# GLOBAL ENERGY LTD. & ANR v. CENTRAL ELECTRICITY REGULATORY COMMISSION

- **Citation:** [2009] 9 S.C.R. 22
- **Court:** Supreme Court of India
- **Decided:** 2009-05-11
- **Case number:** Civil Appeal Nos.3457-58 of 2009
- **Bench:** S.B. Sinha, Cyriac Joseph
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/global-energy-ltd-anr-v-central-electricity-regulatory-commission-26161
- **Pages:** 36

## Headnote

Electricity Act, 2003 - ss. 52 and 178 - Central Electricity
Regulatory Commission (Procedure, Terms and Conditions
C for Grant of Trading License and other related matters)
Regulations, 2004 -
Central Electricity Regulatory
Commission (Procedure, Terms and Conditions for Grant of
Trading License and other related matters) (Amendment)
Regulations, 2006 - Regulation 6A - Clauses (b) and (f) -
o Validity of - Challenge to - H.eld: Clauses (b) and (f) of
Regulation 6A are ultra vires the Constitution as also the Act
- The provisions inherently perpetuated injustice in award of
licenses for inter-state trade of electrical energy and brought
uncertainty and arbitrariness - Delegated /Subordinate
E legislation - Constitution of India, 1950-Articles 19(1)(g) and
245.
/
Judicial Review - Parameters for - Held: Availability of
judicial review, by itself cannot be a ground to declare a
subordinate legislation valid which otherwise it is not -
F Constitution of India, 1950 -
Articles 32 and 226 -
Administrative Law.
Doctrines - Doctrine of Legitimate Expectation -
Applicability of - In context of grant of inter-state trading
G license.
H
In exercise of its jurisdiction conferred by s.178 of the
Electricity Act, 2003, the Central Electricity Regulatory
Commission (CERC) framed
Central Electricity
22
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
23
REGULATORY COMMISSION
Regulatory Commission (Procedure, Terms and
A
Conditions for Grant of Trading License and other related
matters) Regulations, 2004. In terms of the Act and the
Regulations, license was required to be taken by a
person desirous of dealing in inter-state trade of electrical
energy.
B
. Appellant no.1-company applied for inter-state
trading license and during pendency of consideration of
such application, applied for interim issuance of licence,
which was granted. Meanwhile, in 2006, the Regulations C
were amended vide the Central Electricity Regulatory
Commission (Procedure, Terms and Conditions for Grant
of Trading License and other related matters)
(Amendment) Regulations, 2006 whereby Regulation 6A
was brought into force, which
provided for
disqualifications for grant of licence for inter-state
D
trading. The CERC applied Regulation 6A with
retrospective effect and rejected the application of
appellant no.1 for inter-state trading license. An appeal
preferred thereagainst is pending before the Appellate
Tribunal for Electricity. Appellants filed Writ Petitions
E
questioning the validity of the said Regulation which
were dismissed by the High Court.
In appeals to this Court, the constitutional validity of
clauses (b) and (f) of Regulation 6A was in question.
F
Allowing the appeals, the Court
HELD: 1. Section 178 of the Electricity Act, 2003
provides for regulation making power. Sub-Section (1)
thereof empowers the Commission to make regulations
G
consistent with the Act and the rules generally to carry
out the provisions of the Act. The rule making power "for
carrying out the purpose of the Act" is a general
delegation. Such a general delegation may not be held
to be laying down any guidelines. Thus, by reason of H
24
SUPREME COURT REPORTS
[2009] 9 S.C.R.
A such a provision alone, the regulation making power
cannot be exercised so as to bring into existence
substantive rights or obligations or disabilities which are
not contemplated in terms of the provisions of the said
Act. The power of the regulation making authority, thus,
B must be interpreted keeping in view the provisions of the
Act. [Paras 13, 18 and 19] [38-C-D; 41-D]
Kunj Behari Lal Butail & Ors. vs. State of H.P. & Ors.
(2000) 3 SCC 40; State of Kera/a & Ors. vs. Unni & Anr.
(2007) 2 SCC 365 and A .P. Electricity Regulatory
C Commission vs. Mis R. V.K. Energy Pvt. Ltd. & Anr. (2008) 9
SCALE 529, relied on.
D
The Rampur Distillery Co. Ltd. v. The Company Law
Board & Anr. (1969) 2 SCC 774, referred to.
2.1. Section 52 of the Electricity Act, 2003 lays ttown
the provisions with respect to eligibility of electricity
tra

## Text

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'A
B
[2009] 9 S.C.R. 22
GLOBAL ENERGY LTD. & ANR.
v.
CENTRAL ELECTRICITY REGULATORY COMMISSION
(Civil Appeal Nos.3457-58 of 2009)
'
MAY 11, 2009
[S.B. SINHA AND CYRIAC JOSEPH, JJ.]
Electricity Act, 2003 - ss. 52 and 178 - Central Electricity
Regulatory Commission (Procedure, Terms and Conditions
C for Grant of Trading License and other related matters)
Regulations, 2004 -
Central Electricity Regulatory
Commission (Procedure, Terms and Conditions for Grant of
Trading License and other related matters) (Amendment)
Regulations, 2006 - Regulation 6A - Clauses (b) and (f) -
o Validity of - Challenge to - H.eld: Clauses (b) and (f) of
Regulation 6A are ultra vires the Constitution as also the Act
- The provisions inherently perpetuated injustice in award of
licenses for inter-state trade of electrical energy and brought
uncertainty and arbitrariness - Delegated /Subordinate
E legislation - Constitution of India, 1950-Articles 19(1)(g) and
245.
