Rajasthan High Court - Jodhpur
Adani Gas Limited vs . Union Of India on 29 April, 2015
Author: Govind Mathur
Bench: Govind Mathur
1
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN
AT JODHPUR
JUDGMENT
Adani Gas Limited vs. Union of India
& anr. & ors.
D.B. Civil Writ Petition No. 10028/2011
under Article 226 of the Constitution of India.
Date of Judgment : 29.4.2015
PRESENT
HON'BLE MR. JUSTICE GOVIND MATHUR
HON'BLE MISS JUSTICE JAISHREE THAKUR.
Mr. M.S. Singhvi, Senior Advocate assisted by
Mr. Anjay Kothari, for the petitioners.
Mr Vivek Chaudhry for respondent No. 2.
Mr. A.K. Rajvanshy & Ms. Garima Dadhich, for the respondents.
Mr. S.S. Rathore, Assisting Counsel to AAG.
BY THE COURT:(Per Hon'ble Ms. Jaishree Thakur)
1. The present writ petition has been filed under Article 226 of the Constitution of India challenging the impugned order dated 18.5.2011 whereby the No Objection Certificate (for short 'the NOC') granted to the petitioner has been withdrawn by the State of Rajasthan for laying down gas network pipelines as well as forfeiting the commitment fees deposited by the petitioner. The petitioner has also challenged the validity of the Regulation 18 of the Petroleum and Natural Gas Regulatory Board Regulations, 2008 (for short 'the Regulations, of 2008') being ultra vires the Petroleum and Natural Gas Regulatory Board Regulations Act of 2006 (for short 'Act of 2006').
2. A few brief facts are to be noticed to resolve the controversy herein. The petitioner is a company registered under the Companies Act, 1956 and is involved in the business of setting of natural gas distribution networks within India. The Government of Rajasthan invited parties to submit details for 2 laying gas distribution networks in the cities of Udaipur and Jaipur. In response thereto, the petitioner submitted its expression of interest ( EOI for short) for undertaking distribution networks in two cities of Rajasthan. After considering the petitioner's EOI, the Government of Rajasthan informed the petitioner that it would issue a No Objection Certificate. Pursuant to the receiving the letter dated 27.3.2006, No objection Certificate dated 27.3.2006, the petitioner deposited a sum of Rupees two crores, i. e., one crore per city as commitment fees and also undertook various steps towards the implementation of the project. In the meantime, the Petroleum and Natural Gas Regulatory Board Act, 2006 (for short 'the Act of 2006') was notified on 3.4.2006. All sections of the Act of 2006 were brought into effect, other than Section 16 of the Act of 2006 which deals with granting of authorisation by the Petroleum and Natural Gas Regulatory Board for laying, building, operating or expanding any pipe-line as a common carrier or contract carrier or any city or local natural gas distribution network. A Press Note was issued on 30.10.2007 calling upon all entities involved in laying, building, operating or expanding of a city or local natural gas distribution network prior to the appointed date, i.e., 1.10.2007 to not to undertake any new or incremental activity without obtaining authorisation. Pursuant to the Press Note, the petitioner submitted details as directed by the Board under Section 17 (2) proviso of the Act of 2006 . Respondent no.3- State of Rajasthan also called upon the petitioner to submit details to the Board in terms of the Press Note dated 30.10.2007. The Board issued a notice dated 31.3.2008 to the petitioner stating that it had examined the information submitted 3 and came to the conclusion that the petitioner did not have any authorization by the Central Government in terms of the Section 17 (2) of the Act and barred the petitioner from carrying out any new or incremental activity. The petitioner also submitted an application under Regulation 18(1) of the Regulations of 2008 for authorization for the project at Udaipur and Jaipur. After the application had been submitted under Regulation 18(1) of the Regulations, the Board issued show cause notice to the petitioner to appear before it. Meantime, the State of Rajasthan- respondent no.3 also issued a show cause notice to the petitioner on 28.2.2011 stating that the petitioner had failed to fulfil the conditions as laid down in the NOC issued and as such the NOC is liable to be withdrawn and commitment fees for both the projects of rupees two crores had to be forfeited. The petitioner submitted reply to the show cause notice on 16.3.2011 by submitting that its application for authorisation was pending before the Board under Regulation 18(1) of the Regulations and that it had already completed approximately 75 kilometers of the pipe-lines network in both the cities. Vide an order dated 18.5.2011, the NOC granted to the petitioner was withdrawn and the commitment amount of rupees two crores was forfeited. On 19.5.2011, the Board rejected the petitioner's application for authorization of the projects at Udaipur and Jaipur on the ground that physical and financial progress in both the projects did not satisfy Regulation 18(2)(d). Aggrieved by the withdrawal of the NOC and forfeiture of the commitment amount of rupees two crores, the petitioner has preferred this writ petition. The petitioner has also laid challenge to the Regulation 18 being contradictory and ultra vires the provisions of the 4 Petroleum and Natural Gas Regulatory Board Act, 2006.
