Adani Gas Limited vs Petroleum And Natural Gas … on 17 February, 2020


Supreme Court of India

Adani Gas Limited vs Petroleum And Natural Gas … on 17 February, 2020

Author: Hon’Ble Dr. Chandrachud

Bench: Hon’Ble Dr. Chandrachud, Hemant Gupta

                                                                          Reportable



                              IN THE SUPREME COURT OF INDIA
                               CIVIL APPELLATE JURISDICTION

                                 Civil Appeal No 3992 of 2019



          Adani Gas Limited                                          ...Appellant


                                         Versus



          Petroleum and Natural Gas Regulatory Board & Ors.        ...Respondents



                                            With

                              Civil Appeal Nos 3234-3235 of 2019

                                            With

                              Civil Appeal Nos 3247-3248 of 2019

                                            With

                                 Civil Appeal No 3289 of 2019

                                            With

                                 Civil Appeal No 4527 of 2019

                                             With

                                    T.C. (C) No 27 of 2019

                                            With

Signature Not Verified              T.C. (C) No 26 of 2019
Digitally signed by
SANJAY KUMAR
Date: 2020.02.17
13:49:24 IST
Reason:                                   And With

                                 Civil Appeal No 106 of 2020

                                              1
                                     JUDGMENT




Dr Dhananjaya Y Chandrachud J


1.       In 2018 the Petroleum and Natural Gas Regulatory Board1 conducted the

ninth round of bidding for City or Local Natural Gas Distribution Networks 2. On 14

September 2018, a press release was placed on the Board‘s website notifying

details of the successful bidders in various Geographical Areas3. The contest in

the present batch of appeals has arisen over the grant of authorisation for laying,

building, operating or expanding CGD networks in the following GAs:

         (i)      GA 51 - Puducherry District;

         (ii)     GA 61 - Kanchipuram District; and

         (iii)    GA 62 – Chennai & Tiruvallur Districts.


2.       The Appellate Tribunal for Electricity4 was seized of two appeals – Appeal

No 292 of 2018, instituted by Adani Gas Limited and Appeal No 323 of 2018,

instituted by IMC Limited. These appeals were instituted before the APTEL under

Section 30(1) of the Petroleum and Natural Gas Regulatory Board Act 2006 5. By

their separate judgments dated 28 February 2019, the Chairperson and Member

Technical (Petroleum and Natural Gas) rendered divergent findings, following

which the Chairperson directed that the proceedings in the two appeals be placed

before the judicial member. The judicial member recused from hearing the

1
  ―the Board‖
2
  ―CGD Networks‖
3
  ―GAs"
4
  ―APTEL‖ or ―Tribunal‖
5
  ―PNGRB Act‖

                                             2
appeals on 7 March 2019. This led to the institution of the present appeals before

this Court. Noting that no other judicial member was available in the APTEL to

conduct the hearing, this Court by its order dated 1 April 2019 admitted the

appeals and issued directions in exercise of its powers under Article 142 of the

Constitution for the transfer of the proceedings before the APTEL to this Court in

order to bring finality to the present dispute. In assessing the merits, the Court

has had the benefit of appraising the differing views which have been expressed

by the Chairperson and by the Member Technical (Petroleum and Natural Gas).


3.    The APTEL has been constituted in terms of sub-Section (1) of Section 30

of the PNGRB Act which is extracted below:

             ―30. Appellate Tribunal. (1) Subject to the provisions of this
             Act, the Appellate Tribunal established under section 110 of
             the Electricity Act, 2003 (36 of 2003) shall be the Appellate
             Tribunal for the purposes of this Act and the said Appellate
             Tribunal shall exercise the jurisdiction, powers and authority
             conferred on it by or under this Act:
             Provided that the Technical Member of the Appellate Tribunal
             for the purposes of this Act shall be called the Technical
             Member (Petroleum and Natural Gas) and shall have the
             qualifications specified in sub-section (2) of section 31.‖



Section 33 stipulates that any person aggrieved by an order or decision of the

Board has recourse to an appeal to the Tribunal. The jurisdiction of the APTEL

while hearing an appeal is spelt out in sub-Section (6) of Section 33 in the

following terms:

             ―33.(6) The Appellate Tribunal may, for the purpose of
             examining the legality or propriety or correctness of any order
             or decision of the Board referred to in the appeal filed under
             sub-section (1), either on its own motion or otherwise, call for
             the records relevant to disposing of such appeal and make
             such orders as it thinks fit.‖




                                              3
An appeal lies to this Court against an order of the APTEL, other than an

interlocutory order, under Section 37 on the grounds set out in Section 100 of the

Code of Civil Procedure 1908. With this background, we now turn to the PNGRB

Act under the aegis of which the ninth round of CGD bidding occurred.