/
Judicial Review - Parameters for - Held: Availability of
judicial review, by itself cannot be a ground to declare a
subordinate legislation valid which otherwise it is not -
F Constitution of India, 1950 -
Articles 32 and 226 -
Administrative Law.
Doctrines - Doctrine of Legitimate Expectation -
Applicability of - In context of grant of inter-state trading
G license.
H
In exercise of its jurisdiction conferred by s.178 of the
Electricity Act, 2003, the Central Electricity Regulatory
Commission (CERC) framed
Central Electricity
22
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
23
REGULATORY COMMISSION
Regulatory Commission (Procedure, Terms and
A
Conditions for Grant of Trading License and other related
matters) Regulations, 2004. In terms of the Act and the
Regulations, license was required to be taken by a
person desirous of dealing in inter-state trade of electrical
energy.
B
. Appellant no.1-company applied for inter-state
trading license and during pendency of consideration of
such application, applied for interim issuance of licence,
which was granted. Meanwhile, in 2006, the Regulations C
were amended vide the Central Electricity Regulatory
Commission (Procedure, Terms and Conditions for Grant
of Trading License and other related matters)
(Amendment) Regulations, 2006 whereby Regulation 6A
was brought into force, which
provided for
disqualifications for grant of licence for inter-state
D
trading. The CERC applied Regulation 6A with
retrospective effect and rejected the application of
appellant no.1 for inter-state trading license. An appeal
preferred thereagainst is pending before the Appellate
Tribunal for Electricity. Appellants filed Writ Petitions
E
questioning the validity of the said Regulation which
were dismissed by the High Court.
In appeals to this Court, the constitutional validity of
clauses (b) and (f) of Regulation 6A was in question.
F
Allowing the appeals, the Court
HELD: 1. Section 178 of the Electricity Act, 2003
provides for regulation making power. Sub-Section (1)
thereof empowers the Commission to make regulations
G
consistent with the Act and the rules generally to carry
out the provisions of the Act. The rule making power "for
carrying out the purpose of the Act" is a general
delegation. Such a general delegation may not be held
to be laying down any guidelines. Thus, by reason of H
24
SUPREME COURT REPORTS
[2009] 9 S.C.R.
A such a provision alone, the regulation making power
cannot be exercised so as to bring into existence
substantive rights or obligations or disabilities which are
not contemplated in terms of the provisions of the said
Act. The power of the regulation making authority, thus,
B must be interpreted keeping in view the provisions of the
Act. [Paras 13, 18 and 19] [38-C-D; 41-D]
Kunj Behari Lal Butail & Ors. vs. State of H.P. & Ors.
(2000) 3 SCC 40; State of Kera/a & Ors. vs. Unni & Anr.
(2007) 2 SCC 365 and A .P. Electricity Regulatory
C Commission vs. Mis R. V.K. Energy Pvt. Ltd. & Anr. (2008) 9
SCALE 529, relied on.
D
The Rampur Distillery Co. Ltd. v. The Company Law
Board & Anr. (1969) 2 SCC 774, referred to.
2.1. Section 52 of the Electricity Act, 2003 lays ttown
the provisions with respect to eligibility of electricity
trader for grant of licence. The said section provides that
the Commission may specify the technical requirement,
E capital adequacy requirement and creditworthiness for
being an electricity trader. [Para 13] [37-F]
2.2. Regulation GA is imperative in character. It is
.,...
couched in negative language and provides for
disqualifications. Regulation GA is a disqualifying statute.
F The statute, however, does not provide for any machinery
to collect independent material for being placed before
the proper authority as regards evaluation of credit
effectiveness and creditworthiness of the applicant.
[Paras 17 and 20) [42-E-F] .
G
H
2.3. A subordinate legislation should be read in the
).._
context of the Act. Thus read, Regulation GA should be
construed in terms of the requirements contained in
Section 52 of the Act. [Para 17] [40-C-D]
i
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
25
REGULATORY COMMISSION
3.1. Article 19(1 )(g) of the Constitution confers A
fundamental right on every citizen to carry out business,
trade, profession or occupation. Clause (6) of Article 19,
however, provides for imposition of reasonable
restrictions by a statute. In the event a statute provides
for licensing, in a case of this nature, the same must thus B
be found to satisfy the test of reasonableness. The
standard for determining reasonableness of a statute so
as to satisfy the constitutional scheme as adumbrated in
Article 14 of the Constitution must receive a higher level
of scrutiny than an ordinary statute. Such a higher level c
of scrutiny is necessary not for the purpose of
determining the Constitutionality of the statute alone visa-vis the field of legislative power as envisaged under
Article 245 of the Constitution but also having regard to
the object and purpose, the statute seeks to achieve. 0
[Para 21] [43-D-G]
3.2. Participation of the private sector inter a/ia in
trading was encouraged by the provisions of the Act. The
Court's concern, therefore, would be not only to see that
the Statute is intra vires the Constitutional scheme E
including the legislative field, but also as to whether it
passes the test of reasonableness having regard to the
object and purpose of the Act. For achieving the
aforementioned purpose not only the premise, relevancy
of the constitutional scheme in relation thereto is required F
to be taken into ·consideration but therefor the doctrine
of purposive interpretation should also be resorted to.
