PNGRB is entrusted with the power to frame appropriate regulations to ensure the objectives of the Act, therefore, it is not ultra-vires to Act – (iii) Appellant’s claim is precluded by the principle of approbatereprobate, as it accepted authorization granted by PNGRB (including exclusion of disputed areas), furnished the performance bond and even participated in the auction for the excluded areas, and only thereafter challenged authorization when its bid was unsuccessful.

Dismissing the appeals, the Court

HELD: 1. The following points arose for consideration by this Court:

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

(ii) Validity of Regulation 18; and

(iii) Whether the exclusion of the disputed areas from the authorisation granted to Adani was justified. [Para 54][1187-GH; 1188-A] The scope of the “deemed authorisation” clause under the proviso to Section 16 of the PNGRB Act

2. Parliament did not enact the PNGRB Act on a blank slate, as it were. In the Presidential Reference (Special reference case) under Article 143 elicited the Court’s opinion in the background of assertions by some States that they had the legislative competence to deal with natural gas. This Court’s unanimous judgment was categorical, in that it upheld the primacy of Parliament under Entry 53 List I of the Seventh Schedule of the Constitution of India. Importantly, this Court also recollected enactments (including the pre-constitution Petroleum Act of 1934) that dealt with petroleum, natural gas, mineral oils etc. and sought to regulate various facets and aspects thereof and related products and their regulations. Given this background, the Parliament felt the compelling need to enact a comprehensive legislation that would regulate salient aspects of all activities pertaining to petroleum products and mineral oils. The PNGRB Act was thus enacted. As noticed earlier, it regulates all activities after extraction of petroleum, natural gas and other petroleum products starting with refining and going right up to distribution to the ultimate consumer. When Parliament enacted the Act, it was confronted with a factual situation where several entities had begun various activities towards laying pipelines and setting up networks in relation to natural gas. If one read the proviso to Section 16 in isolation, the inference undoubtedly would be that every entity which had started laying and building pipelines and networks was the recipient of the deemed authorization clauseor in the words of appellant, that provision sought to retrospectively regularize activities by all entities. However, such a plain and facial construction is unacceptable given that in the same provision (i.e., proviso to Section 16) the deemed authorization is immediately followed by phrase “subject to provisions of this chapter”. Proviso ordinarily carves out a field of operation, but does not travel beyond the main enacted provision. Therefore, the golden rule of interpretation is to read the whole section, inclusive of the proviso, in such a manner that they mutually throw light on each other and result in a harmonious construction. [Paras 66, 67][1198-B-G]

3. The enacting part of Section 16 thus prohibits anyone or any entity from starting or carrying on any activity covered by the PNGRB Act and requires authorisation from it. The proviso then is meant to operate in an extremely restricted manner, i.e., to deal with entities inter alia that were engaged in laying, building, operating etc., inter alia, gas pipelines “at the time when the Act came into force”. The proviso, unlike the main part of Section 16, was not intended to grant authorisation to entities which had not started any activity thus far. Such entities had to now apply for authorisation. In any case, by the combined operation of Sections 16 and 17, the proviso to Section 16 is not unqualified - the “deemed authorisation” clause is subject to other provisions of Chapter IV. Section 17 is one such provision under Chapter IV. This provision brings home clearly that only Central Government authorised entities were deemed to have been authorised. The omission of any reference to authorisation in Section 16 is significant because the qualifier for application of the proviso is that it was subject to other provisions of the chapter. The scheme of Section 17 intrinsically classifies the two, i.e. Central Government authorised entities, and others. The underlying basis for this statutory classification is that only entities which had been cleared or authorised by the Central Government prior to the coming into force of the Act were deemed to have authorization under the Act, and therefore, had to furnish certain details. As with regard to the others, i.e., entities not authorised by the Central Government, fresh applications were necessary [Section 17(1) and Section 17(2)] which were to be assessed by the Board on a case-by-case basis and in accordance with uniform standards. Therefore, if one reads the proviso to Section 16 with the proviso to Sections 17(1) and Section 17(2) the former (i.e., proviso to Section 16) only states that entities that had been previously authorized by the Central Government could claim deemed authorization. The rationale for this is that the provisos to Section 17(1) and 17(2) merely require such entities (as were authorized by the Central Government prior to coming into force of PNGRB Act) to intimate certain details to the PNGRB but do not require any fresh authorization. This distinction i.e., between authorization and intimation is crucial because it states that entities which received Central Government authorization before the commencement of the Act, and which had started to lay, build or operate CGD networks were deemed to be authorized under the PNGRB Act. [Para 75, 78][1204-E-H]

