Delhi High Court
Global Energy Ltd. And Anr. vs Central Electricity Regulatory ... on 15 December, 2006
Equivalent citations: AIR2007DELHI120, 136(2007)DLT149, AIR 2007 DELHI 120, 2007 (3) ALL LJ NOC 509, 2007 (4) ABR (NOC) 562 (DEL), 2007 (3) AJHAR (NOC) 728 (DEL), 2007 (3) AKAR (NOC) 343 (DEL), (2007) 136 DLT 149
Author: Mukul Mudgal
Bench: Mukul Mudgal, J.P. Singh
JUDGMENT Mukul Mudgal, J.
1. This writ petition challenges the validity of Clause (b) & (f) of the Regulation 6A of the Central Electricity Regulatory Commission (Procedure, Terms and Conditions for grant of Trading License and other related matters) (Amendment) Regulations 2006 notified by the respondent i.e., CERC on 13th April 2006. Clause (b) and (f) of Regulations 6A of the CERC read as follows:
6A Disqualifications: The applicant shall not be qualified for grant of license for inter-state trading if:
(a) ..., or
(b) The applicant, or any of his partners, or promoters, or Directors or Associates is involved in any legal proceedings, and in the opinion of the Commission grant of license in the circumstances, may adversely affect the interest of the electricity sector or the consumers; or
(c) .... or
(d) .... or
(e) ... or
(f) The applicant is not considered a fit and proper person for the grant of license for any other reason to be recorded in writing;
Explanation: For the purpose of determining as to whether the applicant is a 'fit and proper person' the Commission may /take account of any consideration, as it deems fit, including but not limited to the following,
(i) financial integrity of the applicant;
(ii) his competence;
(iii) his reputation and character; and
(iv) his efficiency and honesty.
2. The brief facts of this case as per the case setup by the Petitioner No. 1, Global Energy Ltd. are as follows:
(a) In November 1994, the petitioner No. 1 was incorporated as a public limited company.
(b) On 30th January 2004, the respondent CERC in exercise of its power under Section 178 of the Electricity Act, 2003, (hereinafter referred to as the "Act") notified the CERC (Procedure, Terms and Conditions for grant of Trading License and other related matters), Regulations, 2004 (hereinafter referred to as the Trading License Regulations, 2004"). Section 178 of the Act reads as follows:
178. Powers of the Central Commission to make regulations- (1) The Central Commission may, by notification make regulations consistent with this Act and the rules generally to carry out the provisions of this Act.
(2) ****
(c) On 23rd March 2004, the Petitioner No. 1 filed before the CERC, a Petition No. 31/2004 for grant of inter-state Trading License under Category 'A' and an interlocutory application No. 15/2004 seeking permission to trade in the electricity pending the final disposal of its petition for grant of inter-state trading license, as the petitioner No. 1 had been engaged in inter-state trading of electricity prior to the commencement of the Act.
(d) On 30th March, 2004, the petitioner No. 1 in compliance of Regulation 4 of the Trading License Regulation, 2004, the petitioner published a notice with respect to the aforesaid petition before the CERC for grant of interstate Trading License in all the editions of Indian Express, Financial Express and Jansatta.
(e) The CERC by order dated 31st March, 2004 allowed the petitioner No. 1's interlocutory application and permitted it to undertake interstate sale and purchase of electricity up to 15th May, 2004 or till the disposal of its main application for grant of inter-state trading license, whichever was earlier. The interlocutory order was extended from time to time by the CERC.
(f) On 17th June, 2004, an objection was received by the CERC from one Mr. Manish D. Salkar with respect to the publication of the aforesaid notice by the petitioner No. 1. The said objections were dismissed by the CERC by an order dated 30th June, 2004.
(g) On 6th September, 2004, the CERC passed an order and held as under:
(i) The petitioner No. 1 was qualified for the grant of Category 'A' license for inter-state trading in electricity for trading up to 100 million units in a year.
(ii) The CERC proposed to issue the license for inter-state trading to the petitioner No. 1 as category 'A' trader.
(iii) The petitioner No. 1 was directed to publish a notice under Section 15(5) of the Act. Section 15(5) of the Act reads as follows:
15. Procedure for grant of license:
....
(5) Before granting a license under Section 14, the Appropriate Commission shall--
(a) publish a notice in two such daily newspapers, as that Commission may consider necessary, stating the name and address of the person to whom it proposes to issue the license;
(b) consider all suggestions or objections and the recommendations, if any, of the Central Transmission Utility or the State Transmission Utility, as the case may be.
(h) On 22nd September, 2004, one Mr. C.M. Mathur, pursuant to the notice published by the CERC under Section 15(5) of the Act submitted his objections against the grant of trading license to the petitioner No. 1 on the ground that since the petitioner was a private entity, it should not be granted a trading license and that the petitioner No. 1 would exploit the industrial and agricultural sector.
(i) On 28th September, 2004, when the application of the petitioner No. 1 for grant of license for inter state trading in electricity was listed for final disposal, Mr. C.M. Mathur did not appear before the CERC in spite of being previously served with a formal notice. During the hearing of the application of the petitioner No. 1, it was disclosed to the counsel for the petitioner that the CERC had received anonymous objection by e-mail which stated that a CBI enquiry has been initiated against the petitioner No. 1. The CERC took notice of the said e-mail and by an order dated 28th September, 2004 directed the petitioner No. 1 to file a reply to the said anonymous objection by 11th October, 2004 and also directed the petitioner No. 1 to furnish information about all the cases involving the petitioner No. 1, a sister concern namely Belgundi Cement Ltd. and any other person on the Board of Directors of the petitioner No. 1 and its sister concern and fixed 14th October, 2004 as the next date of hearing.
