# ADANI GAS LIMITED v. PETROLEUM AND NATURAL GAS REGULATORY BOARD AND ORS

- **Citation:** [2020] 8 S.C.R. 108
- **Court:** Supreme Court of India
- **Decided:** 2020-02-17
- **Case number:** Civil Appeal No. 3992 of 2019
- **Bench:** Dr. Dhananjaya Y Chandrachud, Hemant Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/adani-gas-limited-v-petroleum-and-natural-gas-regulatory-board-and-ors-34844
- **Pages:** 57

## Headnote

Petroleum and Natural Gas Regulatory Board (Authorizing
Entities to Lay, Build, Operate or Expand City or Local Natural
Gas Distribution Networks) Regulations, 2008:
Regulations 5 and 7 - Ninth round of bidding for city or local
natural gas distribution networks (CGD) - For the years 20182026 - After opening technical bids, Petroleum and Natural Gas
Regulatory Board, by its Note dated 23 July, 2018, in order to bring
reasonableness to the bidding parameters introduced a criterion
stipulating that 2% of total households in terms of census 2011
data would be regarded as minimum quote and 100% would be
regarded as maximum - The Board Note was not notified to the
bidders - On opening the financial bid of technically eligible
bidders, it was found that for 4 Geographical Areas i.e. GAs. 51,
61, 62 and 72, the bidders having highest composite score, were
liable to be disqualified on the ground that they had quoted more
than 100% of the total number of households as per 2011 census -
Board decided to give them opportunity to explain - Board thereafter
accepting the quotes of highest bidders in respect of GAs. 51, 61
and 62 as reasonable issued Letter of Intent (LOI) to them granting
authorisation - In case of GA 72, quote of highest bidder was
rejected as being unreasonable - The appellant who was sixth
highest bidder in GA 51, third highest bidder in GA 61 and second
highest bidder in GA 62 challenged grant of authorisation in respect
of the three GAs - Second bidder in GA 61 also challenged grant
of authorisation in GA 61 - The Chairperson of the Tribunal allowed
the appeals while the technical member dismissed the same - Since
the Judicial Member of the Tribunal recused himself from the case,
the case was transferred to Supreme Court - Held: Regulation 7
stipulates the bidding criteria - There is no condition in Regulation
[2020] 8 S.C.R. 108
108
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7 regarding ceiling or providing for a linkage with the census date
of 2011 - A conditionality which was not incorporated in Regulation
7 could not have been introduced by Board Note dated 23 July,
2018 - Hence the Board Note cannot be construed to have laid
down absolute norms by which bids quoting below2% or above
100% of the number of households would automatically be rejected
as unreasonable - Disqualifying a bidder on the basis of criterion
which was not notified would have been arbitrary and would
constitute infraction of Art. 14 of the Constitution - The Board Note
therefore can be construed as formulation of guideline - Hence the
award of authorisation after calling the highest bidders in respect
of GAs 51, 61 and 62 to justify their bids in terms of their
reasonableness cannot be faulted - There was also no breach of
principles of natural justice in calling only the highest bidders to
explain reasonableness of their bids as other bidders had no locus
to participate in the process.
Dismissing the appeals, the Court
HELD: 1.1 The Petroleum and Natural Gas Regulatory
Board (Authorizing Entities to Lay, Build, Operate or Expand
City or Local Natural Gas Distribution Networks) Regulations,
2008 (CGD Authorisation Regulations) postulate that bidders
must submit both technical and financial bids. The procedure
specified in Regulation 5 applies to an invitation by the Board for
laying, building, operating or expanding a CGD network.
Regulation 5(6) requires the fulfilment of minimum eligibility
criteria. For a technical bid to pass muster, the minimum eligibility
criteria require the bidder to be qualified both with reference to
technical and financial parameters. This is evident from Regulation
5(6) under which the Board is to scrutinise the bids of only those
entities which fulfil the minimum eligibility criteria. The minimum
eligibility criteria include the technical capability of the bidding
entity to (i) lay and build; and (ii) operate and maintain a CGD
network. Both of them are defined with reference to qualifying
criteria. Besides the technical criteria, the

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ADANI GAS LIMITED
v.
PETROLEUM AND NATURAL GAS REGULATORY
BOARD AND ORS.
(Civil Appeal No. 3992 of 2019)
FEBRUARY 17, 2020
[DR. DHANANJAYA Y CHANDRACHUD AND
HEMANT GUPTA, JJ.]