[Para 21] (43-H; 44-A-C]
3.3. When a disqualification is provided, it is to G
operate at the threshold in respect of the players in the
field of trading in electricity. When, however, a regulatory
statute is sought to be enforced, the power of the
authority to impose restrictions and conditions must be
construed having regard to the purpose and object it H
26
SUPREME COURT REPORTS
[2009] 9 S.C.R.
A
seeks to achieve. Dealing in any manner with generation,
distribution and supply and trading in electrical energy is
vital for the economy of the country. The private players
who are permitted or who are granted licence in this
behalf may have to satisfy the conditions imposed. Such
B conditions must be reasonable. The doctrine of
proportionality may have to be invoked. The Superior
Court would ensure that the subordinate legislation has
been framed within the four corners of the Act artd is
otherwise valid. [Para 21] [44-E-G]
C,
Udai Singh Dagar v. Union of India (2007) 10 SCC 306;
New India Assurance Company Ltd. v. Nusli Wadia and
Another (2008) 3 SCC 279 and UCO Bank & Anr. vs. Rajinder
Lal Capoor (2008) 5 SCC 257, relied on.
D
Clariant International Ltd. & Anr. vs. Securities &
E
Exchange Board of India (2004) 8 SCC 524; Secretary,
Ministry of Chemicals & Fertilizers, Govt. of India vs. Gip/a Ltd.
& Ors. (2003) 7 SCC 1 and State of T.N. & Anr. vs. P.
Krishnamurthy & Ors. (2006) 4 SCC 517, referred to.
4.1. A legislative policy providing for qualification or
disqualification of a person for obtaining a trading licence
should not be vague or uncertain. Parameters must be
laid down therefor for determining the financial integrity,
reputation, character, efficiency and honesty of the
F
applicant. An explanation appended to clause (f} of
Regulation 6A points out various aspeets that may be
considered while determining the said criteria. However,
what should be the criteria in regard to financial integrity,
character, reputation, etc. have not been defined. How
G and in what manner the said criteria are required to be
ascertained have not been_ laid down, the criteria are
subjective ones. [Para 26] [46-G-H; 47-A-C]
4.2. A disqualifying statute must be definite and not
H
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
27
REGULATORY COMMISSION
i,
uncertain; it should not be ambiguous or vague. A
Requisite guidelines in respect thereof should be laid
....
down under the statute itself. [Para 27] [47-C-D]
4.3. Essential legislative functions cannot be
delegated. The delegatee m"ust be furnished with 8
adequate guidelines so that arbitrariness is eschewed.
On what basis and in particular, keeping in view the
possible loss of reputation and consequently the
business of an applicant for grant of licence would suffer, ,
it was obligatory on the part of the Parliament to lay down
requisite guidelines therefor. The factors enumerated in C
the 'Explanation' appended to clause (f) of Regulation GA ,
are unlimited. For determining the question as to whether ,
the applicant is a fit and proper person, a large number
ottactors may be taken into consideration. It for all intent ,
and purport would be more than the technical D
requirement, capital adeC"rJacy requirement and credit
worthiness for being an 'electricity trader' as envisaged
under Section 52 of the Act. [Para 27] [47-D-G]
State of Kera/a & Ors. vs. Unni & Anr. (2007) 2 SCC 365 . E
and State of Rajasthan & Ors. vs. Basant Natasha (2005) 12
sec 77' referred to.
5. The power of the Regulatory Commission to
impose qualification/restrictions should be read in line
with the larger object of the Act. The Consumer tariff is F
to be laid down by the Commission. How licensees would
operate their business lo the extent permissible under law
should be subject to Regulation, which ordinarily should
not be resorted to discourage private participation in the
power sector. A trader of electricity does not deal with G
consumers; he is merely an intermediary between a
generating company and a distribution licensee. The tariff
that a distribution licensee will charge from its consumers
is regulated. Even the margin that a trader can make is
regulated. It is, therefore, not correct to contend that H
28
SUPREME COURT REPORTS
[2009] 9 S.C.R.
A
Regulation 6A is in consumer interest as it has not been
shown how it will protect the consumer interest. [Para 30]
..
B
[49-E-G]
6.1. Regulation 6 deals with capital adequacy
requirement and creditworthiness. Regulation 6A (b),
therefore, cannot have anything to do with capital
adequacy requirement and creditworthiness. The finding
of the High Court to that effect cannot be upheld, as
Regulation 6A is a stand alone provision providing for a
C
set of disqualifications. Although by the said provisions,
it cannot be said that the legislature has exhausted itself
but the same should also be taken into consideration for
the purpose of determining the effect of the Regulations.
