Delhi High Court: While exercising its writ jurisdiction, the single judge bench of Yashwant Varma, J., quashed the order passed by the Petroleum and Natural Gas Regulatory Board (‘respondent’) but safeguarded the liberty to re-valuate the issue of Minimum Work Programme (‘MWP’) target. The respondent stood empowered to grant the request of a consumer to source natural gas from an alternate supplier if it was found that the authorised entity (‘AE’) was not in a position to meet the requirements of the customer.
In the matter at hand, APG City Gas Private Limited (‘petitioner’) challenged the validity of an order dated 09-06-2022 passed by the respondent stating that the petitioner was not ready to supply natural gas through interconnected pipelines, therefore, could not be compelled to source natural gas from the petitioner.
The petitioner further prayed for it to be the AE for the city or the Local Natural Gas Distribution for the geographical area (‘GA’) to supply it to market and distribute natural gas including the liquid state to consumers located in the said area.
The respondents issued bid documents dated 06-04-2018, to which an addendum was published dated 31-05-2018 whose clause 8 stipulated that the term compressed natural gas (‘CNG’), CNG stations and natural gas would have to be understood in light of Sections 2(k), 2(l) and 2(za) of the Petroleum and Natural Gas Regulatory Board Act, 2006 (‘the Act’). A clarification was issued that any entity could be set up to operate a Liquified Natural Gas (‘LNG’) Station in GA even if it were not an AE. However, entities would be free to operate LNG Stations only for the purposes of distributing LNG in liquid state to the transport sector. But the AE identified for the purposes of distribution and supply of natural gas to consumers with a demand up to 50,000 SCMD would be entitled to make the supplies.
The same was challenged by Gujarat Gas Limited wherein the Court noted that the challenge laid by the petitioner was asserted by the virtue of being AE and would have exclusive rights of running the City Gas Distribution (‘CGD’) Network and further stated that the public notices were impinging over the exclusivity which stood conferred upon it for the entire economic life of the project.
The Respondent took the position that as per Regulation 3(2)(a) of the (Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008, (‘Authorization Regulations’), customers who have the requirement of natural gas up to 50,000 SCMD were to be supplied through CGD Network and further clarified that until the CGD Network was ready to supply natural gas, a customer, other than domestic, Piped Natural Gas (‘PNG’) and CNG consumer, would have the right to source its supply from any other alternate source with the prior permission of the respondent which would be terminated once the CGD Network was ready to supply natural gas.
Petitioner asserted that since it was the AE, the permission accorded to respondent 3 was illegal and in violation of the Authorisation Regulations. Its contention rested upon the order passed by the Court in the Gujarat Gas which had stated that it was not permissible for an industrial consumer having a requirement up to 50,000 SCMD to receive natural gas from a third party.
Controversy
What is the meaning of ‘City or Local Natural Gas Distribution Network’ and ‘piped natural gas’ under the provision of the Act and authorisation regulation?
Court Analysis
The Court noted that the PNGRB (Exclusivity for City or Local Natural Gas Distribution Networks) Regulations, 2008 (‘exclusivity regulation’) and authorization regulations both adopted and incorporated principles relating to infrastructure and marketing exclusivity. The exclusivity principles have evidently been introduced in acknowledgment of insulating and protecting the AE during the period that it builds up the requisite infrastructure, makes the requisite investments and sets up the pipeline network which would ultimately be declared a common carrier.
The Court in acknowledgment of the massive capital expenditure required to cover the length and breadth of the country without any form of State support, the Policy adopts the concept of exclusivity which is a global norm. It is to insulate and protect an AE during the period it designs and builds the network thus helping it recoup a part of the enormous capital expenditure required to design and build a CGD Network. This would ensure uninterrupted and adequate supply of natural gas designed to reach all parts of the nation including the remotest of areas at a fair price to the consumer, creation of competitive markets with the ultimate objective being to declare the pipeline network as a common or contract carrier to be available to be accessed by all entities.
The Court therefore felt that the legislation principally sought to subserve the two fundamental objectives of laying in place a CGD Network throughout the country, to protect the interest of consumers and entities and providing them access to a sustainable and economical alternate energy source.
The Court stated that that regulations were framed by the respondents themselves in exercise of powers conferred upon it by Section 61 of the Act. Therefore, it could not contend that the supply of natural gas through cascades and trucks was a foreign concept or was beyond the contemplation of the various modes that may be deployed in connection with the supply of natural gas. The respondent could not contend that the Regulation 2(1)(i) was ultra vires the provisions of the Act. The amended Regulation 2(1)(i) is to enable the respondent to accept the varied modes and means that may be deployed by an AE to enable maximum penetration amongst various pockets and areas in the GA and thus enabling a customer at the end of the line, even if it be situate in a remote or non-accessible part of the GA, to be able to source a viable and sustainable energy resource.