Petroleum and Natural Gas Regulatory Board (Authorizing
Entities to Lay, Build, Operate or Expand City or Local Natural
Gas Distribution Networks) Regulations, 2008:
Regulations 5 and 7 - Ninth round of bidding for city or local
natural gas distribution networks (CGD) - For the years 20182026 - After opening technical bids, Petroleum and Natural Gas
Regulatory Board, by its Note dated 23 July, 2018, in order to bring
reasonableness to the bidding parameters introduced a criterion
stipulating that 2% of total households in terms of census 2011
data would be regarded as minimum quote and 100% would be
regarded as maximum - The Board Note was not notified to the
bidders - On opening the financial bid of technically eligible
bidders, it was found that for 4 Geographical Areas i.e. GAs. 51,
61, 62 and 72, the bidders having highest composite score, were
liable to be disqualified on the ground that they had quoted more
than 100% of the total number of households as per 2011 census -
Board decided to give them opportunity to explain - Board thereafter
accepting the quotes of highest bidders in respect of GAs. 51, 61
and 62 as reasonable issued Letter of Intent (LOI) to them granting
authorisation - In case of GA 72, quote of highest bidder was
rejected as being unreasonable - The appellant who was sixth
highest bidder in GA 51, third highest bidder in GA 61 and second
highest bidder in GA 62 challenged grant of authorisation in respect
of the three GAs - Second bidder in GA 61 also challenged grant
of authorisation in GA 61 - The Chairperson of the Tribunal allowed
the appeals while the technical member dismissed the same - Since
the Judicial Member of the Tribunal recused himself from the case,
the case was transferred to Supreme Court - Held: Regulation 7
stipulates the bidding criteria - There is no condition in Regulation
[2020] 8 S.C.R. 108
108
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7 regarding ceiling or providing for a linkage with the census date
of 2011 - A conditionality which was not incorporated in Regulation
7 could not have been introduced by Board Note dated 23 July,
2018 - Hence the Board Note cannot be construed to have laid
down absolute norms by which bids quoting below2% or above
100% of the number of households would automatically be rejected
as unreasonable - Disqualifying a bidder on the basis of criterion
which was not notified would have been arbitrary and would
constitute infraction of Art. 14 of the Constitution - The Board Note
therefore can be construed as formulation of guideline - Hence the
award of authorisation after calling the highest bidders in respect
of GAs 51, 61 and 62 to justify their bids in terms of their
reasonableness cannot be faulted - There was also no breach of
principles of natural justice in calling only the highest bidders to
explain reasonableness of their bids as other bidders had no locus
to participate in the process.
Dismissing the appeals, the Court
HELD: 1.1 The Petroleum and Natural Gas Regulatory
Board (Authorizing Entities to Lay, Build, Operate or Expand
City or Local Natural Gas Distribution Networks) Regulations,
2008 (CGD Authorisation Regulations) postulate that bidders
must submit both technical and financial bids. The procedure
specified in Regulation 5 applies to an invitation by the Board for
laying, building, operating or expanding a CGD network.
Regulation 5(6) requires the fulfilment of minimum eligibility
criteria. For a technical bid to pass muster, the minimum eligibility
criteria require the bidder to be qualified both with reference to
technical and financial parameters. This is evident from Regulation
5(6) under which the Board is to scrutinise the bids of only those
entities which fulfil the minimum eligibility criteria. The minimum
eligibility criteria include the technical capability of the bidding
entity to (i) lay and build; and (ii) operate and maintain a CGD
network. Both of them are defined with reference to qualifying
criteria. Besides the technical criteria, the minimum eligibility
requirements under Regulation 5(6)(e) incorporate the financial
ability to execute the project and to operate and maintain it in
the authorised area. The financial criteria are defined with
reference to the minimum net-worth of the bidding entity. The
net-worth required is dependent on the population of the
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REGULATORY BOARD
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Geographical Area (GA) under the 2011 Census. The minimum
net-worth required is specifically defined with reference to 2011
census figures of population for the GA. The bidding entity is
also required to submit a bid bond in the form of a performance
bond guarantee. The quantum of the guarantee is dependent on
the population of the GA. [Para 35][149-D-G]
1.2 The Table incorporated in Regulation 7 provides fivefold criteria for the tabulation and comparison of financial bids.
The five criteria are: (i) 'Lowness' of transportation rate for CGD;
(ii) 'Lowness' for transportation rate for CNG; (iii) 'Highness'
of the number of CNG stations to be installed in eight years from
authorisation; (iv) 'Highness' of the number of domestic PNG
connections to be achieved within eight years of authorisation;
(v) 'Highness' of inch-kilometre of steel pipeline to be laid within
eight years of authorisation. The third and fourth criteria together
account for 70 per cent of the total composite score. Among them,
the fourth criterion - 'highness' of the number of domestic PNG
connections accounts for 50 per cent of the total composite score.
Significantly, the bidding criteria in Regulation 7 are not linked
to the 2011 Census figures. There are two significant facets of
Regulation 7: (i) The absence of a linkage of the projected number
of domestic PNG connections with the 2011 Census data; (ii) The
absence of a cap or ceiling on the 'highness' norm both in relation
to the third and the fourth criteria. [Para 36][150-A-E]
1.3 The provisions contained in the 2008 CGD Authorisation
Regulations, as amended on 6 April 2018, indicate that where a
specific linkage was sought with reference to the 2011 Census
data, a clear and categorical provision was made to that effect.