As Section 52 of the Act does not empower tfte
Regulation making authority to provide for qualification
D or disqualification, the delegated l~gislation or a
subordinate legislation must conform exactly to the
power granted. [Para 31] [50-B-D]
6.2. Clause (b) of Regulation 6A provides for a
E
disqualification only on the ground of involvement _of the
applicant or any of its promoters, partners, directors,
associates etc. in any legal proceeding. The same may
or may not by itself be sufficient to disqualify a person,
but the Commission must be satisfied that grant of
F
licence in the circumstance may adversely affect the
interest of the electricity sector or of the consumers.
Such legal proceedings are, apart from the judgment of
convictions of an offence involving moral turpitude or
any economic offence on the part of the applicant or his
G
partner, or promoter, or Director, or associates at any time
in the past, as it may have something to do with the
pending legal proceedings in which the Commission is
· a party. The correctness of the Commission's
determination of a dispute between the applicant and the
Commission may be a subject matter of a legal
H
...
I-
..._
.........
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
29
REGULATORY COMMISSION
proceeding. Only because a legal proceeding had been A
pending and the Commission is of the opinion that the
same adversely affects the interest of the electricity
sector or of the consumers cannot by itself be an
objective criteria as by reason thereof the statutory
authority would necessarily be required to enter into the ' s
merit of the proceeding. The members of the Commission
need not necessarily be trained in law; they may not be
having legal background and, thus, a power conferred on
it so as to directly or indirectly enter into the merit of a
legal proceeding in which it may itself be involved would , c
not be a fair and reasonable criteria. [Para 34] [52-D-H;
53-A-B]
6.3. Clause (f) to Regulation GA mandates recording
of reasons in writing. In the event, thus, if wrong reasons
are recorded a judicial review would be maintainable. But D
availability of judicial review itself, although is a relevant
factor, by itself cannot be a ground to declare a
subordinate legislation valid which otherwise it is not.
Judicial review from an administrative decision lies on a
very narrow compass. The superior courts in exercise of E
their jurisdiction under Article 226 or 32 of the
Constitution ordinarily would not enter into the merit of
the matter. Their primary concern are with the decision
making process. [Para 34] [53-8-E]
Supreme Court Employees' Welfare Association vs.
Union of India & Anr. (1989) 4 SCC 187 an·d Kera/a
Samasthana Chethu Thozhila/i Union vs. State of Kera/a &
Ors. (2006) 4 SCC 327, referred to.
F
7. It was urged that the appellant had no vested right G
in regard to grant of licence. It may be so. But then it has
a right to be considered therefor. Consideration for such
grant must be based on a legal and valid statute. The case
of the applicant cannot be rejected at the threshold
relying on or on the basis of statutory provisions which H ·
30
SUPREME COURT REPORTS
[2009] 9 S.C.R.
A
are ultra vires. The submission that the appellant had no
locus standi to question the validity of the Regulation is -
not correct. [Para 35] [53-E-G]
B
Tashi Delek Gaming Solutions Ltd. vs. State of Kamataka
& ors. (2006) 1 SCC 442; Calcutta Gas Company
(Proprietary) Ltd. vs. State of West Bengal & ors. AIR 1962
SC 1044; State of Tamil Nadu vs. Mis Hind Stone & Ors.
(1981) 2 SCC 205; S.B. International Limited & Ors. vs.
Assistant Director General of Foreign Trade & Ors. (1996) 2
c sec 439, referred to.
8. In the present case, the appellant applied for grant
of licence and was found to be qualified therefor having
satisfied the statutory requirements. It was granted an
interim licence. It has started trading in electricity. It,
D
therefore, had a legitimate expectation that in considering
the application for grant of licence, the same criteria as
laid down in the statute shall be applied. Though an
applicant by filing a mere application cannot be said to
have derived a vested right but he has a right to be
E
considered. Such consideration must be made not only
on the basis of a valid statute but also rationale and
objective criteria should be applied therefor. [Paras 39 and
42] [55-A-B; 55-H; 56-A-B]
F
P. T.R. Exports (Madras) Private Limited & On. vs. Union
of India & Ors. (1996) 5 SCC 268 and Commissioner of
Municipal Corporation, Shim/a vs. Prem Lata Sood & Ors.
(2007) 11 sec 40, distinguished.
9.1. If the statute provides for point-less discretion to
G
agency, it is in essence demolishing the accountability
..
..
strand within the administrative process as the agency
"-
..,.
is not under obligation from an objective norm, which can
enforce accountability in decision-making process. All
law making, be it in the context of delegated legislation
H or primary legislation, have to conform to the
-
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
31
REGULATORY COMMISSION
1
fundamental tenets of transparency and openness on A
...
one hand and responsiveness and accountability on the
other. These are fundamental tenets flowing from Due
Process 1equirement under Article 21, Equal Protection
clause embodied in Article 14 and Fundamenta,I
Freedoms clause ingrained under Article 19. The B
approach to writing of laws, rules, notifications etc. has
~
to showcase these concerns. [Para 43] [56-C-F]
9.2. Law has to provide a basic level of "legal
security" by assuring that law is knowable, dependable c
and shielded from excessive manipulation. In the context.
of rule making, delegated legislation should establish the.
structural conditions within which those processes can ,
function effectively. However, when the provision
'r
inherently perpetuates injustice in the award of licenses
D
and brings uncertainty and arbitrariness it would be best
,
to stop the government in the tracks. [Para 43] [56-G:..H;
57-A; 57-D]
9.3. Clauses (b) and (f) of Regulation GA are declared
ultra vires the Constitution as also the Act. [Para 44] [57E
F)
'1'
Case Law Reference:
....