3. It is contended by Mr M.S. Singhvi learned Senior Counsel for the petitioner that Section 16 which specifies that no entity shall lay, build operate or expand any natural gas distribution network in the city came to be notified only on 12.7.2010. Under the said proviso, it was specified that an entity laying, building, operating or expanding any pipe-line in any city on the appointed day, shall be deemed to have such authorization. In other words, it is contended that the petitioner,on the basis of NOC issued by the State of Rajasthan, would be deemed to have the requisite authorization on the appointed day, i.e., 1.10.2007. It is contended that as per provision under Section 17(2), all that was required of entities was to furnish the details to the Board within six months from the appointed day, which was duly complied with by the petitioner. It is further contended that Regulation 18(2) provides for criteria for the Board to consider at the time of granting authorization. Regulation 18 does not consider those cases which have already been given authorization for laying, building, operating or expanding gas distribution network prior to the appointed day. On the contrary, it imposes substantive conditions which are not provided for under the Act and thus, the Regulations are ultra vires.
4. Reply has been filed by the State of Rajasthan taking a stand that forfeiture of the commitment fees is legal and valid specially as the petitioner had not meted out the conditions as laid down in the NOC. On the other hand, the Board has filed a detailed reply taking the plea of maintainability of the writ petition on the ground that the petitioner, if it was aggrieved against the orders of the Board, should have filed an appeal 5 before the Appellate Tribunal under Section 33 of the Petroleum and Natural Gas Regulatory Board Act, 2006. It is further contended that Regulation 18 is not inconsistent with any of the provisions of the Act of 2006. The Board can recognize and accept only those entities for laying, building, operating or expanding of any city or local natural gas distribution network who have been given such authority by the Central Government. In the present case, the petitioner did not have such authority under Section 17(2) and since it did not meet the criteria as laid down under Regulation 18, its application was rejected. It is further argued that the NOC that has been issued by the State Government is in effect, issued without authority in so far as petroleum and natural gas are not State subjects and that finds reference in the Union State and it has been urged that the State Government had no competence to grant sanction. In the alternative, it is also pleaded that the perusal of the NOC shows that the petitioner was required to obtain sanction and seek further permission and authorization from the Central Government under the Petroleum Laws. The NOC that has been issued was conditional in nature and the petitioner had failed to comply with the terms specified therein. It is argued that under Section 17(4) of the Act, the Board could either accept or reject the application made to it for authorization and since it had failed to complete 25 % of the laying of the pipe line as per regulation 18 (2) (d) of the Regulations of 2008, the authorization was declined.
5. The counsel appearing for the State of Rajasthan has argued that the NOC that had been issued on 20.3.2006 was conditional in nature and the petitioner was required to obtain all 6 necessary sanctions from the Central Government under the Petroleum Laws.
6. We have heard the counsel for the parties and perused the record of the case.
7. The question raised by the counsel for the respondent of maintainability of the writ petition before this court in view of section 33 of the Act is rejected on account of the fact that the petitioner has challenged the vires of the Regulation 18 of the regulations of 2008 and the Appellate Tribunal as set up would not be competent to decide the issues as raised in the writ petition.
8. Sections 16 and 17 of the Act read as under:-
16. Authorisation :-
No entity shall-
(a) lay, build, operate or expand any pipeline as a common carrier or contract carrier,
(b) lay, build, operate or expand any city or local natural gas distribution network, without obtaining authorisation under this Act : Provided that an entity :-
(i) laying, building, operating or expanding any pipeline as common carrier or contract carrier; or
(ii) laying, building, operating or expanding any city or local natural gas distribution network, immediately before the appointed day shall be deemed to have such authorisation subject to the provisions of this Chapter, but any change in the purpose or usage shall require separate authorisation granted by the Board.
