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Adani Gas Limited v. Union of India

Civil Appeal · 2019 INSC 105Decided 29 Jan 2019
Civil Appeal No. 1261 of 2019
Justice Arun Mishra · Justice Vineet Saran

Background

Adani Gas Limited was selected in 2005-06 to lay a City Gas Distribution Network in Udaipur and Jaipur and was given a No Objection Certificate (NOC) by the Rajasthan government after depositing a Rs. 2 crore commitment fee; it then spent large sums building roughly 75 km of pipeline. After the Petroleum and Natural Gas Regulatory Board Act, 2006 came into force, Adani applied for formal "authorisation" of its projects, but the Board rejected its application in 2011 on the ground that its physical and financial progress before the cut-off date was inadequate and that it had kept laying pipeline despite a Board notice to stop. The very next day, the Rajasthan government also withdrew Adani's NOC and forfeited its Rs. 2 crore fee. Adani's challenge to both orders was dismissed by the Rajasthan High Court, leading to this appeal.

Decision Breakdown

The Supreme Court held that the regulations required the Board to weigh several criteria together (compliance with technical standards, land/equipment procurement, financial position, gas-supply arrangements, etc.), not treat a shortfall on just one criterion (physical/financial progress) as automatically fatal, since the regulation used the word "may" rather than making every factor mandatory. The Board had also failed to properly factor in a 2010 legal change that granted "deemed authorisation" to entities already building such networks before the cutoff date, and had not given Adani a proper hearing on this point. Because of these flaws, the Court quashed both the Board's rejection order and the State government's order withdrawing the NOC and forfeiting the fee, and directed the Board to reconsider Adani's application afresh within four weeks, giving Adani a fresh hearing and the chance to file further written submissions.

Lesson Learnt

A regulator exercising discretionary power under a "may consider these factors" rule must weigh all the relevant factors together and give a fair hearing before rejecting an application: it cannot pick one criterion in isolation, ignore a relevant change in law (like a deemed-authorisation provision), and deny the affected party an opportunity to respond.

Official source (sci.gov.in)View Judgment (PDF)

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