(2000) 3 sec 40
relied on
Para 18
(2001) 2 sec 365
relied on
Para 18
F
(2008) 9 SCALE 529
relied on
Para 18
(1969) 2 sec 114
referred to
Para 20
(2001) 1 o sec 306
relied on
Para 21
G
i-•
--\
(2008) 3 sec 219
relied on
Para 21
(2008) s sec 2s1
relied on
Para 21
(2004) 8 sec 524
referred to
Para 23
H
32
SUPREME COURT REPORTS
[2009] 9 S.C.R.
!d
A
(2003) 1 sec 1
referred to
Para 23
1"
(2006) 4 sec 517
referred to
Para 25
'
.,..
(2001) 2 sec 365
referred to
Para 28
;-
B
(2005) 12 sec 11
referred to
Para 28
(1989) 4 sec 187
referred to
Para 31
(2006) 4 sec 327
referred to
Para 33
y;.
/L
'
(2006) 1 sec 442
referred to
Para 36
c
AIR 1962 SC 1044
referred to
Para 36
(1981) 2 sec 20s
referred to
Para 37
'
1996) 2 sec 439
referred to
Para .38
.,......
D
(1996) s sec 268
distinguished
Para 39
-t
(2007) 11 sec 40
distinguished
Para 41
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
I
3457-3458 of 2009.
'
~
E
From the Judgment & Order dated 15.12.2006 of the High
Court of Delhi at New Delhi in Writ Petition No. 13822-23 of
2006.
..,.
F
Dipankar Gupta, Jaideep Gupta, Sanjay Sen, Rana S.
.....
Biswas, Rajiv Yadav and Sarla Chandra for the Appellants
Parag P. Tripathi, ASG, Nikhil Nayyar and T.V.S.
Raghavendra Sreyas for the Respondents.
G
The Judgment of the Court was delivered by
S.B. SINHA, J. 1. Leave granted.
1- ..
INTRODUCTION
H
2. Constitutional validity of clauses (b) and (f) of Regulation
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
33
REGULATORY COMMISSION [S.B. SINHA, J.]
6A of the Central Electricity Regulatory Commission
A
(Procedure, Terms and Conditions for Grant of Trading License
and other related matters) (Amendment), Regulation 2006
(hereinafter referred to and called for the sake of brevity as
"Amended Regulation") is the question involved herein.
BACKGROUND FACTS
B
j;
3. It arises in the following factual matrix.
The Parliament enacted Electricity Act, 2003 (hereinafter
referred to as, "the said Act"). In exercise of its jurisdiction c
conferred by Section 178 of the said Act, the Central Electricity
Regulatory Commission (for short, "CERC") made Central
Electricity Regulatory Commission (Procedure, Terms and
Conditions for Grant of Trading License and other related
matters), Regulation 2004 (for short, "the Regulation")
D.
Indisputably, in terms of the provisions of the said Act as
also the Regulations, inter alia, license is required to be taken
by a person who is desirous of dealing in inter-state trading,
which in terms of Regulation 2(g) means "transfer of electricity
E
from the territory of one State to the territory of another State
by an electricity dealer".
~
4. Appellant No. 1 is a Public Limited Company
incorporated and registered under the Indian Companies Act.
5. Pursuant to or in furtherance of the said Act and the
F
Regulations, the appellant No. 1 herein filed an application for
grant of inter-State Trading License under Category 'A' before
CERC on 23.3.2004. CERC published a notice as regards the
said application filed by the appellant No. 1 for grant of interG
state Trading License in all editions of 'Indian Express',
-~
Financial Express' and a vernacular daily 'Jansatta'. Appellant
No. 1 also filed an interlocutory application seeking permission
to trade in the electricity pending final disposal of its petition
for grant of inter-state trading license as it had been engaged
H
34
SUPREME COURT REPORTS
[2009] 9 S.C.R.
A· in inter-state trading of electricity prior to the commencement
,.
B
c
D
of the said Act. By reason of af1 order dated 31.3.2004, the said
application was allowed. Objections filed to the appellant No.1 's
application for grant of license pursuant to the aforementioned
notice were also rejected by an order dated 30.6.2004.
6. On or about 6.9.2004, CERC directed as under:
"(i) The petitioner No. 1 was qualified for the grant of
Category 'A' license for inter-state trading in electricity for
trading up to 100 million units in a year.
(ii) The CERC proposed to issue the license for inter-state
trading to the petitioner No. 1 as category 'A' trader.
(iii) The petitioner No. 1 was directed to publish a notice
under Section 15(5) of the Act. Section 15(5) of the Act
reads as follows:
'15.
Procedure
for
grant
of
licence .
. E
(5) Before granting a licence under section 14, the
F
Appropriate Commission shall-
(a)
publish a notice in two such daily newspapers, as
that Commission may consider necessary, stating
the name and address of the person to whom it
proposes to issue the licence;
(b)
consider all suggestions or objections and the
recommendations, if any, of the Central
Transmission Utility or the State Transmission Utility,
G
as the case may be."