(j) On 30th September, 2004, the petitioner filed a writ petition under Article 227 of the Constitution in this Court being CM(M) No. 1337/2004 against the order of the CERC dated 28th September, 2004, asking the petitioner to file a reply to the anonymous objection through e-mail.
(k) By an order dated 5th October, 2004, of a learned Single Judge of this Court, the CERC was restrained from taking into account the anonymous e-mail and the response sought from the petitioner No. 1 in pursuance thereof.
(l) On 14th October 2005, when the application of the petitioner No. 1 came up for the grant of inter-state trading license before the CERC, the CERC took a technical view of this Court's order dated 5th October, 2004 and observed that the said order had been passed by this Court in the context of the extension of the interim permission to the petitioner No. 1 to continue trading beyond 15th October 2005 and that the said order passed by this Court does not apply to the grant of the license to the petitioner No. 1. The CERC also opined that since its order dated 28th September 2004 had not been stayed/set aside or quashed by this Court, therefore, its order requiring the petitioner No. 1 to furnish the information regarding the pending cases against the petitioner No. 1, its sister concern M/s Belgundi Cement Ltd. and any person on the Board of Director of the petitioner No. 1 or its sister concern had to be complied by the petitioner No. 1.
(m) On 26th October, 2004, the petitioner No. 1 filed a Civil Misc. Petition No. 13420/2004 challenging the order dated 15th October, 2004 which was passed by the CERC in spite of the fact that the Writ petition was pending in this Court. This Court by its order dated 26th October, 2004 stayed the proceedings before the CERC and directed that interim license to the petitioner No. 1 would stand extended up to the next date of hearing, i.e., 18th November, 2004.
(n) On 3rd February 2005, this Court extended the interim license granted to the petitioner No. 1 till further orders.
(o) On 8th September, 2005, the CERC proposed certain amendments to the Trading License Regulations, 2004 and invited objections, suggestions, comments from the interested persons on the proposed amendments.
(p) On 30th September, 2005, the petitioner No. 1 submitted written comments / objections to the proposed amendments including objections to Clause (b) of the Regulation 6A of the CERC which inter alia provided for the disqualification of the applicant for a trading license on the ground that such applicant or any or its partners, associates, directions or associates is involved in any legal proceedings and to whom, in the opinion of the CERC, grant of license in the circumstances, may adversely affect the interest of the electricity sector because according to the petitioner No. 1 the said disqualification amounted to pre-judging by the CERC of the ongoing legal proceedings in which it has no jurisdiction and Clause (f) which proposed to disqualify an applicant, if in the opinion of the CERC, the applicant is not considered a 'fit and proper person' on the ground that the said Clause conferred subjective discretion on the CERC and did not lay down any parameter for ascertaining the financial integrity, competence, reputation and character, efficiency and honesty of the applicant for determining whether the applicant is a fit and proper for the grant of a trading license.
(q) This Court by an order dated 17th January 2006 transferred the aforesaid CM (M) 1337/2004 to the Appellate Tribunal for Electricity (hereinafter referred to as the "Appellate Tribunal") for adjudication and pursuant to the said order, the Appellate Tribunal passed a consent order dated 1st February 2006 wherein it was noted that petitioner No. 1 had submitted that it shall furnish the requisite information sought by the CERC by its order dated 28th September, 2004.
(r) Pursuant to the order of the Appellate Tribunal dated 1st February 2006 the petitioner's application for trading license was revived again before the CERC and was listed on 9th March 2006. In compliance of the order dated 1st February 2006, the petitioner No. 1 filed the requisite information before the CERC.
(s) The CERC by its order dated 16th March 2006, held as follows:
(i) The CERC took note of its earlier order dated 6th September 2004 whereby it found the petitioner No. 1 to be prima facie eligible for grant of the trading license and had accordingly, proposed to grant the trading license to the petitioner No. 1.
(ii) The CERC stated that in pursuance to the statement of the petitioner No. 1 made before the Appellate Tribunal, the petitioner No. 1 had filed a detailed information on an affidavit with regard to the petitioner No. 1 itself, its sister concern M/s Belgundi Cements Ltd. and their promoters.
(iii) The CERC took on record a subsequent affidavit of the Department of Power, Government of Tripura which stated its objections to the grant of the trading license to the Petitioner No. 1 and thus the petitioner No. 1 was directed by the CERC to file its response to such an affidavit and other information.
(t) On 3rd April 2006, the CERC notified the amendments to the Trading License Regulations, 2004 wherein the above noted disqualifications under Regulation 6A of the CERC were retained.
(u) On 25th April 2006, the petitioner No. 1 furnished the information sought by the CERC by its order dated 16th March 2006. The CERC directed the petitioner No. 1 to file a copy of the agreement entered between the petitioner No. 1 and M/s Karnataka Power Transmission Ltd. (hereinafter referred to as "KPTCL"). The CERC also issued notice to KPTCL and the Government of Tripura for next date of hearing and further directed the petitioner No. 1 to file complete paper-book of the proceedings in BIFR and AAIFR concerning the petitioner's sister concern M/s Belgundi Cement Ltd. and also of the suit for defamation filed by one Shri S. R. Narain inter-alia against the petitioner's sister concern M/s Belgundi Cement Ltd, and its director.