Such provisions are found in regard to the financial capability of a
bidder as part of the minimum eligibility criteria in Regulation
5(6)(e) and the extent of the performance bond in Regulation
5(6)(h). Absent a condition in Regulation 7 linking the 'highness'
of the number of PNG connections to be achieved within eight
years from the date of authorisation with the 2011 Census data, it
would be contrary to basic principles of interpretation to read
such a restriction into the CGD Authorisation Regulations. A
conditionality which has not been incorporated in Regulation 7
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cannot be introduced as a matter of construction. The court must
first and foremost read the Regulation in accordance with its plain
and natural meaning. There is evidently a reason why Regulation
7 did not introduce a ceiling or provide for a linkage with the
Census data of 2011. Consumers or users, as the case may be, in
a CGD network broadly comprise of four categories namely: (i)
Domestic; (ii) Commercial; (iii) Industrial; (iv) Vehicular. [Paras
38 and 39][151-A-E]
1.4 The Board is correct that in a model of cross/
subsidisation, the viability of the project has to be perceived from
a twenty- five-year perspective. Gains in one category of users
can offset the losses in another category. The CGD Authorisation
Regulations are intended to subserve the object of establishing
the infrastructure necessary for setting up an operational CGD
network. In creating the infrastructure, the successful entity is
contractually bound to set up a project for the future. The
infrastructure so created would be of service to consumers or, as
the case may be, users. Infrastructural projects cater to future
needs and can legitimately be forward looking. It is from this
perspective that except for the tariff in the first two bidding criteria
of Regulation 7 (the transportation rates for CGD and CNG), no
ceiling was provided by the Board for the criteria set out in
Regulation 7. More particularly, Regulation 7(3) provided for a
mandate to tabulate and compare the bids of all entities which
had met the minimum eligibility criteria upon their qualifying in a
competitive bidding process. The Regulations did not
contemplate the disqualification of a bidder with reference to a
norm which would limit a bid to 100 per cent of the population
figures provided by the 2011 Census data. For the Board to
stipulate an absolute norm to that effect, when it has not been
specifically incorporated in the Regulations would have rendered
the decision making process vulnerable to a challenge on the
ground that it was not consistent with Regulation 7. [Para 40][151F-H; 152-A-B]
1.5 The main plank of the submissions of the appellants is
that the map contained a reference to population and household
figures on the basis of the 2011 Census. Clause 1.1.3 of the Bid
Document places the responsibility on the bidder to obtain
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REGULATORY BOARD
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information about the present gas supply availability, the pipeline
connectivity and the existing customers in the GA. Significantly,
the scope of work in Clause 1.2 required bidding entities "to lay,
build, operate or expand the CDG networks" to meet the
requirement of natural gas "in domestic, commercial and
industrial segments including natural gas in the vehicular segment
in the said Geographical Area to be authorised." Bidders are
required under Clause 2.1.1 to examine the contents of the Bid
Document including instructions, terms and conditions and
regulations of the Board. The bidder was required to carefully
study the GA and the charge area before submitting the bid. In
other words, bidders were on notice of the actions required to be
taken to implement the Regulations. The Bid Document
necessarily had to be in conformity with the CGD Authorisation
Regulations. The map, at best was a compendium of the latest
official record of the GA. The map did not dictate how the number
of domestic PNG connections was to be calculated. There is no
such indication particularly in Clause 1 of the Bid Document where
the map is referenced. The mere attachment of a map to the Bid
Document would not result in the imposition of conditions of
eligibility or qualification. These have been provided in the
Regulations which have a statutory character. The depiction of
the GA in a map attached to the bid document does not over-ride
the specific requirements of the bidding criteria as defined in
Regulation 7. [Para 41][152-C-G]
2.1 The CGD Authorisation Regulations, as amended on 6
April 2018, reveals that the Regulations did not contain any
stipulation determining a range of 2 to 100 per cent of the number
of households under the 2011 Census as the criterion to evaluate
bids. The Regulations in fact do not link the 'highness' factor of
domestic PNG connections to the 2011 Census data. In Clause
4.4.1 of the Bid Document, the Board reserved to itself the right
to reject any unreasonably high or low bid. In Addendum-1 to the
Bid Document, the Board clarified to all prospective bidders that
the evaluation of whether a bid was unreasonably low or high
would be conducted on a case to case basis at the time of bid
evaluation. It is in the above background that the Board Note
dated 23 July 2018 must be assessed. The Board Note was
formulated after the last date for the submission of bids. The
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criterion which the Board Note proposed had not been notified
to bidders. Bidders were not on notice that this would be the
basis on which their bid would be evaluated. The Board Note
took notice of Clause 4.4.1 of the Bid Document and stipulated
that since technical bids for some GAs were about to be evaluated,
it was necessary to decide upon the reasonableness of the bidding
parameters which constituted the work programme. It was in this
background that the Board Note proposed that; "...2 per cent of
total households (as per the 2011 Census data) may be considered
as minimum". As regards the maximum, the Board note proposed
that: "beyond 100 per cent households may be treated as