7. After the publication of notices, objections were also
~-
received as regards appellant No. 1 's trading in inter-state
supply of electrical energy pursuant to the aforementioned
H interim order. The matter was taken to High Court and interim
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
35
REGULATORY COMMISSION [S.B. SINHA, J.]
,
license granted to appellant No. 1 was extended by the High
A
Court from time to time.
Draft Regulations were published to which appellant No.
1 filed objection. The Amended Regulations were notified on
3.4.2006. By an order dated 20.8.2006, CERC rejected the
B
application filed by the appellant No. 1 for grant of inter-state
;;
trading license opining that Regulation 6A brought in through
the amended Regulation will have a retrospective effect. An
appeal preferred thereagainst is pending before the Appellate
·Tribunal for Electricity.
c
•'
. 8. Appellants filed Writ Petitions before the High Court
questioning the validity of the said Regulation. By reason of the
impugned judgment the said Writ Petitions have been
dismissed.
y
D
CONTENTIONS
9. Mr. Dipankar Gupta, the learned Senior Counsei
appearing on behalf of the appellants, inter alia, would submit:-
i.
Having regard to the objects and reasons for which
E
the said Act was enacted, the High Court must be
'
held to have committed a serious error insofar as
-4
it held that the Amended Regulations would apply
to the appellant No. 1 's application.
ii.
It was also contended that sufficient guidelines
F
having been laid down as regards disqualification
of persons applying for grant of licence, the
impugned Regulations must be held to be ultra vires
Article 14 of the Constitution of India.
G
iii.
In any event, keeping in view the facts and
circumstances of this case, the provisions should
be read down.
10. Mr. Parag Tripathi, learned Additional Solicitor General
H
36
SUPREME COURT REPORTS
[2009] 9 S.C.R.
A appearing on behalf of the respondent, would, however,
'
support the impugned judgment.
THE ACT
11. The said Act was enacted to consolidate the laws
B relating to generation, transmission, distribution, trading and
use of electricity and generally for taking measures conducive
to development of electricity industry, promoting competition
therein, protecting interest of consumers and supply of
electricity to all areas, rationalization of electricity tariff, ensuring
C
transparent policies regarding subsidies, promotion of efficient
and environmentally benign policies, constitution of Central
Electricity Authority, Regulatory Commissions and
establishment of Appellate Tribunal and for matters connected
therewith or incidental thereto.
D
12. Indisputably, one of the objects and reasons for
enacting the said Act was to encourage private sector's
participation in generation, transmission and distribution of
electrical energy. Trading is considered to be a distinct activity.
E
Preamble of the Act also refers to distribution and trading as
one of the objects sought to be achieved by reason of the said
Act.
13. Section 2(71) defines "trading" to mean purchase of
.,..
electricity for resale thereof and the expression "trade" is
F
construed accordingly. Part IV of the Act providing for licensing,
inter alia, mandates that no person shall undert~~e· tra~ing in
electricity unless he is authorized to do so byaJicence issued ..
under Section 14, or is exempt underSe~Ho.rl.13: .
~
·~.J,
~'
.
'
'
Section 14 of the Act, inter alia, .provides for grant of
G licence to any pe.rson inter alia trading in electricity as an
electricity tradet.· · '" ' .. ' ·: · '· ·· · ·
tH
. . . .. ~ ·,
Section 15 provides for the detailed procedures for grant
of licence as also the exercises required to be undertaken by
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
37
REGULATORY COMMISSION [S.B. SINHA, J.]
the appropriate commission therefor. Section 16 of the Act A
empowers the Appropriate Commission to lay down conditions
for grant of licence, which is as under:
"16. Conditions of licence. -
The Appropriate
Commission may specify any general or specific B
conditions which shall apply either to a licensee or class
JI
of licensees and such conditions shall be deemed to be
conditions of such licence:
..
Provided that the Appropriate Commission shall,
within one year from the appointed date, specify any C
general or specific conditions of licence applicable to the
licensees referred to in the first, second, third, fourth and
fifth provisos to section.14 after the expiry of one year from
the commencement of this Act."
Section 17 imposes certain restrictions on activities of
licensing. Section 18 empowers the appropriate commission
to amend the terms of an existing licence in public interest. This
power can be exercised by the appropriate commission either
D
on an application made in this connection by the licensee or E
suo motu. Section 19 lists the grounds for revocation of a
licence.
Section 52 lays down the provisions with respect to
eligibility of electricity trader for grant of licence. The said
section provides that the Commission may specify the technical
F
requirement,
capital
adequacy
requirement
and
creditworthiness for being an electricity trader.
Section 66 mandates that the Appropriate Commission
shall endeavour to promote the development of a market G
(including trading) in power in such manner as may be specified
and shall be guided by the National Electricity Policy referred
to in Section 3 of the Act.
Section 76 provides for constitution of a Central H
38
SUPREME COURT REPORTS
[2009] 9 S.C.R.
A
Commission. Functions of the Central Commission are laid
down in Section 79 thereof; clauses (e) and U) of Sub-Section
(1) whereof reads as under:
B
"(e) to issue licenses to persons to function as transmission
licensee and electricity trader with respect to their interstate operations;
)()()(
)()()(
)()()(
U) to fix the trading margin in the inter-State trading of
c
electricity, if considered, necessary.