(v) On 6th June 2006, the petitioner No. 1 filed the information which was sought by the CERC by its order dated 25th April 2006 which was furnished by the petitioner No. 1 on the next date of hearing, i.e., 11th July 2006. The CERC directed the petitioner No. 1 to file additional information in terms of Regulation 6A of the CERC and issue a second notice to the Government of Tripura for the next date of hearing fixed for 11th July 2006.
(w) By an order dated 20th August 2006, the CERC held as under:
(i) The CERC rejected the application of the petitioner No. 1 for grant of industrial trading license by giving retrospective effect to Regulation 6A of the CERC and holding that the involvement of the petitioner in certain proceedings impinged on its reputation and character and therefore, the petitioner No. 1 was not a 'fit and proper person' for the grant of trading license.
(ii) The interim order based on which the petitioner No. 1 could undertake the inter-state trading of electricity ceased to have effect.
3. It has been indicated to us during the course of the final hearing of the present writ petition that the scope of the present writ petition shall be confined to the challenge of the vires of the Clause (b) and (f) of Regulation 6A of the CERC without getting into the merits of the impugned order of the CERC dated 20th August 2006 rejecting the petitioner No. 1's application for the grant of trading license.
4. The learned Counsel for the Petitioner No. 1 submitted as follows:
(a) Clause (b) & (f) of the Regulation 6A of the CERC do not conform to the criteria fixed by the parent statute, i.e., the Electricity Act, 2003. It was held by the Hon'ble Supreme Court in the case of Clariant International Ltd. v. Securities & Exchange Board of India , that when any criterion is fixed by a statute or by a policy, an attempt should be made by the authority making the delegated legislation to follow the policy formulation broadly and substantially and in conformity therewith.
(b) Clause (b) of the Regulation 6A of the CERC which allows the CERC to pre-judge the applicant's involvement in legal proceedings and which allows the CERC to disqualify an applicant on mere pendency of legal proceedings exceeds the authority conferred by Section 52 of the Act, and is therefore, invalid. Section 52 of the Act, reads as follows:
Section 52 - Provisions with respect to electricity trader - (1) Without prejudice to the provisions contained in Clause (c) of Section 12, the Appropriate Commission may, specify the technical requirement, capital adequacy requirement and credit worthiness for being an electricity trader.
(2) Every electricity trader shall discharge such duties, in relation to supply and trading in electricity, as may be specified by the Appropriate Commission.
Section 12(c) of the Act reads as follows:
Authorized persons to transmit supply, etc., electricity. - No person shall -
(a) ---------
(b) --------
(c) undertake trading in electricity, unless he is authorized to do so by a license issued under Section 14, or is exempt under Section 13.
Section 13 of the Act reads as follows:
Section 13 - Power to exempt - The Appropriate Commission may, on the recommendations of the Appropriate Government, in accordance with the national policy formulated under Section 5 and in the public interest, direct, by notification that subject to such conditions and restrictions, if any, and for such period or periods, as may be specified in the notification, the provisions of Section 12 shall not apply to any local authority, Panchayat Institution, users' association, co-operative societies, non-governmental organization, or franchisees.
Section 14 of the Act reads as follows:
Grant of license - The Appropriate Commission may, on an application made to it under Section 15, grant a license to any person -
(a) to transmit electricity as a transmission licensee; or
(b) to distribute electricity as a distribution licensee; or
(c) to undertake trading in electricity as an electricity trader, in any area as may be specified in the license:
Provided that any person engaged in the business of transmission or supply of electricity under the provisions of the repealed laws or any Act specified in the Schedule on or before the appointed date shall be deemed to be a licensee under this Act for such period as may be stipulated in the license, clearance or approval granted to him under the repealed laws or such Act specified in the Schedule, and the provisions of the repealed laws or such Act in the Schedule in respect of such license shall apply for a period of one year from the date of commencement of this Act or such earlier period as may be specified, at the request of the licensee, by the Appropriate Commission and thereafter the provisions of this Act shall apply to such business:
Provided further that the Central Transmission Utility or the State Transmission Utility shall be deemed to be transmission licensee under this Act:
Provided also that in case an Appropriate Government transmits electricity or distributes electricity or undertakes trading in electricity, whether before or after the commencement of this Act, such Government shall be deemed to be a licensee under this Act, but shall be required to obtain a license under this Act:
Provided also that the Damodar Valley Corporation, established under Sub-section (1) of Section 3 of the Damodar Valley Corporation Act, 1948 (14 of 1948), shall be deemed to be a licensee under this Act but shall not be required to obtain a license under this Act and the provisions of the Damodar Valley Corporation Act, 1948, in so far as they are not inconsistent with the provisions of this Act, shall continue to apply to that Corporation:
Provided also that the Government company or the company referred to in Sub-section (2) of Section 131 of this Act and the company or companies created in pursuance of the acts specified in the Schedule, shall be deemed to be a licensee under this Act:
Provided also that the Appropriate Commission may grant a license to two or more persons for distribution of electricity through their own distribution system within the same are, subject to the conditions that the applicant for grant of license within the same area shall, without prejudice to the other conditions or requirements under this Act, comply with the additional requirements [relating to the capital adequacy, creditworthiness, or code of conduct] as may be prescribed by the Central Government, and no such applicant, who compiles with all the requirements for grant of license, shall be refused grant of license on the ground that there already exists a licensee in the same area for the same purposes:
Provided also that in a case where a distribution licensee proposes to undertake distribution of electricity for a specified area within his area of supply through another person, that person shall not be required to obtain any separate license from the concerned State Commission and such distribution licensee shall be responsible for distribution of electricity in his area of supply:
Provided also that where a person intends to generate and distribute electricity in a rural area to be notified by the State Government, such person shall not require any license for such generation and distribution of electricity, but he shall comply with the measures which may be specified by the Authority under Section 53:
Provided also that a distribution licensee shall not require a license to undertake trading in electricity.