unreasonably quote". The terminology adopted by the Board
Note indicates that the 2-100 per cent range was not laid down as
an absolute or inflexible basis for disqualifying bids below the
minimum or in excess of the maximum. On the contrary, the use
of the expression "may be" is one indicator that a bid which was
below 2 per cent or in excess of 100 per cent may trigger the
exercise of the power which the Board had reserved to itself in
clause 4.4.1 of the Bid Document. On its plain terms, the Board
Note cannot be construed to have laid down an absolute norm by
which bids quoting below the minimum of 2 per cent or above the
ceiling of 100 per cent of the number of households under the
2011 Census data would automatically be rejected as
unreasonable. [Paras 43 and 44][155-A-H]
2.2. If the Board Note of 23 July 2018 were to be construed
in the manner in which the appellants urged, the automatic
disqualification of bidders based on a criterion introduced by the
Board Note would raise serious doubts about its fairness and
legality. This is because the Board Note was not notified to bidders
as a basis for the evaluation of bids before the date for the
submission of the bids had closed. To disqualify a bidder on the
basis of a criterion which was not notified and of which bidders
had no knowledge would be arbitrary and would constitute an
infraction of Article 14. The Board was thus correct in determining
that the automatic disqualification of a bid on the basis of a criterion
specified in the Board Note (which was never notified to the
bidders) would not be "legally correct". Hence, it would be
reasonable to interpret the Board Note dated 23 July 2018 as
being the formulation of a guideline for the Board. As a guideline
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REGULATORY BOARD
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in the process of evaluation, the decision taken by the Board on
23 July 2018 was not to the effect that every bid below 2 per cent
or above 100 per cent would necessarily stand disqualified.
Consistently with the use of the word 'may be', the decision of
the Board meant that the power which the Board reserved to
itself in Clause 4.4.1 could be invoked if it came to the conclusion
that the bid had not been justified to be reasonable. In other
words, the breaching of the range of 2-100 per cent was a trigger
for the Board to scrutinise the bid and determine whether the
power under Clause 4.4.1 should be invoked. Hence, the course
of action which the Board followed of calling upon the bidders
with the highest composite scores in GAs 51, 61 and 62 to justify
their bids in terms of their reasonableness cannot be faulted. On
the contrary, if the Board had rejected these bids solely on the
ground that they were above the limit of 100 per cent of
households under the 2011 Census data, the decision would have
been seriously flawed for having applied a criterion which was
not a part of the Regulations, was not embodied in the Bid
Document and in any event, was not notified to bidders before
they had submitted their bids. [Para 45][156-A-F]
3. It is an incorrect reading of the agenda that note with
respect to GA 62, three out of the four members of the Board
had in the Board agenda dated 9 August 2018 recommended that
H1 bidder was not qualified and that H2 bidder i.e. the appellant
be declared as the successful bidder. The agenda note dated 9
August 2018 was a recommendation which was prepared on the
basis of the 2-100 per cent criterion contained in the Board Note
dated 23 July 2018. Obviously in the light of that decision, a
recommendation was made which was still to be deliberated upon
by the Board as a body. When the Board met on 10 August 2018,
it correctly came to the conclusion that the lower and upper
thresholds were not to be applied mechanically to disqualify
bidders. This decision was justified not only by the terms of the
Board Note dated 23 July 2018 but was intrinsic to a fair exercise
of power by the Board. The Board decided that it would call the
bidders with the highest composite score to explain the
reasonableness of their bids. This was a fair opportunity which
was granted to the bidders who had the highest composite score
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to justify the basis of their computation of projected households
over the eight-contract years. [Para 46][156-G-H; 157-B-D]
4. There was no breach of the principles of natural justice
in calling only the bidders with the highest composite score to
explain the reasonableness of their bids. None of these bidders
was being called upon to revise or improve their bids. In terms
of the CGD Authorisation Regulations, the bidder with the highest
composite score has to be declared as the successful bidder. If
despite having the highest composite score, a bidder was being
considered for rejection by the Board, it was that bidder who was
justifiably called to explain the reasonableness of the bid. The
other bidders had no locus to participate in the process. It is a
settled principle of law that the rules of natural justice are
attracted where a decision affects a right of a party against whom
the decision has to be made. After the composite score of all
bidders is calculated, the second highest bidder has no rights
vis-à-vis the highest bidder or the Board unless the method of
calculating the highest composite score itself is impugned. Calling
upon the bidders with the highest composite score to explain the
reasonableness of their bid did not alter the composite score of
the H1 bidders or any other bidder for the same GA. The question
of hearing any other bidder would have arisen only if the H1 bidder
stood disqualified, and the bidder with the next highest composite
score also breached the 2-100 per cent range, thereby warranting
scrutiny from the Board. In the present situation, when the Board
decided to call the bidders with the highest composite score in
order to allow them an opportunity to explain reasonableness of
their bid, the administrative decision taken by the Board cannot
be faulted as being in violation of the principles of natural justice.
