Global Energy Ltd.
& ANR. Vs. Central Electricity Regulatory Com. [2009] INSC 1022 (11 May
2009)
Judgment
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 3457-3458 OF 2009
(Arising out of SLP (C) Nos. 14217-14218 of 2007) GLOBAL ENERGY LTD. & ANR.
... APPELLANTS Versus CENTRAL ELECTRICITY REGULATORY
S.B. Sinha, J.
1.
Leave
granted.
INTRODUCTION
2.
Constitutional
validity of clauses (b) and (f) of Regulation 6A of the Central Electricity
Regulatory Commission (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
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 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") 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
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 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 3 notice as regards
the said application filed by the appellant No. 1 for grant of inter-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 in inter-state trading of electricity prior to the commencement of
the said Act. By reason of an 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.
...........
5) Before granting a
licence under section 14, the 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, 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 interim order. The matter was taken to High Court and interim
license granted to appellant No. 1 was extended by the High 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 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.
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.
CONTENTIONS
9.
Mr.
Dipankar Gupta, the learned Senior Counsel appearing on behalf of the
appellants, inter alia, would submit :- i. Having regard to the objects and
reasons for which the said Act was enacted, the High Court must be held to have
committed a serious error insofar as it held that the Amended Regulations would
apply to the appellant No. 1's application.
ii. It was also
contended that sufficient guidelines 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.
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 appearing on behalf of the
respondent, would, however, support the impugned judgment.
THE ACT
11.
The
said Act was enacted to consolidate the laws 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 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.
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. 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 construed accordingly. Part IV
of the Act providing for licensing, inter alia, mandates that no person shall
7 undertake trading in electricity unless he is authorized to do so by a
licence issued under Section 14, or is exempt under Section 13.
Section 14 of the
Act, inter alia, provides for grant of licence to any person inter alia trading
in electricity as an electricity trader.
Section 15 provides
for the detailed procedures for grant of licence as also the exercises required
to be undertaken by the appropriate commission therefor. Section 16 of the Act
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
conditions which shall apply either to a licensee or class 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 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 on
an application made in this connection by the licensee or 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 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 (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 Commission.
Functions of the
Central Commission are laid down in Section 79 thereof;
clauses (e) and (j)
of Sub-Section (1) whereof reads as under:
"(e) to issue
licenses to persons to function as transmission licensee and electricity trader
with respect to their inter-State operations;
xxx xxx xxx (j) to
fix the trading margin in the inter-State trading of electricity, if
considered, necessary.
9 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
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 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 for grant of licence for
inter-state trading.
16.
Chapter
III 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 worth of the electricity trader at 10 the time of application
is required to be not less than the amounts specified thereunder. Chapter IV
provides for the terms and conditions of the licence.
Regulation 7 lays
down the obligations of the licensee.
AMENDMENT IN
REGULATION
" Insertion of
Regulation 6A: After regulation 6 of the principal regulations, the following
shall be inserted, namely:- "6A. Disqualifications: The applicant shall
not be qualified for grant of licence for inter-state trading, if:
(a) ........
(b) The applicant, or
any of his partners, or promoters, or Directors or Associates is involved in
any legal 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 (c) ..........
(d) ..........
(e) ..........
(f) The applicant is
not considered a fit and proper person for the grant of licence for any other
reason to be recorded in writing;
Explanation: For the
purpose of determining as to whether 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.
(ii) His competence;
(iii) His reputation
and character; and (iv) His efficiency and honesty."
INTERPRETATION
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.
12 This, however,
would not mean that an amendment made in a regulation would 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 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 of the provisions of the said Act.
We may, in this
connection refer to a decision of this Court 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 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."
(See also State of
Kerala & ors. vs. Unni & Anr. (2007) 2 SCC 365 (Paras 32 to 37), A.P.
Electricity Regulatory Commission vs. M/s R.V.K. Energy Pvt. Ltd. & anr.
(2008) 9 SCALE 529) 13
19.
The
power of the regulation 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 imposition of general conditions of licence or conditions laying
down the prequalifications therefor and/or the conditions/qualifications for
grant or revocation of licence, in absence of such a clear provision may be
held to be laying down guidelines by necessary implication providing for
conditions/qualifications for grant of licence also.
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 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
contemplated thereby must be the result of an objective appraisal of relevant
material and subject to the 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 14 founded. Such a
power was held to be 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 for whose benefit, the power is to be
exercised.
This decision,
therefore, itself may be considered to be an authority for the proposition that
where the Parliament thought it fit and proper to confer such a power upon an
authority exercising quasi judicial power, the same is specifically 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 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 independent material for being placed before the proper
authority as regards evaluation of credit effectiveness and creditworthiness of
the applicant.