17. Application for authorisation :-
(1) An entity which is laying, building, operating or expanding, or which proposes to lay, build, operate or expand, a pipeline as a common carrier or contract carrier shall apply in writing to the Board for obtaining an authorisation under this Act :Provided that an entity laying, building, operating or expanding any pipeline as common carrier or contract carrier authorised by the 7 Central Government at any time before the appointed day shall furnish the particulars of such activities to the Board within six months from the appointed day.
(2) An entity which is laying, building, operating or expanding, or which proposes to lay, build, operate or expand, a city or local natural gas distribution network shall apply in writing for obtaining an authorisation under this Act :
Provided that an entity laying, building, operating or expanding any city or local natural gas distribution network authorised by the Central Government at any time before the appointed day shall furnish the particulars of such activities to the Board within six months from the appointed day.
(3) Every application under sub-section (1) or sub-section (2) shall be made in such form and in such manner and shall be accompanied with such fee as the Board may, by regulations, specify.
(4) Subject to the provisions of this Act and consistent with the norms and policy guidelines laid down by the Central Government, the Board may either reject or accept an application made to it, subject to such amendments or conditions, if any, as it may think fit.
(5) In the case of refusal or conditional acceptance of an application, the Board shall record in writing the grounds for such rejection or conditional acceptance, as the case may be."
9. Regulation 18 of the Regulations of 2009 reads as under:-
"18. Entity not authorized by the Central Government for laying, building, operating or expanding CGD network before the appointed day.
(1) An entity laying, building, operating or expanding a CGD network at any time before the appointed day but not duly authorized to do so by the Central Government shall apply immediately for obtaining an authorization in the form as at Schedule I. (2) The Board may take into consideration the following criteria while considering the application for grant of authorisation, namely:-
(a) the entity meets the minimum eligibility criteria as at specified in clauses (a) to (e) and
(i) of sub-regulation (6) of regulation 5 before the appointed date and is possessing all necessary statutory clearances, permissions, no 8 objection certificates from the Central and State Governments and other statutory authorities;
(b) an entity which is not registered under the Companies Act, 1956 at the time of submitting the application for grant of authorization shall undertake to become a company registered under the Companies Act, 1956:
Provided that the Board may exempt an entity to register under the Companies Act, 1956 on such conditions as it may deem appropriate;
(c) a satisfactory assessment of the actual physical progress made and the financial commitment thereof till immediately before the appointed day in comparison with the entity's DFR appraised by the financial institution funding the project. In case the project has not been funded by any financial institution, the Board may appraise the DFR. The DFR of the entity should clearly indicate the specified geographical area of the project and also specify the coverage proposed for CNG and PNG. In case upon scrutiny of the DFR by the Board by taking into account the geographical area, customer segments, infrastructure requirements, etc. proposed by the entity, the DFR is found to be sub-optimal and unacceptable, the Board may not consider the case of the entity for issuing the authorization;
(d) in respect of the actual physical progress made and the financial commitment thereof referred to in clause (c), a physical progress of at least twenty five percent and a financial commitment of at least twenty five percent of the capital expenditure identified for the CGD project as per the DFR immediately before the appointed day may be considered as adequate;
(e) the entity should have arranged, by way of acquisition or lease, land for CGS and procured the necessary equipment for erecting the CGS before the appointed day;
(f) the Board reserves the right to get the actual physical progress and the financial commitment certifiedand depending upon the progress achieved, the Board may consider authorizing the entity for the authorized area-
i) as per the geographical area in its DFR;
ii) as per the geographical area actually covered under implementation till the appointed day; or 9
iii) the geographical area as specified by the Board;
(g) in relation to laying, building, operating or expanding the CGD network, it is for the entity to satisfy the Board on the adequacy of its ability to meet the applicable technical standards, specifications and safety standards as specified in the relevant regulations for technical standards and specifications, including safety standards and the quality of service standards as specified in regulation 15;
(h) assessment of the financial position of the entity in timely and adequately meeting the financial commitments in developing the CGD network project as appraised by a financial institution and an examination of the audited books of accounts of the entity;
(i) firm arrangement for supply of natural gas to meet the demand in the authorized area to be covered by the CGD network;
(j) any other criteria considered as relevant by the Board based on the examination of the application.
XXXXXXXXXXXXX"
10. The petitioner had obtained an NOC from the State of Rajasthan on 20.3.2006 which is Annex. P/2 on record. The NOC reads as under:-
"The State Government intends to grant No Objection Certificate subject to the following conditions:-
1) Your company would be responsible for undertaking gas distribution in Jaipur and Udaipur cities.