[Para 47][157-E-H; 158-A-B]
5. In its minutes dated 29 August 2018, the Board noted
that the four GAs: 51, 61, 62 and 72 were compared with the
upper limit fixed by the agenda note dated 23 July 2018 and
projected households in 2026. The penetration of PNG domestic
connections based on the upper limit fixed by the Board with
reference to the projected number of households in 2026 varied
from 45 per cent to 59 per cent. However, the penetration of
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PNG domestic connections based on quoted PNG connections
with reference to the projected number of households in 2026
varied from 55 per cent to 99 per cent. The variation between
the two sets of numbers was between 7 per cent to 54 per cent.
The Board noted that it was in GA 72 where the highest variation
of 54 per cent took place. The bid submitted by H1 bidder for GA
72 was consequently rejected. The Board observed that the
computation for GA 72 by the H1 bidder was based on untenable
assumptions. According to these assumptions, the PNG domestic
connections quoted by the H1 bidder was 99 per cent of the
projected households by 2026 which was taken as an unreasonably
high penetration figure. However, for the remaining three GAs,
the variation was between 7 per cent to 23 per cent of the
projected households in 2026, and PNG penetration would be in
the range of 55 per cent to 79 per cent. This exercise was carried
out by the Board to enable it to consider the reasonableness of
the bids. The Company whose bid was accepted for GA 62, was
however not considered for acceptance for GA 72 since its
computation of the number of projected households and
penetration rate was deemed unreasonable. The Board has
certainly given a possible basis for coming to the conclusion that
the bids submitted by the bidders with the highest composite
score for GAs 51, 61 and 62 were reasonable and ought not to be
rejected. The decision was taken after hearing the bidders on
whether their bids were reasonable or not. The Board did not
reject all other bidders or presumptively announce these entities
as successful bidders before making a determination as to the
reasonableness of their bids. In light of this chronology of events,
at no point did the Board reverse its decision with respect to the
GAs in question. [Paras 49 and 50][158-G-H; 159-A-G]
6. The appeals before APTEL pertained to GAs 51, 61 and
62. The present proceedings were not in the nature of a public
interest litigation instituted under Article 226 of the Constitution
before a High Court challenging the entirety of the tendering
process. Both before this Court and APTEL, it was contended
that the Board had rejected bids in other GAs which were notqualified on the ground that they were either below 2 per cent or
above 100 per cent of the number of households as per the 2011
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Census figures. On clarification, the Board has stated that there
were only 9 bids with H-1 bidders quoting below 2% and above
100% limits of 2011 census. These 9 bids were accordingly
highlighted to the Board, and final decisions were taken on these
9 bids by the Board after proper application of mind, hearing the
parties and taking an objective decision. Out of 9 bids, 4 bids
having lower than 2% connections were accepted after raising
their bids through discussions with the bidders, otherwise, these
GAs would have gone dry. In GA-37, IOC's bid was rejected
because of lower than 2% quote, but this decision of the Board
has not been challenged by IOC. Out of the remaining 4 GAs
where H-1 bidders quoted more than 100% of PNG connections
of 2011 census household numbers for 3 GAs (51, 61 & 62), H-1
bidders were declared successful bidders after hearing them on
their reasonableness of quotes. For GA No. 72, the bid of the H1 bidder was rejected having found its bid unreasonable and the
GA was awarded to the next highest bidder and the H-1 bidder
had not challenged that decision. This clarification by the Board
as well as the findings which have been recorded by the Member
Technical (Petroleum and Natural Gas) commends itself for
acceptance. [Para 51][159-G-H; 160-A-G]
7. It was also argued that the Compounded Annual Growth
Rate considered by the Board for the period between 2001 and
2011 was higher than the actual annual growth rate, leading the
Board to project a higher number of households for 2026 than
may actually exist. For the purpose of projecting the number of
PNG connections within a GA, it is the number of households
and not the overall population that is relevant as each household
is unlikely to have more than one PNG connection. Moreover, as
neither the CGD Regulations nor the Bid Document required
the number of projected households to be calculated on the basis
of 2011 Census data, the decision of the Board to accept the
justification provided by the bidders cannot be attacked on the
ground that the figures provided did not strictly match the
numbers extrapolated from the 2011 Census data. [Paras 52 and
53][160-H; 161-A-D]
8. The power granted to the Board under Clause 14.2 of