CONSTITUTIONALITY
ISSUE
21.
For
deciding the question involved herein, we must 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 the other is negative.
Four aspects of
creditworthiness are envisaged in the Regulations as would appear from the
Explanation appended thereto, which are as under:- (i) financial integrity of
the applicant;
(ii) his competence;
(iii) his reputation
and character; and (iv) his efficiency and honesty.
Article 19(1)(g) of
the Constitution of India confers 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 }].
In the event a statute
provides for licensee, in a case of this nature, the same must thus be found to
satisfy the test of reasonableness.
16 The standard for
determining reasonableness of a statute so as to satisfy the constitutional
scheme as adumbrated in 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 Constitutionality
of the statute alone vis-`-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 exceptions, was the monopoly
of the State Electricity Boards, Public Sector Undertakings.
Participation of the
private sector inter alia in trading was encouraged by the provisions of the
Act. Court's concern, therefore, would be not only to see that the Statute is
intra vires 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 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 } ] 17 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 object of the Act. Rule of purposive construction
should, subject of course to the applicability of the other principles of
interpretation, be made applicable in a case of this nature."
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 enforced, the power of the authority to
impose restrictions and 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 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. The Superior Court 18 would ensure that the subordinate legislation
has been framed within the four corners of the Act and is otherwise valid.
22.
The
issue therefore which arises for our consideration is as to whether the
delegation having been made for the purpose of carrying out the object, could
the limitation be imposed for ascertaining as to whether the applicant is fit
and proper person and disregarding his creditworthiness. There cannot be any
doubt whatsoever that a statute cannot be vague and unreasonable.
23.
Strong
reliance has also been placed by the learned Additional Solicitor General on a
decision of this Court in Clariant International Ltd. & Anr. vs. Securities
& Exchange Board of India [(2004) 8 SCC 524], wherein it was held that a
discretionary jurisdiction has to be exercised having regard to the purpose for
which it was conferred, the object sought to be achieved and the reasons for granting
such wide discretion. It was furthermore held that when any criterion is fixed
by a statute or by a policy, an attempt should be made by the authority making
the delegated legislation to follow the policy formulation broadly and
substantially and in conformity therewith.
(See also Secretary,
Ministry of Chemicals & Fertilizers, Govt. of India vs. Cipla Ltd. &
ors., (2003) 7 SCC 1, para 4.1). There cannot be any doubt or dispute with
regard to the aforementioned legal proposition.
24.
The
question, which, however, falls for our consideration is as to whether the
purported legislative policy is valid or not. Such a question did not arise for
consideration in Clariant (supra).
25.
Yet
again in State of T.N. & Anr. vs. P. Krishnamurthy & ors. (2006) 4 SCC
517, whereupon reliance has been placed by Mr. Tripathi, it has been held:
"15. There is a
presumption in favour of constitutionality or validity of a subordinate
legislation and the burden is upon him who attacks it to show that it is
invalid. It is also well recognized that a subordinate legislation can be
challenged under any of the following grounds:
(a) Lack of
legislative competence to make the subordinate legislation.
(b) Violation of
fundamental rights guaranteed under the Constitution of India.
(c) Violation of any
provision of the Constitution of India.
(d) Failure to
conform to the statute under which it is made or exceeding the limits of
authority conferred by the enabling Act.
(e) Repugnancy to the
laws of the land, that is, any enactment.
(f) Manifest
arbitrariness/unreasonableness (to an extent where the court might well say
that the legislature never intended to give authority to make such rules)
16. The court
considering the validity of a subordinate legislation, will have to consider
the nature, object and scheme of the enabling Act, and also the area over which
power has been delegated under the Act and then decide whether the subordinate
legislation conforms to the parent statute. Where a rule is directly
inconsistent with a mandatory provision of the statute, then, of course, the
task of the court is simple and easy. But where the contention is that the
inconsistency or non- conformity of the rule is not with reference to any
specific provision of the enabling Act, but with the object and scheme of the
parent Act, the court should proceed with caution before declaring
invalidity."
26.
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 applicant. An explanation appended to
clause (f) of Regulation 6A points out various aspects 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 and in what manner the said criteria are required to
be ascertained have not been laid down, the criteria are subjective ones.
27.
A
disqualifying statute, in our opinion, must be definite and not uncertain; it
should not be ambiguous or vague. Requisite guidelines in respect thereof
should be laid down under the statute itself. It is well settled that essential
legislative function cannot be delegated.