2) Your company shall be responsible for obtaining all such permissions and approvals as may be required from the concerned statutory and regulatory bodies including Government of India.
3) Your company would be required to deposit a commitment amount of Rs.1.00 crore per city as a token of your seriousness in implementing the city gas distribution project. The NOC would be operational only after such commitment fees are deposited.10
4) Your company will give an undertaking to the effect that you will comply with the provisions of the Petroleum and Natural Gas Regulatory Board and Act as and when it is promulgated and all other statutory provisions.
5) Your company would have to give an undertaking to comply with all the conditions of the NOC along with a schedule of milestones with definite timelines for making available gas for domestic automotive and industrial purposes. The key project activities like reconnaissance survey, details route survey, basic design & engineering and environment studies for the town/village to be covered under the city gas distribution grid have to be indicated and completed as per a time schedule.
6) Any failure or non-performance by the company of any of the conditions above would leave to withdrawal of the NOC and forfeiture of the commitment fees."
11. After the issuance of the NOC, the petitioner undertook the said projects and deposited commitment fees of rupees two crores for the cities of Udaipur and Jaipur. Immediately thereafter, within a period of ten days, the Act of 2006 was promulgated on 3.4.2006. As per the Act, Section 16 deals with authorization of an entity to lay, build, operate or expand any pipe-line or set up a gas distribution network. In the said proviso, it was specified that any entity already in the process of laying, building or expanding natural gas distribution network before the appointed day, shall be deemed to have authorization to do so. Section 17 deals applications for authorization.
12. Section 61 of the Act deals with power of the Board to make regulations. Section 61 reads as under:-
"61. Power of Board to make Regulations :-
(1) The Board may, by notification, make regulations consistent with this Act and the rules made there under to carry out the provisions of this Act.
(2) In particular, and without prejudice to the 11 generality of the foregoing power, such regulations may provide for all or any of the following matters, namely:-
(a) the time and places of meetings of the Board and the procedure (including quorum necessary for the transaction of business) to be followed at such meetings under sub-section (1) of section 8;
(b) the powers and duties of the Secretary under sub-section (1) of section 10;
(c) the terms and conditions of the consultants appointed under subsection (4) of section 10;
(d) the capacity of storage facilities for petroleum, petroleum products or natural gas requiring registration under sub-clause(iii) of clause (b) of section 11;
(e) regulating open access to and transportation rate for the common carrier or contract carrier or city or local natural gas distribution network and other matters referred to in clause (e) of section 11;
(f) marketing service obligations for entities and retail service obligations for retail outlets under sub-clause(v) of clause(f) of section 11;
(g) levy of fees and other charges under clause
(g) of section 11;
(h) the technical standards and specifications including safety standards in activities relating to petroleum, petroleum products and natural gas under clause (i) of section 11;
(i) the procedure to be followed by the Board including the places at which it shall conduct its business under sub-section (3) of section 13;
(j) the manner of maintaining the Petroleum and Natural Gas Register under sub-section (1) of section 14;
(k) the form and manner of making application for obtaining certified copy of any entry in the register and the fee which shall accompany such application, under sub-section (4) of section 14;
(l) the form and manner in which an application under sub-section(1) of section 15 shall be made and the fee which shall accompany such application under sub-section (2) of section 15;
(m) the manner by which a certificate of 12 registration granted under sub-section (3) of section 15 may be suspended or cancelled under sub-section (4) of section 15;
(n) the form and manner in which an application under sub-section(1) or sub-section (2) of section 17 shall be made and the fee which shall accompany such application under sub-section (3) of section 17;
(o) the form and manner in which publicity of acceptance of applications for registration shall be made under section 18;
(p) the manner of selection of an entity under sub-section (2) of section 19;
(q) the principles for determining the number of years for which a city or local natural gas distribution network shall be excluded from the purview of a common carrier or contract carrier under sub-section (4) of section 20;
(r) the guiding principles to be followed by the Board and the objectives for declaring, or authorising to lay, build, operate or expand a common carrier or contract carrier for declaring, or authorising to lay, build, operate or expand a city or local natural gas distribution network, under sub-section (5) of section 20;
(s) the affiliate code of conduct under which the entities are required to comply with under the proviso to sub-section (1) of section 21;
(t) the transportation tariffs for common carriers or contract carriers or city or local natural gas distribution network and the manner of determining such tariffs under sub-section (1) of section 22;
(u) the form in which a complaint may be made and the fee which shall accompany such complaint, under sub-section (2) of section 25;
(v) the manner of holding an investigation by an Investigating Officer under sub-Section (1) of section 26;
(w) the qualifications and experience which any person for appointment as an Investigating Officer shall possess, under subsection (2) of section 26;
(x) the form and manner of maintaining data bank and information system by the Board under sub-section (1) of section 51;
(y) maintenance of documentary records by an 13 entity, under clause (a) of sub-section (1) of section 52;
(z) any other type of documents which are to be registered with the Board under sub-clause (ii) of clause (d) of sub-section (1) of section 52;
(za) any other matter which is required to be, or may be, specified by regulations or in respect of which provision is to be or may be made by regulations."