Section 178 of the ·Act provides for a regulations making
power. Sub-Section (1) thereof empowers the Commission to
make regulations consistent with the Act and the rules generally
to carry out the provisions of the Act. Sub-Section (2) of Section
D
178, inter alia, prescribes that such regulations may provide,
inter alia, for (a) period to be specified under the first proviso
to Section 14; (b) the form and the manner of the application
under sub-section (1) of Section 15; and (c) the manner and .
E
F
particulars of notice under sub-section (2) of section 15.
THE REGULATION
14. Sub-Regulation (4) of Regulation 2 applies to trading
carried out bilaterally between the generating company,
including captive generating plant, distribution licensee and the
electricity. trader on the one hand and the electricity trader and
the distribution licensee on the other. Supply to consumers is,
thus, not a general function.
15. Chapter II of the Regulations lay down the procedure
G
for grant of licence for inter-state trading.
16. Chapter Ill lays down the requirements of being an
electricity trader. The title of Regulation 6 is Capital adequacy,
Requirement and Creditworthiness, in terms whereof the net
H
worth of the electricity trader at the time of application is
-t-•
"'
~
-f
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
39
REGULATORY COMMISSION [S.B. SINHA, J.]
required to be not less than the amounts specified thereunder.
A
Chapter IV provides for the terms and conditions of the licence.
Regulation 7 lays down the obligations of the licensee.
AMENDMENT IN REGULATION
"5. Insertion of Regulation 6A: After regulation 6 of the
8
principal regulations, the following shall be inserted,
namely:-
"6A. Disqualifications: The applicant shall not be
qualified for grant of licence for inter-state trading, c
if:
(a)
(b)
The applicant, or any of his partners, or promoters,
or Directors or Associates is involved in any legal
D
proceedings, and in the opinion of the Commission
grant of licence in the circumstances, may adversely
affect the interest of the electricity sector or of the
consumers; or
E
(c)
..........
(d)
..........
(e)
..........
(f)
The applicant is not considered a fit and proper
F
person for the grant of licence for any other reason
to be recorded in writing;
Explanation: For the purpose of determining as to whether
G
the applicant is a 'fit and proper person', the Commission
may take account of any consideration, as it deems fit,
including but not limited to the following, namely:-
(i)
financial integrity of the applicant.
H
40
SUPREME COURT REPORTS
[2009] 9 S.C.R.
A
(ii)
His competence;
(iii)· His reputation and character; and
(iv)
His efficiency and honesty."
B INTERPRETATION
c
D
E
17. Regulation 6A has been inserted. The said provision
is imperative in character. It is couched in negative language.
It provides for disqualifications.
Indisputably, a subordinate legislation should be read in
the context of the Act. Thus read, Regulation 6A should be
construed in terms of the requirements contained in Section 52
of the Act, namely, technical requirement, capital adequacy,
requirement and creditworthiness for being an electricity trader.
It affects the creditworthiness of the applicant. It also
affects the credit effectiveness, namely, (1) financial integrity of
the applicant; (2) his competence; (3) his reputation and
character; and (4) his efficiency and honesty.
It affects a pending proceeding. Because of the said
amendment, an interim licence granted in favour of the
appellant stood revoked.
This, however, would not mean that an amendment made
F in a regulation wou.id under no circumstance, affect pending
proceeding.
18. It is now a well settled principle of law that the rule
making power "for carrying out the purpose of the Act" is a
G general delegation. Such a general delegation may not be held
to be laying down any guidelines. Thus, by reason of such a
provision alone, the regulation making power cannot be
exercised so as to bring into existence substantive rights or
obligations or disabilities which are not contemplated in terms
H of the provisions of the said Act.
•
r
.
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
41
.
REGULATORY COMMISSION [S.B. SINHA, J.]
1
We may, in this connection refer to a decision of this Court A
..
in Kunj Behari. Lal Butail & Ors. vs. State of H.P. & Ors .
((2000) 3 SCC 40], wherein a Three Judge Bench of this Court
held as under :
"14. We are also of the opinion that a delegated power to
B
legislate by making rules "for carrying out the purposes of
the Act" is a general delegation without laying down any
guidelines; it cannot be so exercised as to bring into
existence substantive rights or obligations or disabilities
not contemplated by the provisions of the Act itself."
c
(See also State of Kera/a & Ors. vs. Unni & Anr. (2007)
...
2 SCC 365 (Paras 32 to 37), A.P. Electricity Regulatory
Commission vs. Mis R. V.K. Energy Pvt. Ltd. & anr. (2008) 9
-+
SCALE 529)
,D
19. The power of the regulatior making authority, thus, must
be interpreted keeping in view the provisions of the Act. The
Act is silent as regards conditions for grant of licence. It does
not lay down any pre-qualification therefor. Provisions for
impositjon of general conditions of licence or conditions laying
E
down the prequalifications therefor and/or the conditions/
qualifications for grant or revocation of licence, in absence of
'-1
such a clear provision may be held to be laying down
guidelines by necessary implication providing for conditions/
__...,
qualifications for grant of licence also.