In the case of State of M.P. v. Bhola , it has been observed by the Hon'ble Supreme Court that a delegated legislation is violative of the enabling Act when its exceeds its authority and makes any provision inconsistent with the Act. The relevant para reads as follows:
20. A delegated legislation can be declared invalid by the court mainly on two grounds; firstly, that it violates any provision of the Constitution and secondly, it is violative of the enabling act. If the delegate which has been given a rule-making authority exceeds it authority and makes any provision inconsistent with the Act and thus overrides it, it can be held to be a case of violating the provisions of the enabling act but where the enabling Act itself permits ancillary and subsidiary functions of the legislature to be performed by the executive as its delegate, the delegated legislation cannot be held to be in violation of the enabling Act.
(c) Clauses (b) and (f) of Regulation 6A of the CERC enacted through subordinate legislation are an unreasonable restriction on the fundamental right of the petitioner to carry on electricity trading because the mere fact that it is involved in the legal proceedings as opposed to any conclusive findings against the petitioner No. 1 by a competent Court.
(d) In the alternative, the mere involvement of the petitioner No. 1 without any conclusive findings of the competent court cannot allow the CERC to arrive at an adverse inference on the credit worthiness, adequacy requirement or the technical requirement of the petitioner No. 1.
(e) Assuming that the CERC is held to be empowered to prejudge the petitioner No. 1's involvement in any legal proceedings, such legal proceedings should be considered as a disqualification only to the extent that the same adversely affects the credit worthiness of the petitioner No. 1. But the present provision which provides for 'any legal proceedings... in the opinion of the Commission... may adversely affect the interest of the electricity sector or the consumers' are vague and in generalized terms.
(f) Clause (f) of Regulation 6A of the CERC in so far it empowers the CERC to determine whether the applicant is fit and proper person for the grant of trading license by taking into account 'any consideration as it deems fit but not limited to the (i) financial integrity of the application (ii) his competence, (iii) his reputation and character, (iv) his efficiency and honesty', provides subjective and uncanalized powers to the CERC much beyond the scope of Section 52 read with Section 178(2)(o) of the Act. It is submitted that there is no other specific provision except Section 52 read with Section 178(2)(o) of the Act which allows the CERC to make regulation with regard to qualification and/or disqualification of an electricity trader. No objective criteria has been laid down in the Act to determine considerations like 'competence', 'reputation and character' and 'efficiency and honesty'.
(g) The determination of 'Fit and Proper Person' and the considerations and impugned Clause (f) of Regulation 6A of the CERC have to be read in the context of three requirements of Section 52 of the Act. In other words the considerations enumerated in explanation to Clause (f) of Regulation 6A of the CERC by themselves cannot be disqualifications unless they can be for sufficient reasons have a demonstrable adverse impact on anyone. In the case of Ramesh Mehta v. Sanwal Chand Singhvi , the Hon'ble Supreme Court has held that a subordinate legislation or delegated legislation must also be read in a meaningful manner so as to give effect to the provisions of the statute. In selecting the true meaning of the word, regard must be had to the consequence leading thereto. If two constructions are possible to adopt, a meaning which would make the provisions workable and in consonance with the statutory scheme should be preferred. The relevant para 31 of the said case reads as follows:
31. A subordinate or delegated legislation must also be read in a meaningful manner so as to give effect to the provisions of the statute. In selecting the true meaning of a word regard must be had to the consequences leading thereto. If two constructions are possible to adopt, a meaning which would make the provision workable and in consonance with the statutory scheme should be preferred.
(h) In the case of Kerala Samsthana Chethu Thozhilali Union v. State of Kerala , the Hon'ble Supreme Court held that both the power to frame the rules and the power to impose the terms and conditions are subject to the provisions of the Act. They must confirm to the legislative policy, must not be contrary to the other provisions of the Act and must not be framed in contravention of the constitutional or statutory scheme. The relevant paragraph of the said judgment reads as follows:
28. The Rules in terms of Sub-section (1) of Section 29 of the Act, thus could be framed only for the purpose of carrying out the provisions of the Act. Both the power to frame rules and the power to impose terms and conditions are, therefore, subject to the provisions of the Act. they must conform to the legislative policy. They must not be contrary to the other provisions of the Act. They must not be framed in contravention of the constitutional or statutory scheme.
(i) In Ashok Lanka v. Rishi Dixit , the Hon'ble Supreme Court held as under:
57. We are not oblivious of the fact that framing of rules is not an executive act but a legislative act; but there cannot be any doubt whatsoever that such subordinate legislation must be framed strictly in consonance with the legislative intent as reflected in the rule-making power contained in Section 62 of the Act.
(j) In Bombay Dyeing & Manufacturing Co. Ltd. v. Bombay Environmental Action Group , held as under:
104. By reason of any legislation, whether enacted by the legislature or by way of subordinate legislation, the State gives effect to its legislative policy. Such legislation, however, must not be ultra vires the Constitution. A subordinate legislation apart from being intra vires the Constitution should not be ultra vires the parent Act under which it has been made. A subordinate legislation, it is trite, must be reasonable and in consonance with the legislative policy as also given effect to the purport and object of the Act and in good faith.