It has been accepted
by Mr. Tripathi that the explanation appended to clause (f) of Regulation 6A is
not exhaustive.
It is now a well
settled principle of law that essential legislative functions cannot be
delegated. The delegatee must be furnished with 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 therefore. The factors enumerated in the
`Explanation' appended to clause (f) of Regulation 6A are unlimited. For
determining the question as to whether the applicant is a fit and proper
person, a large number of factors may be taken into consideration. It for all
intent and purport would be more than the technical requirement, capital
adequacy requirement and credit worthiness for being an `electricity trader' as
envisaged under Section 52 of the Act.
22 An applicant
usually would be a new applicant. It is possible that there had been no
dealings by and between the applicant and the licensor.
Each one of the
criteria laid down in the explanation refers to creditworthiness.
28.
In
State of Kerala & ors. vs. Unni & anr. [(2007) 2 SCC 365], this Court
has held:
"When a
subordinate legislation imposes conditions upon a licensee regulating the
manner in which the trade is to be carried out, the same must be based on
reasonable criteria. A person must have means to prevent commission of a crime
by himself or by his employees. He must know where he stands. He must know to
what extent or under what circumstances he is entitled to sell liquor. The
statute in that sense must be definite and not vague. Where a statute is vague,
the same is liable to be struck down."
In State of Rajasthan
& ors. vs. Basant Nahata [(2005) 12 SCC 77] Section 22-A of the Registration
Act, 1908 which was inserted by Rajasthan Amendment Act 16 of 1976 was struck
down, holding:-(1) The executive while making a subordinate legislation should
not be permitted to open new heads of public policy, (2) the doctrine of public
policy itself being uncertain cannot be a guideline for anything or cannot be
said to be providing sufficient framework for the executive to work under it,
(3) Essential 23 functions of the legislature cannot be delegated and it must
be judged on the touchstone of Article 14 and Article 246 of the Constitution,
and (4) only the ancillary and procedural powers can be delegated and not the
essential legislative point.
29.
Our
attention has been drawn to some other legislations wherein the concept of `fit
and proper person' had been applied, namely, Securities and Exchange Board of
India (Criteria for Fit and Proper Person) Regulations, 2004.
30.
We
have not been shown as to how the purpose and object of the said Regulations
can be said to be in pari materia with the Regulations in question. It must
also be borne in mind that an elaborate public hearing process is provided for
grant of licence in terms of Section 15 of the Act.
Such an independent
inquiry cannot be carried out de hors the statute. But the Parliament thought
it fit to confer a hearing as regards public objection only.
Regulation 6A in
effect confers powers/discretion on matters of licensing even in public
hearing. Such relevant factors which provide for the criteria laid down in
Regulation 6A could be brought on record. Section 15, however, empowers the
Commission to specify the form and manner of the application and the fees that
is required to be attached. The parliamentary object must be read in the
context of the preamble.
The reform
legislation sought to bring in transparency in the work of the public sector.
It postulates competition from the private sector. Only such a competition now
would give rise to a development of a proper market in the long run. 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 to be
laid down by the Commission. How licensees would operate their business to 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 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 Regulation 6A is in consumer interest as
it has not been shown how it will protect the consumer interest.
ULTRA VIRES ISSUE
31.
Section
52 of the Act is without prejudice to the provisions contained in sub-Section
(c) of Section 12. By reason of the said provision the appropriate Government
is vested with the power to specify:- (1) Technical requirement; (2) Capital
adequacy requirement and; (3) Creditworthiness in relation to an electricity
trader.
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 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 does not empower the Regulation making authority to provide for
qualification or disqualification, the delegated legislation or a subordinate
legislation as is well known must conform exactly to the power granted.
In Supreme Court
Employees' Welfare Association vs. Union of India & Anr. [(1989) 4 SCC
187], this Court has held:- "62. Thus as delegated legislation or a
subordinate legislation must conform exactly to the 26 power granted. So far
as the question of grant of approval by the President of India under the
proviso to Article 146 (2) is concerned, no such conditions have been laid down
to be fulfilled before the President of India grants or refuses to grant
approval. By virtue of Article 74(1) of the Constitution, the President of
India shall, in exercise of his functions, act in accordance with the advice of
the Council of Ministers. In other words, it is the particular department in
the Ministry that considers the question of approval under the proviso to
Article 146 (2) of the Constitution and whatever advice is given to the
President of India in that regard, the President of India has to act in
accordance with such advice.
On the other hand,
the Chief Justice of India has to apply his mind when he frames the rules under
Article 146(2) with the assistance of his officers.
