In a major setback for Adani Gas Ltd, the Supreme Court on Tuesday rejected its plea challenging the bidding process for the supply of PNG and CNG in Sanand, Bavla, and Dholka of Ahmedabad district.

The apex court imposed a cost of Rs 10 lakh on Adani Gas which would be payable to the Union of India and upheld the authorisation provided by the Petroleum and Natural Gas Regulatory Board (PNGRB) to Gujarat Gas Ltd for establishing and operating the city gas distribution network in the above areas adjacent to Ahmedabad.

A three-judge bench headed by Justice U U Lalit said Regulation 18 is neither arbitrary nor "ultra vires" as the objective underlying it is compatible with the overall objectives of the Petroleum and Natural Gas Regulatory Board Act.

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"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, and thus the challenge to Regulation 18 cannot succeed," the bench also comprising Justices Ravindra Bhat and Hrishikesh Roy said.

The apex court said the role of the State in granting no-objection certificate (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 authorisation in terms of the PNGRB Act on the merits of its application.

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

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On the submission put forth by Adani gas that by virtue of Section 16 of the PNGRB Act, it was entitled to be treated as an entity with "deemed authorization", the apex court said that it would apply only to entities which had the authorisation of the Central Government prior to the appointed date.

"It is held that the 'deemed authorisation' clause under proviso to Section 16 is subject to other provisions of Chapter IV, including Section 17 and, further, that only entities granted authorisation 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 spelled out under the city gas distribution Regulations."

The bench said that 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 authorisation in terms of the PNGRB Act on the merits of its application.

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In 2018, the Gujarat High Court had dismissed a plea filed by Adani Gas challenging the bidding process for the supply of PNG and CNG in three areas of Ahmedabad district.

In the bidding process, which was carried out by the Petroleum and Natural Gas Regulatory Board (PNGRB) in 2016, Adani Gas lost to state-run Gujarat Gas Limited to supply PNG and CNG in Sanand, Bavla and Dholka areas of the district.

Before the PNGRB Act came into force in 2006, the Gujarat government gave Adani Gas permission to supply gas in Ahmedabad district with a condition that the permission was subject to any act that came into force in the future. As per regulation 18 of the PNGRB Act, a company needs to take PNGRB's authorisation to carry out work in an area for which the firm does not have permission from the Central government.

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In 2013, as per Regulation 18 of the PNGRB Act, Adani approached PNGRB seeking permission to build gas supply infrastructure in the entire Ahmedabad district. However, while granting permission, the PNGR Board excluded the Sanand, Bavla and Dholka areas of the district. Later the regulator invited bids for these three areas in 2016, with Gujarat Gas emerging victorious while the Adani firm lost.

Following this loss, Adani Gas approached the Gujarat High Court and challenged the bidding process as well as the PNGR Board's decision to exclude these three areas -- Sanand, Bavla and Dholka while giving permission to it for the rest of the district in 2013.

(Edited by : Jomy Jos Pullokaran)

First Published:Sept 28, 2021 5:51 PM IST