5. The learned Counsel for the respondent submitted as follows:
(a) The submissions of the petitioner No. 1 that having made an application for a trading license it acquired a vested right and that the Regulation 6A of the CERC have been applied retrospectively and that the respondent could have applied the Regulation in force at the time the petitioner No. 1's application for grant of inter-state trading license was made is contrary to the settled law laid down by the Hon'ble Supreme Court. It is a settled law that a mere application for grant of license does not confer any vested right to obtain the same and that the grant of license is to be decided on the basis of the policy/rule which is invoked on the date of grant of license and not on the date of the application for grant of license. In the case of State of Tamilnadu v. Hind Stone and Ors. , it was held as under:
Another submission of the learned Counsel in connection with the consideration of applications for renewal was that applications made sixty days or more before the date G.O. Ms. No. 1312 (December 2, 1977) should be dealt with as if Rule 8-C has not come into force. It was also contended that even applications for grant of leases made long before the date of G. O. Ms. No. 1312 should be dealt with as if Rule 8-C had not come into force. The submission was that it was not open to the government to keep applications for the grant of leases and applications for renewal pending for a long time and then to reject them on the basis of Rule 8-C notwithstanding the fact that the applications had been made long prior to the date on which Rule 8-C came into force. While it is true that such applications should be dealt with within a reasonable time, it cannot on that account be said that the right to have an application disposed of in a reasonable time clothes an applicant for a lease with a right to have the application disposed of on the basis of the rules in force at the time of the making of the application. No one has a vested right to the grant or renewal of a lease and none can claim a vested right to have an application for the grant or renewal of a lease dealt with in a particular way, by applying particular provisions. In the absence of any vested rights in anyone, an application for a lease has necessarily to be dealt with according to the rules in force on the date of the disposal of the application despite the fact that there is a long delay since the making of the application. We are, therefore, unable to accept the submission of the learned Counsel that applications for the grant of renewal of leases made long prior to the date of G.O. Ms. No. 1312 should be dealt with as if Rule 8-C did not exist.
In the case of S.B. International Ltd. and Ors. v. Assistant Director General of Foreign Trade and Ors. , it was held as under:
8. The first question in these appeals is whether a vested right accrued to the appellant for issuance of advance licenses as per the value addition norm in vogue on the date of filing of the said applications the moment it made those applications and whether any subsequent change in policy effected before the issuance of licenses, is not applicable to such licenses. For answering this question, one has to look to the policy itself, the material clauses of which have already been set out. The said provisions make it clear that the object behind the Scheme is to enable the exporter to import raw materials, components etc. required for the purpose of proceeding goods for export. It is a facility provided by the Government - an incentive. There is a no right to advance license apart from the policy. No citizen has a fundamental right to import, much less import free of duty. By granting the advance license, the licensing authority tells the licenses - "I am permitting you to import raw material, components, etc. of a particular value free of duties but you must export goods of a particular value (determined as per value addition norm in vogue on the date of license) within a particular date. If you fail to do so, you will be liable to levy of penalties and other action according to law." The duty-free import of raw materials etc. is permitted to enable the exporter to sell his goods abroad at a more competitive price, thereby fetching precious foreign exchange for the country. Mere making of an application does not create any right in the applicant since he has no pre-existing right to such license. His right is only that which is given by the policy. The situation could have been different if the policy had said that a person exporting goods of a particular value shall be entitled to an import license of a particular value; in such a case, the export of goods can be said to create a right in the applicant to get an import license of the specified value. Here is a case, where one has to ask for an import license promising to export goods of a particular value within a particular time. It is difficult to appreciate how can it be said in such a situation that mere filing of an application creates a vested legal right to obtain a license according to the value addition norm in vogue on the date of the application. It is the date of license that is relevant and not the date of application therefore. It is obvious that the norm (value addition norm) in vogue on the date of grant of license shall govern the license. The mere fact that the authorities have a discretion to take into account the exports made after the date of application for advance licenses makes no difference to this position; it is in the nature of yet another concession. What is relevant is that the license granted under Chapter VII of the policy is an advance license. It is granted in advance of export - rather to enable the export. The theory of a vested right accruing to the applicant to get a license as per the norms in force on the date of application is inconceivable in such a situation - unless, of course, the policy itself says so.
1.We are, therefore, of the opinion, that the contention that a vested right accrues to an applicant for issuance of advance license on the basis of the norm obtaining on the date of application is unacceptable. The scheme and the context militate against the contention. The fact that the policy is statutory in nature (delegated legislation) has no relevance on the question at issue. It would be wrong to equate the filing of an application for advance license with the filing of a suit where it is held that appeal being a substantive right, the right of appeal inhering in the party on the date of filing of the suit cannot be taken away by a subsequent change in law.