In such
circumstances, it would not be unreasonable to hold that the delegation of the
legislative function on the Chief Justice of India and also on the President of
India relating to the salaries, allowances, leave and pensions of the officers
and servants of the Supreme Court involve, by necessary implication, the
application of mind. So, not only that the Chief Justice of India has to apply
his mind to the framing of rules, but also the government has to apply its mind
to the question of approval of the rules framed by the Chief Justice of India
relating to salaries, allowances, leave or pensions. This condition should be
fulfilled and should appear to have been so fulfilled from the records of both
the government and the Chief Justice of India. The application of mind will
include exchange of thoughts and views between the government and the Chief
Justice of India and it is highly desirable that there should be a consensus
between the two.
The rules framed by
the Chief Justice of India should normally be accepted by the government and
the question of exchange of thoughts and 27 views will arise only when the
government is not in a position to accept the rules relating to salaries,
allowances, leave or pensions."
32.
We
may now consider the provisions of Section 178 of the Act.
Although various
clauses contained therein are merely illustrative in nature and not exhaustive,
we will assume that although the matter relating to grant of licence is covered
by Section 12 and 14 of the Act, the Regulation making power may also be
available for the said purpose.
33.
We
have noticed hereinbefore the effect of sub-Section (1) of Section 178. We may
only notice that clauses (a), (b), (c) and (o) which are referable to the
provisions of Sections 14 and 15 as such do not provide for any power to deal
with disqualification authorizing the respondent to frame regulation. This
Court in Kerala Samasthana Chethu Thozhilali Union vs. State of Kerala &
ors. [(2006) 4 SCC 327] held as under:
"37.
Furthermore, the terms and conditions which can be imposed by the State for the
purpose of parting with its right of exclusive privilege more or less have been
exhaustively dealt with in the illustrations in sub-section (2) of Section 29
of the Act. There cannot be any doubt whatsoever that the general power to make
rules is contained in sub-section (1) of Section 29. The provisions contained
in sub-section (2) are illustrative in nture. But, the factors enumerated in
sub-section (2) of Section 29 are indicative of the heads under 28 which the
statutory framework should ordinarily be worked out."
34.
We
have seen that clause (b) of Regulation 6A provides for a 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 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
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 proceeding. Only because a legal
proceeding had been pending and the Commission is of the opinion that the same
adversely affects the interest of the electricity sector or of the consumers,
in our opinion, cannot by itself be an objective criteria as by reason thereof
the statutory authority would necessarily be required to enter into the merit
of the proceeding. The 29 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, in our opinion, would not be a
fair and reasonable criteria.
We are unmindful of
the fact that clause (f) to Regulation 6A of the Regulations mandates recording
of reasons in writing. In the event, thus, if wrong reasons are recorded a
judicial review would be maintainable. But 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. {See State of Kerala
& Ors. vs. Unni & Anr. [(2007) 2 SCC 365]} Judicial review from an
administrative decision lies on a very narrow compass. The superior courts in
exercise of their jurisdiction under Article 226 or 32 of the Constitution of
India ordinarily would not enter into the merit of the matter. Their primary
concern are with the decision making process.
LOCUS STANDI OF THE
APPELLANT
35.
Mr.
Tripathi would urge that the appellant had no vested right 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 are ultra vires. Submission of Mr. Tripathi
that the appellant had no locus standi to question the validity of the
Regulation, therefore, is not correct.
36.
In
Tashi Delek Gaming Solutions Ltd. vs. State of Karnataka & ors.
[(2006) 1 SCC 442],
this Court held:
"If by a
statutory provision the right of an agent to carry on his business is affected,
he may, in our considered opinion, in his own right maintain an action."
[See also Calcutta
Gas Company (Proprietary) Ltd. vs. State of West Bengal & ors. (AIR 1962 SC
1044)]
37.
Strong
reliance has been placed by Mr. Tripathi as also by the High Court on State of
Tamil Nadu vs. M/s Hind Stone & ors. [(1981) 2 SCC 205]. One of the issues
involved therein was renewal of existing mining lease where applicants had
filed applications before the coming into force of the new mining policy.
Merely an application was filed and no further 31 action had been taken. In
the aforementioned fact situation, this Court while opining that applications for
grant of mining lease should be dealt with within a reasonable time but on that
account the applicant would not be clothed with a right for disposal thereof,
stating:
"...No one has a
vested right to the grant or renewal of a lease and none can claim a vested
right to have an application for the grant or renewal of a lease dealt with in
a particular way, by applying particular provisions. In the absence of any
vested rights in anyone, an application for a lease has necessarily to be dealt
with according to the rules in force on the date of the disposal of the
application despite the fact that there is a long delay since the making of the
application."