4. This Court was of the opinion that the previous ruling in Adani Gas case did not correctly interpret the law. It did not discuss whether the “deemed authorisation” (in the proviso to Section 16) was qualified or unqualified. The previous ruling in Adani Gas case also did not notice the important condition that the deemed authorization clause applied subject to other provisions of Chapter IV, including Section 17; and lastly it overlooked the decisive ruling of a five judge bench in Special Reference case. Accordingly, the interpretation of Section 16 and the deemed authorization clause in its proviso, in Adani Gas is held to be incorrect. The judgment in Adani Gas is therefore overruled. [Para 85][1210-F-H]

Validity of Regulation 18

5. Regulation 18 pertains to entities that were carrying out CGD activities prior to the coming into effect of the PNGRB Act, but were not authorized by the Central Government. Such entities do not enjoy “deemed authorization” under the Act; they are required to apply for fresh authorization under the provisions of Regulation 18. The PNGRB Act and Regulations, thus create three categories of entities for the different ways in which authorization can be obtained: (1) Entities authorized by the Central Government prior to the appointed day, are deemed to be authorized, and are merely required to submit certain information in the relevant forms; (2) Entities that were carrying out CGD activities, but were not authorized by the Central Government, are required to apply for fresh authorization under Regulation 18; (3) Entities that seek to set up CGD activities after the appointed day, i.e., all entities seeking to set up operations afresh, after the PNGRB Act came into effect, would be required to either submit an expression of interest, followed by participation in the bidding process, or participate in the suomotu invitation of bids by the PNGRB. Regulation 18 is part of the CGD Regulations framed under Section 61 of the PNGRB Act. This regulation, on a plain reading, applies to entities not authorised by the Central Government for laying, building, operating or expanding pipelines beyond the appointed date. Regulation 18(1) requires such entities (who did not possess Central Government authorisation as on the appointed date) to apply immediately for obtaining authorisation in the format prescribed in Schedule I to the CGD Regulations. Regulation 18(2) then prescribes that the PNGRB “may” take into consideration the criteria or conditions spelt out in clauses (a) to (j). In the present case, having regard to the contextual setting of Regulation 18, the expression “may take into consideration” cannot be placed in the straightjacket of either a mandate or a directory rule. There are numerous decisions which hold that “may” could mean “shall” and vice versa; much depends upon the context and object of the provision as well as its statutory setting. [Paras 89, 90, 91, 98][1211-H; 1212-A; 1212-B-F; 1218F]

6. In the present case, Regulation 18(3) specifically states that “evaluation of the application in terms of the Clauses (a) to

(j) shall be done in totality considering the composite nature and inter-linkages of the criteria.” This, coupled with the listing of “any other criteria considered as relevant by the Board based on the examination of the application.” (Regulation 18 (2) (j)), in the opinion of this Court, brings more precision to the task of evaluation of applications (preferred by entities which did not possess Central authorization when the Act came into force) by the PNGRB. All these mean that the PNGRB is to be guided by the composite of factors enumerated in Regulation 18(2) while evaluating applications for authorization; how important one factor is, and the appropriate weightage to be given to it, depends, as required by Regulation 18(3) on the “totality” of all facts “considering the composite nature and inter-linkages of the criteria.” It is therefore, held that all clauses of Regulation 18(2) have to be considered, and wherever necessary, “any other relevant criteria” (Reg. 18 (2) (j)) which means factors relevant for the purposes of the Act, having regard to its objects and purposes. The PNGRB also has to consider the composite nature and inter-linkages of the criteria. [Para 99][1219-A-G]

7. In regard to the validity of Regulation 18(2), the appellant’s argument is that the regulation is ultra vires, because there is no substantive provision giving guidance, leaving the power to reject applications at the whims of the PNGRB, which can pick and choose any or some criterion and ignore the rest. As far as the latter aspect goes, this Court has held above, that all criteria have to be considered, having regard to their interlinkages. Therefore, the question of picking and choosing one criterion, and ignoring others does not arise. Much would depend on the individual facts of the case, the weight given to one or a set of criteria. This per se does not render the power (under Regulation 18 (2)) arbitrary. In the particular facts of any case, it is open to an aggrieved applicant to show the exercise of power is arbitrary, and seek judicial review. [Para 100][1219-G-H; 1220A-B]