In the case of P.T.R. Exports (Madras) Pvt. Ltd. and Ors. v. Union of India and Ors. , it was held as under:
5. It would, therefore, be clear that grant of license depends upon the policy prevailing as on the date of the grant of the license. The court, therefore, would not bind the Government with a policy which was existing on the date of application as per previous policy. A prior decision would not bind the Government for all times to come. When the Government is satisfied that change in the policy was necessary in the public interest, it would be entitled to revise the policy and lay down new policy. The Court, therefore, would prefer to allow free play to the Government to evolve fiscal policy in the public interest and to act upon the same. Equally, the Government is left free to determine priorities in the matters of allocations or allotments or utilisation of its finances in the public interest. It is equally entitled, therefore, to issue or withdraw or modify the export or import policy in accordance with the scheme evolved. We, therefore, hold that the petitioners have no vested or accrued right for the issuance of permits on the MEE or NQE, nor is the Government bound by its previous policy.------
(b) There are sufficient safeguards and guidelines in built in Clause (b) of the Regulation 6A of the CERC as well as in the provisions of the Act because under Clause (b) of the Regulation 6A of the CERC, while deciding an application for the grant of a trading license, it is only those legal proceedings which in the opinion of the Commission may adversely affect the interest of the electricity sector or the consumers that the Commission may take into account. The words 'may adversely affect the interest of the electricity sector or the consumers' reflect the element of the public interest or public purpose which is an in built guideline or safeguard.
(c) The preamble of the Act specifically refers to 'protecting the interest of the consumers' as one of the purposes of the Act. Section 3 of the Act mandates a Central Government to prepare a National Electricity Policy in consultation with the State Governments and concerned authority. Under Section 66 of the Act, the respondent is to be guided by the National Electricity Policy referred to in Section 3 of the Act. The National Electricity Policy is a statutory policy and not a mere guideline or instruction. The said policy in paragraph 2 specifically recognizes the protection of the right of the consumers as one of its aims and objectives. Para 2 of the said policy reads as follows:
The national electricity policy aims at achieving the following objectives:
Access to electricity- Available for households in the next 5 years.
Availability of Power- Demand to be fully met by 2012. Energy & peaking shortages to be overcome & adequate spinning reserve to be available.
Supply of Reliable & Quality Power of specified standards in an efficient manner & at reasonable rates.
Per capita availability of electricity to be increased to over 1000 units by 2012.
Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.
Financial Turnaround & Commercial Viability of Electricity Sector.
Protection of consumer's interests.
(d) Clause (f) of Regulation 6A of the CERC specifically provides that a person can be disqualified under the said clause for reasons to be recorded in writing. This condition is a sufficient safeguard and prevents the arbitrary use of the said clause.
(e) The four criterion mentioned in explanation to Clause (f) of Regulation 6A of the CERC, namely, (i) financial integrity of the applicant; (ii) his competence; (iii) his reputation and character; and (iv)his efficiency and honesty are merely illustrative and exhaustive. The criteria tests the financial integrity and competence of an applicant in order to verify his past track record. The credit worthiness is a criteria while deciding his suitability for the grant of license in view of Section 52(2) of the Act and, therefore, cannot termed as arbitrary.
(f) The concept of 'fit and proper person' is not a new one and has been provided in other statutes like Section 326(2)(b) of the Companies Act, 1956. The Hon'ble Supreme Court while interpreting Section 326(2)(b), held in Rampur Distillery and Chemical Company Ltd. v. Union of India and Ors. , that merely because such a provision confers the power of subjective satisfaction on the authority, it would not preclude judicial scrutiny. The relevant paragraphs of the said judgment read as follows:
11. The Solicitor-General appearing for the Union of India contended by the use of the expression "in its opinion" occurring in Section 326(2)(b) of the Companies Act, it is meant that the subjective satisfaction of the Central Government is determinative of the question whether the proposed person is fit and proper to be appointed managing agent, and if the Board reached the conclusion (as it has done in the present case on considerations which are not irrelevant) that Govan Brothers is not a fit and proper person to be appointed managing agent, the decision based on the satisfaction cannot be challenged before the High Court. The arguments is that the existence of the satisfaction as well as the decision reached on that satisfaction are immune from the scrutiny of the Court. We are unable to agree. By Sub-section (2) of Section 326 of the Companies Act, the Central Government, is invested with power to decide whether it is against the public interest to allow the Company to have a managing agent, whether the person proposed is fit and proper to be appointed or re-appointed managing agent, whether the conditions of the managing agency agreement proposed are fair and reasonable, and whether the managing agent proposed has fulfillled the conditions which the Central Government has required him to fulfilll. Investment of that power carries with it a duty to act judicially, i.e., to hold an enquiry in a manner consistent wit rules of natural justice, to consider all relevant matters, to ignore irrelevant matters, and to reach a conclusion without bias, without predilection and without prejudice. The satisfaction contemplated by Section 326 must, therefore, be the result of an objective appraisal of the relevant materials. The reason is clear. By Section 326 several restrictions upon the power of the Companies and individuals to carry on business, are imposed in the interest of the shareholders, the creditors and in the larger interests of the public. The order made by the Central Government under Section 326 may result in serious detriment of the Company and the proposed managing agent, but in the larger public interest, if it is valid, they have to suffer it. Exercise of the power conferred upon the Central Government is restrictive of valuable rights of the Company and of the proposed managing agent, and severely restricts the liberty of contract.