the Bid Document is an enabling clause that allows the Board to
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apply its mind to a quote and determine its reasonableness. The
quotes submitted by all bidders with respect to the projected
number of households in 2026 are admittedly estimates. Similarly,
the Board's own determination of a baseline for comparing the
reasonableness of various quotes is also an estimate. Therefore,
the Board's use of the baseline figure and its consequent
acceptance of the reasonability of a quote cannot be faulted
because it did not strictly adhere to one particular methodology
of arriving at a number of projected households unless the
methodology used is arbitrary, having no correlation with the
result sought to be achieved. Therefore the finding of the Member
Technical with respect to the calculation of the number of
households is approved. [Para 53][161-G-H; 162-A-B]
9. The Chairperson's findings are based on three key
assumptions: (i) The Board Note dated 23 July 2018 was binding
on the Board and the agenda note dated 9 August 2018 was
evidence of the Board Note's binding nature; (ii) Because the
Board disqualified certain other bidders by applying the 2 - 100
per cent range, it was bound to do so against the successful bidders
in GAs 51, 61 and 52; (iii)Because the assessment of reasonability
was a "subjective assessment", the Board was obligated to hear
other bidders in the disputed GAs before declaring successful
bidders. On a bare construction of the Board Note dated 23 July
2018 and the fact that the Board Note was formulated after the
last date for the submission of bids, the Board Note did not set
out absolute criteria for disqualification of bids. The agenda note
dated 9 August merely tabled a proposal to apply the criteria of
2-100 per cent range but the Board did not subsequently adopt
this course of action, a decision within its power and indeed
necessary to preserve the integrity of the bidding process. Having
established that the Board Note was not an absolute binding
criteria, and the Tribunal was approached only with respect to
GAs 51, 61 and 62, the Board's treatment of other GAs cannot
be decisive in determining the legality of the authorisations
granted in GAs 51, 61 and 62, especially where the Board's actions
in respect of these other GAs have not been independently
challenged. Lastly, the Chairperson has construed the assessment
of the reasonability of the highest bidder's quote as a decision
affecting the rights and liabilities of all other bidders for the GAs,
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thus requiring them to be heard. The assessment of the
reasonability of the bid was a matter solely between the highest
bidder and the Board. Such an assessment would not alter the
scores of the highest bidder vis-à-vis the scores of the other
bidders. The sole question was whether the highest bidder's
quote was reasonable, and the power to determine such
reasonability resided solely with the Board by virtue of Clause
14.2 of the Bid Document. Thus, the presence and hearing of
other bidders was not necessary. [Paras 54 and 55][163-B-H;
164-A]
10. The Court disagrees with the opinion of the Chairperson
and concurs with the view which was taken by the Member
Technical (Petroleum and Natural Gas) to dismiss the appeals.
[Para 56][164-B]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3992
of 2019.
From the Judgment and Order dated 28.02.2019 of the Appellate
Tribunal for Electricity at New Delhi in Appeal No. 292 of 2018.
With
Civil Appeal Nos. 3234-3235, 3247-3248, 3289, 4527 of 2019, 106
of 2020, Transferred Case (Civil) Nos. 27 and 26 of 2019.
Kapil Sibal, P.S. Narasimha, Dr. A.M. Singhvi, Vikash Singh,
Sanjay Sen, Gopal Shankarnarayanan, Paras Kuhad, Sr. Advs., Nitin
Kala, Sumanto Basu, Pukhrambam Ramesh Kumar, Rohan Sareen, Rahul
G. Tanwani, Gaurav Mitra, Rohan Ganapathy, Karun Sharma, Ms. Sheniza
Farid, Aditi Tripathi, Gaurav Juneja, Aayush Jain, Dibyanshu, Ms. Deepa
Chawan, M/s. Khaitan & Co., Buddy Rangnathan, Mahesh Agarwal,
Ms. Aanchal Mullick, Ms. Deepika Kalia, Shubham Kulshreshtha, E. C.
Agrawala, Ms. Bhargavi Kanan, Ms. Ashwarya Modi, Ms. Nafisa
Khaudeparkar, Parth Chopra, Harpreet Singh Ajmani, Sanjeet Singh,
Anish Sethi, Ms. Divya Roy, Prashant Bezboruah, Utkarsh Sharma, Jitin
Chaturvedi, Rakesh Dewan, Shuaib Hussain, Advs. for the appearing
parties.
ADANI GAS LTD. v. PETROLEUM AND NATURAL GAS
REGULATORY BOARD
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The Judgment of the court was delivered by
DR DHANANJAYA Y CHANDRACHUD J.
1. In 2018 the Petroleum and Natural Gas Regulatory Board1
conducted theninth round of bidding for City or Local Natural Gas
Distribution Networks2. On 14 September 2018, a press release was
placed on the Board's website notifying details of the successful bidders
in various Geographical Areas3. The contest in the present batch of
appeals has arisen over the grant of authorisation for laying, building,
operating or expanding CGD networks in the following GAs:
(i) GA 51 - Puducherry District;
(ii) GA 61 - Kanchipuram District; and
(iii) GA 62 - Chennai & Tiruvallur Districts.