The Court clarifies that it does not suggest that an AE stood absolved from the primary obligation of creating the requisite infrastructure and putting in place the pipeline framework for supply of natural gas, till such time as a piped network was ready to reach each and every consumer or customer in the GA, a supply via trucks and cascades could not possibly be ruled out.
The Court stated that “dispute which forms the subject matter of the instant petition was in one sense clearly unnecessary and avoidable. Respondent 3 had always expressed a requirement of LNG which due to its inherent nature could not possibly be supplied through pipelines. It was not the case of respondent 3 that the petitioner had either refused or failed to supply LNG.”
The Court noted that the proviso to Regulation 3 would be able to come into effect only if the CGD Network was unable to supply natural gas to the customers. The focus of Regulation3(2)(a) was clearly the readiness of the AE to effect supplies.
The Court weighed in the fact that in order to cater to the needs of customers who may require natural gas, an AE would clearly be empowered to adopt other modes of transport and supply during the gestation period.
The Court additionally noted that there may be various pockets and areas within a GA where it may be wholly impractical to lay a pipeline network on account of topographical constraints. Therefore, as long as the AE laid in place the requisite infrastructure and was in a state of readiness to effect supplies which met the needs of individual customers, it would be impermissible for the respondent to tear down the bubble of exclusivity which was statutorily constructed.
The Court stated that the exclusivity was an exemption granted by the respondent to the AE as part of the authorisation made in its favour. During the period of exclusivity, the AE was entitled not to share the pipeline infrastructure with any other agency. It was the AE which had been charged with laying the infrastructure in place and make the requisite investments so as to ensure that the CGD Network was established as per the timelines prescribed.
The Court was of the view that the Act read with the Regulation obligate the respondent to act as the arbiter, moderate and balance the two competing facets relating to supply of natural gas. It is this constant exercise of balancing of interests that should inform every decision of the respondent.
Further the bench was of the opinion that the entire construct of the Act and the various Regulations were aimed at subserving the two principal objects of the legislation, namely, of the creation of a pan-India network for supply of natural gas and at the same time ensuring that the interest of consumers was duly met by way of an uninterrupted and adequate supply of natural gas and the creation of competitive markets. The Court thus, found no justification to hold that the said legislative balance was violative of Article 19(1)(g) of the Constitution.
The Court deems it necessary to observe that the “meaning to be ascribed to statutory provisions should not be continually fiddled with by regulatory authorities so as to create a pall of confusion and uncertainty. Stakeholders in any sector expect a degree of reliability and assuredness when it comes to the statutory regime which governs. They model their activities based upon a stated position which has come to prevail…. The meaning to be ascribed to a statutory provision is not a work in progress. It must be enunciated with certainty and clarity.”.
The Court stated that Section 2(i) read together with Regulation 2(1)(i) harmoniously, stipulates that it would be apparent that AE was in a position to supply natural gas either through a CGD Network or cascades or any other permitted mode and would continue to enjoy the exclusivity.
The Bench opined that as long as the AE was in a position to supply natural gas in the form required by the consumer, the Proviso would not come into effect. There may be various pockets and areas within a GA where it may be wholly impractical to lay a pipeline network on account of topographical constraints. It is the unreadiness of the AE to be in a position to meet the demands of natural gas of a customer which enables to approach the respondent seeking permission to source natural gas from an alternate source in terms of the Proviso.
The Court was of the view that the “regard had to be given to the fact that the said provision was not a penal provision or one which is designed to punish an AE for having failed to achieve set out targets. It was fundamentally focussed upon the needs of a particular consumer who complains that the AE in the particular GA was not ready to supply natural gas.”
The Court stated that the statutory regimen clearly aims to balance the rights of the AE as well as the consumer. It was noted that the respondent was conferred various regulatory powers under the Act, the power to monitor prices and take corrective measure to prevent restrictive trade practices, to secure equitable distribution of natural gas and to ensure that the retail service obligations were met.
With the said observations, the impugned order dated 09-06-2022 was quashed however, reserved liberty of the respondent to re-evaluate the issue of MWP targets.
[AGP City Gas Private Limited v Petroleum and Natural Gas Regulatory Board, 2023 SCC OnLine Del 1575, decided on 15-03-2023]
Advocates who appeared in this case :
For the petitioner- Senior Advocate Paras Kuhad, Advocate Piyush Joshi, Advocate Sumiti Yadava, Advocate Vatsla Bhatia, Advocate Yagya Sharma, Advocate Manu Agarwal, Advocate Jitin Chaturvedi, and Advocate Shuaib Hussain;
For the respondent- Advocate Rahul Sagar Sahay, Advocate Mohit Budhiraja, Advocate Taniya Dhoulakhandi, Additional Solicitor General Chetan Sharma, Central Government Standing Counsel Apoorv Kurup, Advocate Ojaswa Pathak, Advocate Amit Gupta, Senior Advocate Jayant Mehta, Advocate Govind Manoharan Advocate Nakul Rajan, Advocate N.L. Ganapathi and Advocate Siddhant Garg.