No exception thereto
can be taken. Here, however, appellant was found eligible for grant of trading
licence. He was found to be qualified.
38.
Reliance
has also been placed on S.B. International Limited & ors. vs. Assistant
Director General of Foreign Trade & ors. [(1996) 2 SCC 439], wherein in the
scheme and context, it was held that no vested right accrued to the licensee
for issuance of advance licence.
LEGITIMATE
EXPECTATION
39.
Appellant
applied for grant of licence. He was found to be qualified therefor having
satisfied the statutory requirements. It was granted an interim licence. It has
started trading in electricity. It, 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.
In P.T.R. Exports
(Madras) Private Limited & ors. vs. Union of India & ors. [(1996) 5 SCC
268], whereupon reliance has been placed, this Court inter alia opined that in
the matter of grant of licence the doctrine of legitimate expectation would
have no role to play as it would depend upon the policy prevailing on the date
of grant of licence.
It was again a case
where an Export and Import Policy to be notified by the Central Government
under the Foreign Trade (Development and Regulation) Act, 1992 was involved.
40.
Reliance
has also been placed on M.P. Ram Mohan Raja vs. State of T.N. & ors.
(supra). Therein also like Hind Stone (supra) there was no intimation from the
State Government to the applicant that it was found qualified for grant of
mining lease.
41.
Reliance
has also been placed by Mr. Tripathi on Commissioner of Municipal Corporation,
Shimla vs. Prem Lata Sood & ors. [(2007) 11 SCC 40]. This Court therein was
concerned with a planning and development statute framed under the Himachal
Pradesh Town and Country Planning Act, 33 1977. In that case, this Court was
considering the enforcement of right in several stages holding that the
`conditions precedent' laid down therein unless satisfied no right can be said
to have vested in the person concerned.
42.
The
cases relied upon by Mr. Tripathi are distinguishable on fact. We accept the
general principle that an applicant by filing a mere application cannot be said
to have derived a vested right but we are of the opinion that he has a right to
be considered. It will bear repetition to state that such consideration must be
made not only on the basis of a valid statute but also rationale and objective
criteria should be applied therefor.
EPILOGUE
43. The law sometimes
can be written in such subjective manner that it affects efficiency and
transparent function of the government. If the statute provides for point-less
discretion to 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 or primary
legislation, have to conform to the fundamental tenets of transparency and
openness on one hand and responsiveness and accountability on the other. These
are fundamental tenets flowing from Due 34 Process requirement under Article
21, Equal Protection clause embodied in Article 14 and Fundamental Freedoms
clause ingrained under Article 19. A modern deliberative democracy can not
function without these attributes.
The constitutive
understanding of aforementioned guarantees under the Fundamental Rights chapter
in the Constitution does not give rise to a mere rhetoric and symbolic value
inhered by the polity but has to be reflected in minute functioning of all the
three wings of state - executive, legislature and judiciary. When we talk of
state action, devil lies in the detail. The approach to writing of laws, rules,
notifications etc. has to showcase these concerns.
The image of law
which flows from this framework is its neutrality and objectivity: the ability
of law to put sphere of general decision-making outside the discretionary power
of those wielding governmental power. Law has to provide a basic level of
"legal security" by assuring that law is knowable, dependable 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. The question which needs to be asked is
whether delegated legislation promotes rational and accountable policy
implementation.
35 While we say so,
we are not oblivious of the contours of the judicial review of legislative
acts. But, we have made all endeavours to keep ourselves confined within the
well-known parameters.
A subjectively worded
normative device also enables the agency to acquire rents. It determines the
degree of accountability and responsiveness of officials and of political and
judicial control of the bureaucracy.
However, when the
provision inherently perpetuates injustice in the award of licenses and brings
uncertainty and arbitrariness it would be best to stop the government in the
tracks. Since the vires of the regulation is under challenge, we took the
opportunity to consider the propriety and constitutionality of generic
decision-making process encapsulated under the impugned legislation. Amongst
others, in this context, we strike down the impugned clause.
43.
For
the reasons aforementioned, the impugned judgment cannot be sustained. It is
set aside accordingly.
Clauses (b) and (f)
of Regulation 6A are declared ultra vires the Constitution of India as also the
Act. The Commission is directed to consider the matter from the same stage as
if the provisions had not come into force, as expeditiously as possible, and
preferably within a period of three months from the date of receipt of a copy
of this order.
44.
The
appeals are allowed with costs. Counsel fee assessed at Rs.50,000/-.
.....................................J.
[S.B. Sinha]
.....................................J.
[Cyriac Joseph]
New
Delhi;
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