12. The scheme of the section implies investigation and a decision on the matters set out therein. Section 326 lays down conditions by Sub-section (1)(a) in which the Central Government may override the resolution of the general body of shareholders in certain specified conditions. Upon the Central Government is imposed a duty not to accord approval to the appointment or re-appointment of a proposed managing agent in the light of Clauses (a), (b) and (c) of Sub-section (2). Though the sub-section is enacted in form negative, in substance it confers power upon the Government subject to the restrictions imposed by Clauses (a), (b) and (c) to refuse to accord approval. Sub-section (2) imposes upon the Central Government the duty not to accord approval to appointment or re-appointment of a proposed managing agent unless the Government is satisfied that the managing agent is a fit and proper person to be appointed, that the conditions of the managing agency agreement are fair and reasonable and that the managing agent has fulfillled the conditions which the Central Government required him to fulfilll. Thereby the Central Government is not made the final arbiter of the existence of the grounds on which the satisfaction may be founded. The satisfaction of the Government which is determinative is satisfaction as to the existence of certain objective facts. The recital about satisfaction may be displaced by showing that the conditions did not exist, or that no reasonable body of persons properly versed in law could have reached the decision that they did.
13. The Courts, however, are not concerned with the sufficiency of the grounds on which the satisfaction is reached. What is relevant is the satisfaction of the Central Government about the existence of the conditions in Clauses (a), (b) and (c) of Sub-section (2) of Section 326. The enquiry before the Court, therefore, is whether the Central Government was satisfied as to the existence of the conditions. The existence of the satisfaction cannot be challenged except probably on the ground that the authority acted mala fide. But if in reaching its satisfaction the Central Government misapprehended the nature of the conditions, or proceeded upon irrelevant materials, or ignores relevant materials, the jurisdiction of the Courts to examine the satisfaction is not excluded.
14. The power, in our judgment, is a quasi-judicial power and not administrative; it necessarily implies a duty arising from the nature of the act empowered to be done, the object for which it is to be done, the conditions in which it is to be done, and its repercussion upon the power of the Company, the shareholders, the creditors and the general public for whose benefit the power is to be exercised.
Thus, any determination by the respondent as to whether the petitioner No. 1 is a 'Fit and Proper person' even if it is an exercise in subjective satisfaction, is subject to the scrutiny of the Court which is a sufficient safeguard against the arbitrary exercise of power.
(g) In Rampur Distillery's case (supra) while determining whether a person is a 'Fit and Proper person', past conduct and acts are relevant factors which could be taken into account. Thus, the above mentioned criteria specified in explanation to Clause (f) of Regulation 6A of the CERC are consistent with this principle and assist the respondent in assessing the suitability of the applicant.
(h) The decision arrived at by the respondent while deciding an application for grant of license is appealable before the Appellate Tribunal for Electricity under Section 111 of the Act which itself provides a safeguard against arbitrary exercise of power under Clause (b) & (f) of Regulation 6A of the CERC. Section 111 of the Act reads as follows:
Section 111 - Appeal to Appellate Tribunal - (1) Any person aggrieved by an order made by an adjudicating officer under this Act (except under Section 127) or an order made by the Appropriate Commission under this Act may prefer an appeal to the Appellate Tribunal for Electricity:
Provided that any person appealing against the order of the adjudicating officer levying any penalty shall, while filing the appeal, deposit the amount of such penalty:
Provided further that where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, it may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation of penalty.
(2) Every appeal under Sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order made by the adjudicating officer or the Appropriate Commission is received by the aggrieved person and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed:
Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.
(3) On receipt of an appeal under Sub-section (1), the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.
(4) The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned adjudicating officer or the Appropriate Commission, as the case may be.
Provided that where any appeal could not be disposed of within the said period of one hundred and eighty days, the Appellate Tribunal shall record its reasons in writing for not disposing of the appeal within the said period.
(6) The Appellate Tribunal may, for the purpose of examining the legality, propriety or correctness of any order made by the adjudicating Officer or the Appropriate Commission under this Act, as the case may be, in relation to any proceedings, on its own motion or otherwise, call for the records of such proceedings and make such order in the case as it thinks fit.
(i) The respondent has incorporated Clause (b) & (f) of the Regulation 6A of the CERC in order to insulate the electricity sector, and the consumers against unscrupulous traders and persons.
6. After taking into account the submissions made by the learned Counsel for both the parties, we are of the view that the mere fact that the petitioner was trading in electricity before the commencement of the Act and that it had applied for the grant of the trading license to the respondent CERC does not mean that it acquired an absolute right to be granted the trading license by the respondent. Even the Respondent by its order dated 6th September 2004 had inter alia held that it only 'proposed' to grant the license to the petitioner. The relevant portion of the order dated 6th September 2004 passed by the respondent reads as follows:
Accordingly, we propose to grant the license to the applicant for category 'A'. We direct that a notice under Sub-section (5) of Section 15 of the Act be issued inviting suggestions or objections to the above approval.
7. A perusal of the above extract of the order dated 6th September 2004 passed by the respondent CERC clearly demonstrates that what it did was to only 'propose' the grant of the license to the petitioner. There is a marked difference between granting the license and proposing to grant a license. The former is final while the latter is tentative and is subject to fulfillment of certain conditions. Further, the above extract of the order dated 6th September 2004 of the CERC also shows that the CERC had invited objections under Section 15(5) of the Act to its proposed approval. The order of 6th September 2004 could never be treated as a grant of license because in that case, the purpose of inviting the objections is defeated. Hence, the final grant of license was not made to the petitioner No. 1 by the respondent.