8. Sections 11 and 61 of the PNGRB Act contain regulation making powers. Under Section 11(c)(ii) the Board has power to authorize entities to “lay, build, operate or expand city or local natural gas distribution networks”. By Section 11(e)(iii) PNGRB is empowered to frame regulations to “access to city or local natural gas distribution network so as to ensure fair trade and competition amongst entities as per pipeline access code”. By Section 11(f)(iv) it is enjoined to ensure “equitable distribution of petroleum and petroleum products”. All these regulatory powers, coupled with the general power under Section 61(1) to frame regulations are, in the opinion of this court, sufficiently wide to clothe PNGRB with the power to frame Regulation 18. Furthermore, Regulation 18 is to be considered as applicable to a specific class of entities- by their nature, dwindling in numbers, i.e., entities which had not secured Central Government authorization or approval before the PNGRB Act came into force. The regulation is meant to guide the Board to deal with applications of such categories of entities, which fall under proviso to Section 16 read with Section 17 (2), and apply uniform standards. These considerations further the objectives of the whole of PNGRB Act as well as enable the PNGRB to objectively perform its task, while deciding applications, exercising its powers under Section 17 (4). [Para 105][1224-F-H; 1225-B-D]

9. This Court was of the opinion that as the sectoral regulator, PNGRB is entrusted with the power to frame appropriate regulations to ensure the objectives of the Act, and also bring about fairness in the marketplace. It has sought to achieve that, through Regulation 18. It was is held that the challenge to Regulation 18 cannot succeed; Adani’s arguments on this aspect were accordingly rejected. [Para 112][1229-G-H] Whether the exclusion of the disputed areas from the authorisation granted to Adani was justified

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

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

a. On the scope of the “deemed authorisation” clause under the proviso to Section 16 of the PNGRB Act, the decision in Adani Gas case was held to have laid down the law incorrectly, and is hereby overruled.

b. It was held that the “deemed authorization” clause under proviso to Section 16 is subject to other provisions of Chapter IV, including Section 17 and, further, that only entities granted authorization by the Central Government, fell in that category. As a sequitur, it is held that entities which had received authorization from States, had to seek authorization under the PNGRB Act, in terms of Section 17(2), and in compliance with the conditions spelt out under the CGD Regulations. c. The role of the State in granting NOC is only supportive or collaborative, in terms of the Central Government’s policy, of 2006, and cannot confer any advantage to any entity, which has to seek and be granted specific authorization in terms of the PNGRB Act on the merits of its application.

d. It was held that Regulation 18 is neither arbitrary, nor ultra vires. The objective underlying Regulation 18, is compatible with the overall objectives of the PNGRB Act. Regulation 18 is not contraindicated by any specific provision of the Act. Further, as a sectoral regulator, PNGRB is entrusted with the power to frame appropriate regulations to ensure the objectives of the Act, and thus the challenge to Regulation 18 cannot succeed. e. It was also held that Adani’s claim is precluded by the principle of approbate-reprobate, as it accepted authorization granted by PNGRB (including exclusion of disputed areas), furnished the performance bond and even participated in the auction for the excluded areas, and only thereafter challenged authorization when its bid was unsuccessful. It was held, that exclusion of the disputed areas was justified in the overall facts and circumstances. [Para 127][1239-A-H]

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

Voice of India v. Union of India W.P.(C) 8415/2009, decided on 20.01.2010, Pallavi Resources Ltd. v. Protos Engineering Company Pvt. Ltd. (2010) 5 SCC

196 : [2010] 3 SCR 847, Association of Natural Gas & Ors v. Union of India (2004) 4 SCC 489; Global Energy Ltd v. Central Electricity Regulatory Commission (2009)

15 SCC 570 : [2009] 9 SCR 22; Petroleum & Natural Gas Regulatory Board v. Indraprastha Gas Limited & Ors. (2015) 9 SCC 209 : [2015] 7 SCR 215; Kunj Behari Lal Butail v. State of Himachal Pradesh (2000)

3 SCC 40 : [2000] 1 SCR 1054; Mohinder Singh Gill & Anr. v. The Chief Election Commissioner, Delhi & Ors. (1978) 1 SCC 405 : [1978] 2 SCR 272; Moti Lal Padampat Sugar Mills v. State of U.P (1979) 2 SCC