13. Mr. M.S. Singhvi Senior Counsel appearing for the petitioner, submits that the petitioner had been given a NOC by the State of Rajasthan which would entitle the petitioner to continue with the project of laying the gas pipe network and operate the same. After the NOC was issued, the petitioner acted upon the same and made an investment in the project by giving a commitment fee of Rs. One Crore per city and also laid 75 kilometers of network. Relying upon the principle of promissory estoppel and legitimate expectation the counsel for the petitioner contends that there was no occasion for the cancellation of the NOC by the State Government.
14. It has been argued that the Board as constituted under section 3 of the Act of 2006 does not have the power to regulate conditions for those entities who have deemed authorization. The power of the Board to frame regulations is under section 3 of the Act of 2006 and as such any such regulation placing restriction upon the entity, such as the petitioner who had got an NOC to lay the local gas network was unsustainable. It is submitted that bodies created under a Statute derive their power from the Statute and have no unlimited jurisdiction.
15. Per contra, Mr Chaudhry counsel appearing for respondent Board has argued that after the notification of the Act of 2006 , 14 all entities, including the petitioner were required to obtain authorisation from the Board in terms of Section 17 (1) the Act of 2006 and an exception was provided to only those entities who were laying, building ,operating the local gas network under the authorisation of the Central Government. It has been submitted that the NOC given by the State Government on which the petitioner was relying upon could not be construed to mean authorisation given by the Central Government as specified in section 17 of Act of 2006. It has been argued that the State Government was not competent to give any such authorisation since the issuance of any licence/NOC is wholly within the purview of the Union and not the State.
16. It is noticed that the State Government gave NOC to the petitioner on 27.3.2006. As per the NOC issued, it was incumbent upon the petitioner to obtain all such permissions and approval as may be required from the concerned authorities, recovery bodies including the Government of India. In other words, the State had issued only a provisional NOC. The State Government being fully aware that it was incompetent and did not have the jurisdiction to allow the laying of pipelines for gas distribution in Jaipur and Udaipur cities, had left it to the petitioner to obtain the requisite permissions. It is not borne out from the record that the petitioner made any attempt to obtain any of the approvals or permission after the NOC was issued. It has rightly been contended by the counsel appearing on behalf of the Board-respondent no.2 that the State Government had no jurisdiction to issue the said NOC.
17. Section 17 of the Act of 2006 clearly specifies that any entity which is laying, building or expanding or proposes to lay, 15 build or operate or expand a pipeline shall apply in writing to the Board to obtain authorization under the Act. A proviso had been given under the said section that those entities who were carrying on such activities and had been authorized by the Central Government need not apply for authorization but were only required to furnish details of the said authorization issued by the Central Government to the Board within six months from the date the Act was notified. In the present case, the petitioner had been issued a conditional NOC from the State of Rajasthan to lay the necessary network for gas distribution with a proviso that all permissions and authorizations were to be obtained from the Central Government. A perusal of NOC issued shows that stipulation had been imposed to the effect that the petitioner was required to give an undertaking to the effect that it would comply with the provisions of the Petroleum and Natural Gas Regulatory Board Act,2006 as and when it would be promulgated along with other statutory provisions. The NOC was issued on 27.3.2006 and within a period of ten days, the Act of 2006 was promulgated on 3.4.2006. As per the NOC issued, the petitioner Company was required to give an undertaking to the effect that it would comply with the provisions of Petroleum and Natural Gas Regulatory Board Act. It is not borne out from the record whether or not such undertaking was actually given, but the NOC itself specified that the petitioner would be bound to comply with the provisions of the Petroleum and Natural Gas Regulatory Board Act. A mere reading of the said NOC would further substantiate the fact that the State Government was aware of its limitations in issuing actual authorisation on account of the fact that the Petroleum and Natural Gas Regulatory Board Act was in 16 the offing.