2. The Appellate Tribunal for Electricity4wasseized of two appeals
- Appeal No 292 of 2018, instituted by Adani Gas Limited and Appeal
No 323 of 2018, instituted by IMC Limited. These appeals were instituted
before the APTEL under Section 30(1) of the Petroleum and Natural
Gas Regulatory Board Act 20065. By their separate judgments dated 28
February 2019, the Chairperson and Member Technical (Petroleum and
Natural Gas) rendered divergent findings, following which the
Chairperson directed that the proceedings in the two appeals be placed
before the judicial member. The judicial member recusedfrom hearing
the appeals on 7 March 2019. This led to the institution of the present
appeals before this Court. Noting that no other judicial member was
available in the APTEL to conduct the hearing, this Court by its order
dated 1 April 2019 admitted the appeals and issued directions in exercise
of its powers under Article 142 of the Constitution for the transfer of the
proceedings before the APTEL to this Court in order to bring finality to
the present dispute. In assessing the merits, the Court has had the benefit
of appraising the differing views which have been expressed by the
Chairperson and by the Member Technical (Petroleum and Natural Gas).
3. The APTEL has been constituted in terms of sub-Section (1)
of Section 30 of the PNGRB Act which is extracted below:
1 "the Board"
2 "CGD Networks"
3 "GAs"
4 "APTEL" or "Tribunal"
5 "PNGRB Act"
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"30. Appellate Tribunal. (1) Subject to the provisions of this
Act, the Appellate Tribunal established under section 110 of the
Electricity Act, 2003 (36 of 2003) shall be the Appellate Tribunal
for the purposes of this Act and the said Appellate Tribunal shall
exercise the jurisdiction, powers and authority conferred on it by
or under this Act:
Provided that the Technical Member of the Appellate Tribunal for
the purposes of this Act shall be called the Technical Member
(Petroleum and Natural Gas) and shall have the qualifications
specified in sub-section (2) of section 31."
Section 33 stipulates that any person aggrieved by an order or
decision of the Board has recourse to an appeal to the Tribunal. The
jurisdiction of the APTEL while hearing an appeal is spelt out in subSection (6) of Section 33 in the following terms:
"33.(6) The Appellate Tribunal may, for the purpose of examining
the legality or propriety or correctness of any order or decision of
the Board referred to in the appeal filed under sub-section (1),
either on its own motion or otherwise, call for the records relevant
to disposing of such appeal and make such orders as it thinks fit."
An appeal lies to this Court against an order of the APTEL, other
than an interlocutory order, under Section 37 on the grounds set out in
Section 100 of the Code of Civil Procedure 1908. With this background,
we now turn to the PNGRB Act under the aegis of which the ninth
round of CGD bidding occurred.
PNGRB Act and regulations
4. The content of the PNGRB Act is summarised by its long title
as:
"An Act to provide for the establishment of Petroleum and Natural
Gas Regulatory Board to regulate the refining, processing, storage,
transportation, distribution, marketing and sale of petroleum,
petroleum products and natural gas excluding production of crude
oil and natural gas so as to protect the interests of consumers and
entities engaged in specified activities relating to petroleum,
petroleum products and natural gas and to ensure uninterrupted
and adequate supply of petroleum, petroleum products and natural
gas in all parts of the country and to promote competitive markets
and for matters connected therewith or incidental thereto."
ADANI GAS LTD. v. PETROLEUM AND NATURAL GAS
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SUPREME COURT REPORTS
[2020] 8 S.C.R.
The PNGRB Act came into force, in terms of the provisions
contained in Section 1(3) on 1 October 2007, save and except for Section
16. Section 16 which provides for the authorisation for building or
expanding CGD Networks, came into force on 15 July 2010. Section 16,
insofar as is material contains the following stipulations:
"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:
... ''
Under Section 19 of the PNGRB Act, the Board may grant an
authorisation for a city or local natural gas distribution network either on
the basis of an application or suo moto. Before it does so in a specified
GA, the Board is under a mandate to give wide publicity of its intent to
do so. Upon inviting applications from interested parties, the Board may
select an entity "in an objective and transparent manner as specified by
regulations for such activities".
5. On 19 March 2008, the Petroleum and Natural Gas Regulatory
Board (Authorizing Entities to Lay, Build, Operate or Expand City or
Local Natural Gas Distribution Networks) Regulations 20086 were
notified. The CGD Authorisation Regulations were amended on 21 June
2013, 7 April 2014 and 6 April 2018. The CGD Authorisation Regulations,
as amended in 2018, substituted new criteria for bidding which applied
to the ninth round of bidding with which the present batch of appeals is
concerned.