409 : [1979] 2 SCR 641; Petroleum and Natural Gas Regulatory Board v. Indraprastha Gas (2015) 9 SCC

209 : [2015] 7 SCR 215; Shyam Telelink Ltd. v. Union of India (2010) 10 SCC 138; M/s Tafcon Projects [I] (P) Ltd. v. Union of India & Ors. (2004) 13 SCC 788; K. S. Dharmadatam v. Central Government & Ors; (1979) 4 SCC 294; N.K. Sharma v. Abhimanyu (2005)

13 SCC 213 : [2005] 4 Suppl. SCR 207; State of Maharashtra v. Lalji Rajshi Shah & Ors. (2000) 2 SCC

699 : [2000] 1 SCR 1239; Petroleum & Natural Gas Regulatory Board v. Indraprastha Gas Ltd. (2015) 9 SCC 209 : [2015] 7 SCR 215; Keshavlal Khemchand & Sons (P) Ltd. v. Union of India (2015) 4 SCC 770 : [2015] 2 SCR 51; Bharat Sanchar Nigam Ltd v. Telecom Regulatory Authority of India (2014) 3 SCC 222 : [2013] 12 SCR 999; Prakash Gupta v. Securities and Exchange Board of India (2021) SCC OnLine SC 485; M. C. Mehta v. Union of India WP(C) 13029/1985, Voice of India v. Union of India W.P.(C) 8415/2009, decided on 20.01.2010 – referred to.

In re Special Reference No. 1 of 2001 (2004) 4 SCC

489 : [2004] 3 SCR 534; Dwarka Prasad v. Dwarka Das Sara (1976) 1 SCC 128 : [1976] 1 SCR 277; S. Sundaram Pillai & Ors. v. V. Pattabiraman & Ors. (1985)

1 SCC 591 : [1985] 2 SCR 643 : [1979] 3 SCR 472; M. Pentiah v. Muddala Veeramallappa & Ors. (1961) 2 SCR 295; Superintendent and Legal Remembrancer of Legal Affairs to Govt. of West Bengal v. Abani Maity (1979) 4 SCC 85 : [1979] 3 SCR 472; K.R.C.S. Balakrishna Chetty v. State of Madras [1961] 2 SCR 736; Ashok Leyland Ltd. v. State of Tamil Nadu (2004)

3 SCC 1 : [2004] 1 SCR 306; Sri Sitaram Sugar Company Limited v. Union of India (1990) 3 SCC 223 : [1990] 1 SCR 909; Collector of Customs v. Nathella Sampathu Chett [1962] 3 SCR 786; State of Tamil Nadu & Anr. v. P. Krishnamurthy & Ors. (2006) 4 SCC 517 : [2006] 3 SCR 396; PTC India Ltd. v. Central Electricity Regulatory Commission (2010) 4 SCC 603 : [2010] 3 SCR 609; State of U.P v. Renusagar Power Co. (1988)

4 SCC 59 : [1988] 1 Suppl. SCR 627; Global Energy Ltd. v. Central Electricity Regulatory Commission (2009)

15 SCC 570 : [2009] 9 SCR 22; State of Karnataka v. H. Ganesh Kamath (1983) 2 SCC 402 : [1983] 2 SCR 665; St. Johns Teachers Training Institute v. NCTE (2003) 3 SCC 321 : [2003] 1 SCR 975; Tata Power Co. Ltd. v. Reliance Energy Ltd. (2009) 16 SCC 659 : [2009] 9 SCR 625; Indramani Pyarelal Gupta v. W.R. Natu [1963] 1 SCR 721; Suzuki Parasrampuria Suitings (P) Ltd. v. Official Liquidator (2018) 10 SCC 707 : [2018] 12 SCR 906; Amar Singh v. Union of India (2011)

7 SCC 69 : [2011] 6 SCR 403; Union of India v. Shakuntala Gupta (2002) 10 SCC 694; Union of India v. E.G. Namboodiri (1991) 3 SCC 38 : [1991] 2 SCR 451; Union of India v. Assn. of Unified Telecom Service Providers of India; (2020) 3 SCC 525 : [2019] 16 SCR 672; Air Line Pilots’ Assn. of India v. DG of Civil Aviation (2011) 5 SCC 435 : [2011] 5 SCR 1019; Jal Mahal Resorts (P) Ltd. v. K.P. Sharma (2014) 8 SCC 866 – relied on.