18. Looking at the NOC from any angle, it can safely be concluded that the State Government was issuing only a conditional NOC leaving it open to the petitioner to obtain all necessary sanctions, approval, permissions from the regulatory authorities and the Government of India, while making sure that the Company would also comply with the provisions under the Act as and when it came into force.
19. The contention raised by the petitioner that it need not apply for authorization since the said section was only notified in 2010, is untenable. Even if Section 16 came to be notified only in 2010, the petitioner who is relying upon the NOC issued, cannot take any benefit since the NOC itself issued was conditional. This has a domino effect. Section 16 provides that those entities lay, build, operate or expand any pipeline immediately before the appointed date, shall be deemed to have authorization. If the authorization itself is conditional, it was incumbent upon the petitioner to have fulfilled those qualifications and conditions imposed therein, to be able to claim any benefit under Section
16. Thus, we are of the opinion that the petitioner would not be able to take the benefit of Section 16 by claiming deemed authorization on the basis of NOC issued by the State Government.
20. The next contention of the petitioner that after issuance of the NOC and paying the commitment fees of rupees two crores and having invested in the project by laying 75 kms. of network, there would be a legitimate expectation in favour of the petitioner. The petitioner has argued that principle of promissory estoppel would also arise in its favour. Reliance has been placed 17 upon the following judgments:- (1) M/s Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh, (1979) 2 SCC 409 (2) Union of India & ors. v. Godfrey Philips India Ltd., (1985) 4 SCC 369 (3) MRF Ltd., Kottayam v. Asstt. Commissioner , Assessment) Sales Tax & ors., (2006) 8 SCC 702 (4) S.V.A. Steel Re-Rolling Mills Ltd. v.
State of Kerela & ors., (2014) 4 SCC 186.
21. We have gone through the judgments and find that the same are not applicable to the facts and circumstances of the present case. The NOC issued by the State Government was conditional in nature, which bound the petitioner to obtain the necessary permissions and approval from the Central Government. A reading of the said NOC clearly shows that the State Government had clearly specified that the petitioner would be bound by the Petroleum and Natural Gas Regulatory Board Act as and when it came into force. The said Act came into force within a period of ten days after the issuance of the NOC. The petitioner was bound to comply by the said terms which he failed to do so. Therefore, if the authorization issued itself was conditional and there was non-compliance of the terms and conditions as specified therein, the question of legitimate expectation and promissory estoppel would not arise.. Legitimacy expectation can be inferred only if it is founded on the sanction of law. The contention raised that the respondent- State Government is estopped from canceling the NOC issued and forfeiting the commitment amount is unsustainable. At best, the petitioner would be entitled to approach the State Government for refund of the commitment amount on the ground that the State Government itself was not competent to 18 issue the NOC since it was the State subject and the permission could only have been given by the Central Government.
22. The next contention raised by the petitioner is that his application under Regulation 18(1) of the Regulations 2009 has been rejected on the ground that it had not completed 25% of the work and such stipulation as imposed under Regulation 18(2)
(d) was ultra vires the Act of 2006. It has been argued that the Board was not authorized by the Act to specify any such condition and that the Regulations cannot be beyond the scope of the Act. Reliance has been placed upon the following judgments (1) Global Energy Ltd. v. Central Electricity regulatory Commission, (2009) 15 SCC 570 (2) Union of India & ors. v. S. Srinivasan, (2012) 7 SCC 683 (3) Agricultural Marketing Committee v. Shalimar Chemical Works (1997) 5 SCC 516.
23. Whereas, the counsel appearing on behalf of the Board has argued that the Regulations of 2008 have been rightly framed and derive their from the power and authority from the Act. Reliance has been placed upon M/s Delhi Cloth Mills Ltd and others vs Union of India and other reported in (1983) 4 SCC 166 in which it was held that where power is conferred to effect a purpose and for that end in view to impose conditions, the conditions must be valid and must fairly and reasonably relate to the object sought to be achieved to contend that conditions imposed by subordinate legislation to effectuate the purpose of the act or state to remain intra vires. Further reliance has been place upon the Municipal Corporation of Delhi vs. Birla Cotton and Spinning Mills Delhi and others reported as AIR 1968 Sc 1232 to contend that where the legislative 19 policy is laid down with clearness or a standard is laid and subordinate legislation is delegated with ensuring the objects of the Act ,the Courts should not interfere. It is argued that the Board is competent to regulate the functioning of the entity and also to lay down conditions pertaining to the quantity of work to be done and to reject the application of the petitioner under Regulation 18 (1) of the Regulations of 2008 on the ground that 25% of the work had not been completed was justified.