8. The respondent CERC by its order dated 31st March 2004 allowed the petitioner No. 1's interlocutory application and permitted it to undertake interstate sale and purchase of electricity up to 15th May, 2004 or till the disposal of its main application for grant of inter-state trading license, whichever was earlier. Even though the said interlocutory order was extended from time to time by the Respondent CERC, it did not amount to the grant of the trading license to the petitioner No. 1. In State of Tamilnadu's case (supra), it was held that in the absence of any vested rights in anyone, an application for a lease has necessarily to be dealt with according to the rules in force on the date of the disposal of the application despite the fact that there is a long delay since the making of the application. Further in the case of S. B. International Limited (supra) it was held by the Hon'ble Supreme Court that mere making of an application does not create any right in the applicant since he has no pre-existing right to such a license. His right is only that which is given by the policy and that the contention that a vested right accrued to an applicant for issuance of advance license on the basis of the norm obtaining on the date of application is unacceptable. In P.T.R Export's case (supra) it was held by the Hon'ble Supreme Court that the grant of license depends upon the policy prevailing as on the date of the grant of the license. The court, therefore, would not bind the Government with a policy which was existing on the date of application. Therefore, the petitioner No. 1 by merely applying for the trade license cannot be held to have acquired a vested and an absolute right to the grant of the trade license on the terms and conditions prevalent at the time of the making of the application.
9. We now deal with the primary contention of the petitioner No. 1 that the Clause (b) of regulation 6A of the CERC pre-judge's the applicant's involvement in legal proceedings and allows the CERC to disqualify an applicant on mere pendency of legal proceedings and consequently exceeds the authority conferred by Section 52 of the Act and is consequently ultra vires the Act. Section 52 of the Act states that without prejudice to the provisions contained in Clause (c) of Section 12, the Appropriate Commission may, specify the technical requirement, capital adequacy requirement and credit worthiness for being an electricity trader. In our view, Clause (b) of Regulation 6A of the CERC by providing that the grant of the the license may be refused to the applicant if the applicant, or any of his partners, or promoters, or Directors or Associates is involved in any legal proceedings, and in the opinion of the Commission grant of license in the circumstances, may adversely affect the interest of the electricity sector or the consumers, does not exceed the mandate of Section 52 of the Act. In fact it satisfies one of the three criterion laid down by the said provision i.e., the requirement of credit worthiness. We are in agreement with the plea of Shri Rajiv Nayyar that mere pendency of any legal proceedings should not come in the way of the acceptance of the petitioner No. 1's application. For instance, a legal proceeding such as a family partition suit, a traffic offence or a similar other legal proceeding which has no bearing on the creditworthiness of the applicant or he being considered a fit and proper person under the Act to be a trader cannot affect the grant of the application. However, the pendency of legal proceedings which affect the credit worthiness of an applicant and make him not a fit and proper person under the Act can certainly be considered a material and relevant circumstance.
10. Undoubtedly, legal proceedings which have a bearing on the fitness of the applicant and will affect its creditworthiness in the eyes of the general public and therefore should be a justified ground to reject the application for the grant of trading license.
11. Similarly the contention of the petitioner No. 1 that Clause (f) of Regulation 6A of the CERC in so far it empowers the CERC to determine whether the applicant is a fit and proper person for the grant of trading license by taking into account 'any consideration as it deems fit but not limited to the (i) financial integrity of the application (ii) his competence, (iii) his reputation and character, (iv) his efficiency and honesty, provides subjective and uncanalized powers to the CERC beyond the scope of Section 52. However as is evident from the submission of the respondent that the concept of a 'fit and proper person' is not a new one. Similar provision also exists in the Companies Act and SEBI (criteria for Fit & Proper Person) Regulations, 2004. While interpreting the concept of fit and proper person in Section 326(2)(b) of the Companies Act, 1956, the Hon'ble Supreme Court in Rampur Distillery case (supra) held that the power of the Central Government to inter-alia determine whether a person is 'fit and proper' to be appointed or reappointed managing agent, is a quasi judicial power and not an administrative power. It necessarily implies a duty arising from the nature of the act empowered to be done, the object for which it is to be done, the conditions in which it is to be done and its repercussions on the power of the company, shareholders, creditors and general public and for whose benefit the power is to be exercised. Similarly, in the present case also, the power given to the respondent under Clause (f) to determine whether the applicant is 'fit and proper' person for grant of the license is the duty on the respondent to exercise it judiciously as to fulfill the mandate of the Act and in determining the fitness of the applicant the pendency of the legal proceedings which are taken into account can only be such proceedings which bear on the suitability of the applicant to secure a license and the parameters contained in the explanation to Section 6A cannot be termed as uncanalized and unguided viewed in this manner.
12. If the applicant is not considered a fit and proper person for the grant of license, for any other reason it has to be recorded in writing. Thus, the powers under Clause (f) of the Regulation 6A of the CERC cannot be said to be uncanalized.
13. Further the decision of the respondent under Clause (b) and (f) of Regulation 6A of CERC is appealable before the Appellate Tribunal for Electricity under Section 111 of the Act. Therefore, any determination by the respondent under Clause (b) and (f) of Regulation 6A of CERC is subject to the scrutiny of the Appellate Authority and thereafter the Court which is an adequate protection against the arbitrary exercise of power.
14. Finally, the respondent CERC under Section 66 of the Act, is to be guided by the National Electricity Policy which is mandated by Section 3 of the Act according to which the Central Government is to prepare a National Electricity Policy in consultation with the State Governments and concerned authority referred to in Section 3 of the Act. The National Electricity Policy is a statutory policy which specifically recognizes the protection of the right of the consumers as one of its aims and objectives which is a sufficient safeguard against arbitrary exercise of power by the CERC.
15. Thus, the Clauses (b) and (f) of the Regulation 6A of CERC cannot be said to be constitutionally invalid and the writ petition is accordingly dismissed.