6. Regulation 6 of the CGD Authorisation Regulations provides
for the invitation by the Board for laying, building, operating or expanding
of a CGD network in a specific city or GA. The procedure stipulated in
Regulation 5 is to apply, except for those aspects relating to expressions
of interest. Under Regulation 5(6), the Board can scrutinise only those
bids which are received in response to an advertisement and from entities
which fulfil certain minimum eligibility criteria. Regulation 5(6)(b) spells
out the criteria, which are designed to ensure that the entity bidding is
technically capable of laying and building a CGD network in the
6 "CGD Authorisation Regulations"
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relevant city or GA. Regulation 5(6)(c) enunciates criteria which ensure
that the entity is technically capable of operating and maintaining a
CGD network. Besides the technical criteria, the Regulations also spell
out certain financial criteria which potential bidders must satisfy.
Regulation 5(6)(e) provides:
"(6) The Board shall scrutinise the bids received in response to
the advertisement in respect of only those entities which fulfil the
following minimum eligibility criteria, namely:-
...
(e) the entity has adequate financial strength to execute the
proposed project, operate and maintain the same in the authorised
area and shall meet the following financial criterion to qualify for
bidding for a single CGD network namely:-
Population in the geographical
area as per 2011 Census of
India
Minimum net worth of the bidder entity
(1)
(2)
5 million or more
Rs. 1,500 million for a population of 5 million,
plus additional Rs. 300 million for each 1
million of population or part thereof, in excess
of 5 million (refer Note-3)
2 million or more but less than 5
million
Rs.1,000 million
1 million or more but less than 2
million
Rs. 750 million
0.5 million or more but less than
1 million
Rs. 500 million
0.25 million or more but less
than 0.50 million
Rs. 250 million
0.1 million or more but less than
0.25 million
Rs. 100 million
Less than 0.1 million
Rs. 50 million
''
The minimum net-worth of the bidding entity is thus linked to the
population of the GAthe entity is bidding for, as set out in2011 Census
data.
7. Regulation 7 of the CGD Authorisation Regulations provides
the criteria for determining how the Board should evaluate rival bids for
the same GA. Regulation 7 is quoted below, in its entirety:
"7. Bidding criteria.
ADANI GAS LTD. v. PETROLEUM AND NATURAL GAS
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SUPREME COURT REPORTS
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1(a) The Board, while considering the proposal for authorisation,
shall tabulate and compare all financial bids meeting the minimum
eligibility criteria, as per the bidding criteria specified below,
namely:-
Sl.
No
Bidding Criteria
Weightage
%
Explanation
1
Lowness of transportation
rate for CGD - in rupees per
million British Thermal Unit
(Rs./MMBTU)
10
Bidder is required to quote
transportation rate for CGD
only for the first contract year
which shall not be less than
Rs.30/MMBTU. Rates for the
subsequent
contract
years
shall be derived considering
the quoted rate and escalation
as per Note.
2
Lowness of transportation
rate for CNG - in rupees per
kilo gram (Rs./kg)
10
Bidder is required to quote
transportation rate for CNG
only for the first contract year
which shall not be less than
Rs.2/kg.
Rates
for
the
subsequent
contract
years
shall be derived considering
the quoted rate and escalation
as per Note.
3
Highness of number of CNG
stations

(online
and
daughter booster stations) to
be installed within 8 contract
years from the date of
authorisation
20
-
4
Highness of
number
of
domestic piped natural gas
connections to be achieved
within 8 contract years from
the date of authorisation
50
-
5
Highness of inch-kilometre
of steel pipeline (including
sub-transmission
steel
pipelines) to be laid within 8
contract years from the date
of authorisation
10
-
Note - Annual escalation shall be considered from the second contract year and
onwards based on the "Wholesale Price Index (WPI) Data (2011-12 =100)" for "All
Group/ Commodity", as normally available on the website of the Office of the
Economic Adviser, Government of India, Ministry of Commerce and Industry,
Department
of
Industrial
Policy
and
Promotion
(DIPP)
on
the
link
"http://eaindustry.nic.in/home.asp."
Provided that in the case of the geographical areas of (i) Bilaspur,
Hamirpur and Una Districts; (ii) Panchkula (Except area already
authorised), Shimla, Solan and Sirmaur Districts and (iii) Barmer, Jaisalmer
and Jodhpur Districts, it is not mandatory to supply natural gas through
steel-pipes. However natural gas has to reach in all charge areas. The
bidding parameters and their respective weightage will, accordingly, be
as under:-
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Sl.
No
Bidding Criteria
Weightage
%
Explanation
1
Lowness of transportation
rate for CGD - in rupees
per
million
British
Thermal
Unit
(Rs./MMBTU)
10
Bidder is required to quote
transportation rate for CGD
only for the first contract year
which shall not be less than
Rs.30/MMBTU.