24. We are unable to agree with the contention of the learned Senior Counsel appearing for the petitioner that the regulations framed are ultra vires the Act of 2006. Under Section 17 (2) of the Act , any entity which is laying, building or expanding or proposes to lay, build or operate or expand a pipeline shall apply in writing to the Board to obtain authorization and the Board under section 17 (4) is competent to accept or grant permission . Section 19 of the act of 2006 authorities the Board to grant such authorisation when an application for authorisation is received or suo moto the Board invites applications from interested entities to lay build a gas distribution Network. Section 19 (2) of the Act specifies that The Board may select an entity in an objective and transparent manner as specified by regulations for such activities. A perusal of the preamble of the Act of 2006 shows that the Act was established to regulate the refining process, storage, transporting, distribution, marketing and sale of petroleum product and natural gas including production of crude oil and natural gas so as to protect the interest of the consumers and entities engaged in the activities relating to petroleum, petroleum products and natural gas and also to ensure uninterrupted supply of petroleum and natural gas 20 in all parts of the country. The functions of the Board as set up under the section 3 of the Act have been specified in Section 11 of the Act which reads as under:-
"11. Functions of the Board :-
The Board shall-
(a) protect the interest of consumers by fostering fair trade and competition amongst the entities;
(b) register entities to-
(i) market notified petroleum and petroleum products and, subject to the contractual obligations of the Central Government, natural gas;
(ii) establish and operate liquefied natural gas terminals;
(iii) establish storage facilities for petroleum, petroleum products or natural gas exceeding such capacity as may be specified by regulations;(c) authorise entities to-
(i) lay, build, operate or expand a common carrier or contract carrier;
(ii) lay, build, operate or expand city or local natural gas distribution network;
(d) declare pipelines as common carrier or contract carrier;
(e) regulate, by regulations,-
(i) access to common carrier or contract carrier so as to ensure fair trade and competition amongst entities and for that purpose specify pipeline access code;
(ii) transportation rates for common carrier or contract carrier;
(iii) access to city or local natural gas distribution network so as to ensure fair trade and competition amongst entities as per pipeline access code;
(f) in respect of notified petroleum, petroleum products and natural gas-
(i) ensure adequate availability;
(ii) ensure display of information about the maximum retail prices fixed by the entity for consumers at retail outlets;
(iii) monitor prices and take corrective measures to prevent restrictive trade practice by the entities;
(iv) secure equitable distribution for petroleum and petroleum products;
(v) provide, by regulations, and enforce, retail service obligations for retail outlets and marketing service obligations for entities;
(vi)monitor transportation rates and take corrective action to prevent restrictive trade practice by the entities;
(g) levy fees and other charges as determined by regulations;21
(h) maintain a data bank of information on activities relating to petroleum, petroleum products and natural gas;
(i) lay down, by regulations, the technical standards and specifications including safety standards in activities relating to petroleum, petroleum products and natural gas, including the construction and operation of pipeline and infrastructure projects related to downstream petroleum and natural gas sector;
(j) perform such other functions as may be entrusted to it by the Central Government to carry out the provisions of this Act."
25. Thus on a conjoint reading of Sections 11 , 18 , 19 and Section 61 of the Act of 2006 show that the Board has been empowered under the Act to either invite applications and or decide applications moved to it from interested parties to lay build operate or expand such pipelines or city or local gas distribution network and the said applications have to be decided in an objective and transparent manner as specified in the regulations. In furtherance of the Act , a Board has been constituted and the Functions of the Board as defined under Section 11 (i) of the Act of 2006 is to lay down, by regulations, the technical standards and specifications including safety standards in activities relating to petroleum, petroleum products and natural gas, including the construction and operation of pipeline and infrastructure projects related to downstream petroleum and natural gas sector. ( Italics emphasised). Under section 61 of the Act, the Board has also been given the Power to frame Regulations which are consistent with the Act and the Rules made thereunder to carry out the provisions of the Act. In this background Regulations of 2008 were framed called the Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008. These 22 regulations are fairly exhaustive which allows the Board to specify the conditions and criteria to be adopted by the Board while inviting/deciding applications invited or received suo moto for grant of authorisation. Regulation 18 of the said Regulations of 2008 permits entities already operating or expanding CGD network before the appointed day, but not authorized by the Central Government , to apply immediately for obtaining an authorization in the form as at Schedule . Regulation 18 (2) allows the Board to take into consideration various criteria while considering the application for grant of authorization to such entities ,and one of them is in respect of the actual physical progress made and the financial commitment specifying a physical progress of at least twenty five percent and a financial commitment of at least twenty five percent of the capital expenditure identified for the CGD project as per the DFR submitted immediately before the appointed day may be considered as adequate.