F
20. Mr. Tripathi had relied on a decision of this Court in
The Rampur Distillery Co. Ltd. V. The Company Law Board
& Anr. [(1969) 2 SCC 774). This Court therein was considering
the validity of a provision laying down the concept of a 'fit and
proper person' for the purposes of Section 326(2) of the G
~
-~
Companies Act, 1956 by reason whereof the Central
Government has been conferred power to refuse the approval
of appointment of a Managing Director, if in its opinion, he was
not a fit and proper person. This Court held that the satisfaction
>""i
H
42
SUPREME COURT REPORTS
[2009] 9 S.C.R.
·.
A
contemplated thereby must be the result of an objective
·~
appraisal of relevant material and subject to tl)e judicial.scrutiny.
-
Stating that by reason thereof, the Central Government was not
made the final arbiter of the existence of the ground on which
the satisfaction may be founded. Such a power was held to be
B
a quasi judicial one and not an administrative one, carrying with
it a duty arising from the nature of the Act empowered to be
done the job for which it is to be done, the conditions in which
it is to be done and its repercussion upon the power of the
company, the shareholders, the creditors and the general public
c for whose benefit, the power is to be exercised.
, r
This decision, therefore, itself may be considered to be an
- authority for the proposition that where the Parliament thought
4IJ=
it fit and proper to confer such a power upon an authority
exercising quasi judicial power, the same is specifically
..
D
conferred by the provisions of the Act itself and not by a
subordinate legislation.
Paragraph 19 of the said decision clearly shows that for
the purpose of arriving at a satisfaction that a person was fit
E
and proper to be re-appointed as managing agent, all past
~-
conduct and actings were required to be taken into
consideration. Regulation 6A is a disqualifying statute. The
statute, however, does not provide for any machinery to collect -
·findependent material for being placed before the proper
F
authority as regards evaluation of credit effectiveness and
creditworthiness of the applicant.
CONSTITUTIONALITY ISSUE
21. For deciding the question involved herein, we must
G
notice the purport and object for which such disqualifications
have been brought into the statute book. In terms of Section 52
..
.
of the Act, the creditworthiness of the applicant must be
~
apparent. Creditworthiness of an applicant can be considered
from two angles. It may have two concepts, one is positive and
H
the other is negative.
""
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
43
.
REGULATORY COMMISSION [S.B. SINHA, J.]
--;
Four aspects of creditworthiness are envisaged in ~he A
Regulations as would appear from the Explanation appended
.....
thereto, which are as under:-
(i)
financial integrity of the applicant;
(ii)
his competence;
B
(iii)
his reputation and character; and
(iv)
his efficiency and honesty.
Article 19(1 )(g) of the Constitution of India confers c
fundamental right on every citizen to carry out business, trade,
....
profession or occupation. Clause (6) of Article 19, however ..
provides for imposition of reasonable restrictions by a statute.
~
[See Udai Singh Dagar v. Union of India, {(2007) 10 SCC
306 }].
D
In the event a statute provides for licensing, in a case of
this n~ture, the same must thus be found to satisfy the test of
reasonableness.
The standard for determining reasonableness of a statute
E
so as to satisfy the constitutional scheme as adumbrated in
1
Article 14 of the Constitution of India must receive a higher level
of scrutiny than an ordinary statute. Such a higher level of
scrutiny is necessary not for the purpose of determining the
F
Constitutionality of the statute alone vis-a-vis the field of
legislative power as envisaged under Article 245 of the
Constitution of India but also having regard to the object and
purpose, the statute seeks to achieve.
Electricity was subject to strict regulations. It, subject to just G
,.,, 4
exceptions, was the monopoly of the State Electricity Boards,
Public Sector Undertakings.
Participation of the private sector inter alia in trading was
I
encouraged by the provisions of the Act. Court's concern,
•
H
44
SUPREME COURT REPORTS
[2009] 9 S.C.R.
A
therefore, would be not only to see that the Statute is intra vires
I--
the Constitutional scheme including the legislative field, but also
as to whether it passes the test of reasonableness having
......
regard to the object and purpose of the Act. For achieving the
aforementioned purpose not only the premise, relevancy of the
B constitutional scheme in relation thereto is required to be taken
into consideration as would be noticed a little later but therefor
the doctrine of purposive interpretation should also be resorted
to. [ See New India Assurance Company Ltd. v. Nusli Wadia
and Another, {(2008) 3 SCC 279}]
c
In UCO Bank & Anr. vs. Rajinder Lal Capoor [(2008) 5
SCC 257], this Court held:
"26. It is now a well-settled principle of interpretation of
statutes that the court must give effect to the purport and
~
D
object of the Act. Rule of purposive construction should,
subject of course to the applicat.:lity of the other principles
of interpretation, be made applicable in a case of this
nature."
E
When a disqualification is provided, it is to operate at the
threshold in respect of the players in the field of trading in
electricity.
When, however, a regulatory statute is sought to be
1--
enforced, the power of the authority to impose restrictions and
F
conditions must be construed having regard to the purpose and
object it seeks to achieve. Dealing in any manner with
generation, distribution and supply and trading in electrical
energy is vital for the economy of the country. The private
players who are permitted or who are granted licence in this
G behalf may have to satisfy the conditions imposed.
No doubt, such conditions must be reasonable.
.........
Concededly, the doctrine of proportionality may have to be
invoked.