Supreme Court Dismisses Adani Gas Ltd Plea Seeking Authorization For City Gas Distribution Network In Ahmedabad District With Rs 10 Lakh Costs

The Supreme Court on Friday dismissed an appeal filed by Adani Gas Ltd seeking authorisation for city gas distribution network in three areas of Ahmedabad District in Gujarat with a cost of Rupees 10 lakhs.

The Court held the exclusion of Adani Gas Ltd from the disputed areas as "justified in the overall facts and circumstances".

"Having regard to the above findings and conclusions, the appeals fail and are dismissed. In the circumstances, Adani shall bear the costs quantified @ ₹10 lakhs, payable to the Union of India", the Court ordered while concluding the judgment.

A three judge bench comprising Justices UU Lalit, S. Ravindra Bhat and Hrishikesh Roy also overruled a two judge bench judgment in Adani Gas Ltd. vs. Union of India (2019) 3 SCC 641, on the scope of the "deemed authorisation" clause under the proviso to Section 16 of the Petroleum and Natural Gas Regulatory Board Act, 2006.

Under the Petroleum and Natural Gas Regulatory Board Act, 2006 (PNGRB Act), authorization from the Petroleum and Natural Gas Regulatory Board is required to operate a City or Local Natural Gas Distribution Network(CGD Network). The Petroleum and Natural Gas Regulatory Board denied authorization to AGL for operating City Gas Network in different areas of Ahmadabad city in Gujarat.

Feeling aggrieved by the exclusion, AGL filed a writ petition in the Gujarat High Court, challenging the various Regulations under the PNGRB Act and also the grant of authorization to a competitor Gujarat Gas, a state-entity. The High Court dismissed AGL's petition in 2018.

Challenging the High Court's dismissal, AGL approached the Supreme Court.

One of the arguments raised on behalf of AGL was that the company had "deemed authorization" as per the proviso to Section 16 of the PNGRB Act, since the company was involved in the activity before the said Section was brought into force . Adani Gas Ltd pointed out that the  initial proposal for setting-up of the gas pipeline was by the invitation of the Gujarat Government.  It was pointed out that before the PNGRB Act came into force in 2006, the Gujarat government gave Adani Gas permission to supply gas in Ahmedabad district. According to AGL, the High Court erred in interpreting that the "deemed authorization" was available only to entities which had the authorization from the Central Government.

In 2013, the company applied for permission as per Regulation 18 of the Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008 for gas distribution in entire Ahmedabad district. The Board granted a partial authorization excluding the Sanand, Bavla and Dholka areas of the district.

The Supreme Court considered the following points:

(i) The scope of the "deemed authorisation" clause under the proviso to Section 16 of the PNGRB Act;

(ii) Validity of Regulation 18; and

(iii) Whether the exclusion of the disputed areas from the authorisation granted to Adani was justified.

Answering the first point, the Court observed as hereunder :

1. The "deemed authorization" clause under proviso to Section 16 is subject to other provisions of Chapter IV, including Section 17 and, further, that only entities granted authorization by the Central Government, fell in that category. As a sequitur, it is held that entities which had received authorization from States, had to seek authorization under the PNGRB Act, in terms of Section 17(2), and in compliance with the conditions spelt out under the CGD Regulations.
2. The role of the State in granting NOC is only supportive or collaborative, in terms of the Central Government's policy, of 2006, and cannot confer any advantage to any entity, which has to seek and be granted specific authorization in terms of the PNGRB Act on the merits of its application. 

Adani had also challenged the validity of Regulation 18 of the Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008 (hereafter called the "CGD Regulations") as violative of Articles 14 and 19(1)(g) of the Constitution of India, and ultra vires Section 16 of the Petroleum and Natural Gas Regulatory Board Act, 2006

The objective underlying Regulation 18, is compatible with the overall objectives of the PNGRB Act. Regulation 18 is not contraindicated by any specific provision of the Act. Further, as a sectoral regulator, PNGRB is entrusted with the power to frame appropriate regulations to ensure the objectives of the Act, the court held.

The court also held that Adani's claim is precluded by the principle of approbate-reprobate, as it accepted authorization granted by PNGRB (including exclusion of disputed areas), furnished the performance bond and even participated in the auction for the excluded areas, and only thereafter challenged authorization when its bid was unsuccessful.

"In view of the factual discussion, about the background leading to the grant of authorization to Adani, and its acceptance of that authorization, furnishing of performance bond, and proceeding to act upon it, even participating in the auction for the excluded areas there can be no manner of doubt that it acquiesced to the action of the PNGRB, and after having unsuccessfully entered its bid, sought to challenge the authorization. Clearly, this conduct amounts to approbating and reprobating. Adani's arguments about its lack of knowledge about its true rights, in the opinion of this Court, cannot be countenanced, because it knew and conformed to the procedure under the PNGRB Act, specifically, the requirements of the regulations, and Regulation 18, when it applied and obtained authorization in other areas in the country", the judgment authored by Justice Bhat stated.

The Court also noted that various issues raised by Adani were factual which ought to have been agitated in a statutory appeal.

It also termed that challenge raised by Adani to Regulation 18 as "speculative", which has led to avoidable delay (and the consequential escalation of cost) of the development of the network, in question.

The Court opined that Adani's arguments about its lack of knowledge about its true rights cannot be countenanced, because it knew and conformed to the procedure under the PNGRB Act, specifically, the requirements of the regulations, and Regulation 18, when it applied and obtained authorization in other areas in the country.

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