26. It is the function and the duty of the Board to ensure that technical specifications and standards are met which also includes construction and laying down the pipelines. Section 61 gives power to the Board to frame regulations regarding the authorisation to be given to entities regarding the laying of the gas distribution network. If an entity who is already doing work before the appointed day ,without the authorization of the Central Government, as in the present case, it becomes incumbent upon the Board to see that the quantity of the work and financial commitment is sufficient and therefore the condition as specified in Regulation 18 (2) (d) can not be said that it is ultra vires the Act of 2006 . The said regulation framed 23 is in furtherance of the object of the Act .
27. In Delhi Cloth Mills vs Union of India (1983) 4 SCC 166 challenge was laid to constitutional validity of Rule 3A of the Companies (Acceptance of Deposit) Rules, 1975 introduced by Companies (Acceptance of Deposits) Amendment Rules, 1978 and to sec. 58A of the Companies Act, 1956 inserted by Companies (Amendment) Act, 1974 on the ground that in the absence of guidelines both sec. 58A and the Rule 3A of the Deposits Rules enacted in exercise of the power conferred by sec. 58A confer arbitrary and uncanalised powers and hence are violative of Art. 14 . The H'onble Supreme Court held that where power is conferred to effect a purpose and for that end in view to impose conditions, the conditions must be valid and must fairly and reasonably relate to the object sought to be achieved. In the absence of this connection the conditions imposed may be rejected as arbitrary .
28. In Municipal Corporation Of Delhi vs Birla Cotton, Spinning And others Supra it has been held as under:
"A review of these authorities therefore leads to the conclusion that so far as this Court is concerned the principle is well estab lished that essential legislative function consists of the determination of the legislative policy and its formulation as a binding rule of conduct and cannot be delegated by the legislature. Nor is there any unlimited right of delegation inherent in the legislative power itself. This is not warranted by the provisions of the Constitution. The legislature must retain in its own hands the essential B legislative functions and what can be delegated is the task of subordinate legislation necessary for implementing the purposes and 24 objects of the Act. Where the legislative policy is enunciated with sufficient clearness or a standard is laid down, the courts should not interfere. What guidance should be given and to what extent and whether guidance has been given in a particular case at all depends on a consideration of the provisions of the particular Act with which the Court has to deal including its preamble. Further it appears to us that the nature of the body to which delegation is made is also a factor to be taken into consideration in determining whether there is sufficient guidance in the matter of delegation."
29. The argument raised by the learned counsel for the petitioner to the effect that the regulations framed are beyond the statue itself can not be sustained as under the Statue one of the functions of the Board is to lay down regulations regarding the technical standard and safety standards including the construction and operation of pipeline and infrastructure projects related to downstream petroleum and natural gas sector. If the Board is competent to invite applications and grant authorisation to those entities who did not have authorisation by the Central Government but were working before the appointed day, as a natural consequence, it also has the authority to ensure that those entities conform to certain standards. Further more, it is to be noted that the petitioner had been issued the NOC on 27.3.2006 and till 30.10.2007, that is a period of 18 months, the petitioner had only laid 28 kms of pipeline in Udaipur and 57 kms. In Jaipur, which amount is negligible to the amount of work actually to be completed. The condition imposed is valid and can not be held to be either arbitrary or unreasonable and relates to the object to be achieved.
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30. Therefore we can conclude that the petitioner did not have deemed authorization under Section 16 of the Act nor any authorization by the Central Government to be allowed to continue work of laying pipes for the distribution of gas in the city of Jaipur and Udaipur and that Regulation 18 of the Petroleum and Natural Gas Regulatory Board Regulations, 2008 is intra vires the Petroleum and Natural Gas Regulatory Board Regulations Act of 2006.
31. Therefore in view of the above, the writ petition is dismissed.
(JAISHREE THAKUR),J. (GOVIND MATHUR),J.
mlt