PNGRB Act and regulations

4.     The content of the PNGRB Act is summarised by its long title as:

                ―An Act to provide for the establishment of Petroleum and
                Natural Gas Regulatory Board to regulate the refining,
                processing, storage, transportation, distribution, marketing
                and sale of petroleum, petroleum products and natural gas
                excluding production of crude oil and natural gas so as to
                protect the interests of consumers and entities engaged in
                specified activities relating to petroleum, petroleum products
                and natural gas and to ensure uninterrupted and adequate
                supply of petroleum, petroleum products and natural gas in all
                parts of the country and to promote competitive markets and
                for matters connected therewith or incidental thereto.‖


The PNGRB Act came into force, in terms of the provisions contained in Section

1(3) on 1 October 2007, save and except for Section 16. Section 16 which

provides for the authorisation for building or expanding CGD Networks, came into

force on 15 July 2010. Section 16, insofar as is material contains the following

stipulations:

                ―16. Authorisation.—No entity shall—
                (a) lay, build, operate or expand any pipeline as a common
                carrier or contract carrier,
                (b) lay, build, operate or expand any city or local natural gas
                distribution network, without obtaining authorisation under this
                Act: … ‖



Under Section 19 of the PNGRB Act, the Board may grant an authorisation for a

city or local natural gas distribution network either on the basis of an application


                                                 4
or suo moto. Before it does so in a specified GA, the Board is under a mandate to

give wide publicity of its intent to do so. Upon inviting applications from interested

parties, the Board may select an entity ―in an objective and transparent manner

as specified by regulations for such activities‖.


5.         On 19 March 2008, the Petroleum and Natural Gas Regulatory Board

(Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas

Distribution Networks) Regulations 20086 were notified. The CGD Authorisation

Regulations were amended on 21 June 2013, 7 April 2014 and 6 April 2018. The

CGD Authorisation Regulations, as amended in 2018, substituted new criteria for

bidding which applied to the ninth round of bidding with which the present batch

of appeals is concerned.


6.         Regulation 6 of the CGD Authorisation Regulations provides for the

invitation by the Board for laying, building, operating or expanding of a CGD

network in a specific city or GA. The procedure stipulated in Regulation 5 is to

apply, except for those aspects relating to expressions of interest. Under

Regulation 5(6), the Board can scrutinise only those bids which are received in

response to an advertisement and from entities which fulfil certain minimum

eligibility criteria. Regulation 5(6)(b) spells out the criteria, which are designed to

ensure that the entity bidding is technically capable of laying and building a CGD

network in the relevant city or GA. Regulation 5(6)(c) enunciates criteria which

ensure that the entity is technically capable of operating and maintaining a CGD




6
    ―CGD Authorisation Regulations‖

                                          5
network. Besides the technical criteria, the Regulations also spell out certain

financial criteria which potential bidders must satisfy. Regulation 5(6)(e) provides:

              ―(6)     The Board shall scrutinise the bids received in
              response to the advertisement in respect of only those
              entities which fulfil the following minimum eligibility criteria,
              namely:-

              …

              (e)      the entity has adequate financial strength to execute
              the proposed project, operate and maintain the same in the
              authorised area and shall meet the following financial criterion
              to qualify for bidding for a single CGD network namely:-


               Population in the             Minimum net worth of the bidder entity
          geographical area as per
            2011 Census of India
       (1)                                 (2)
       5 million or more                   Rs. 1,500 million for a population of 5 million,
                                           plus additional Rs. 300 million for each 1
                                           million of population or part thereof, in excess
                                           of 5 million (refer Note-3)
       2 million or more but less   than   Rs.1,000 million
       5 million
       1 million or more but less   than   Rs. 750 million
       2 million
       0.5 million or more but      less   Rs. 500 million
       than 1 million
       0.25 million or more but     less   Rs. 250 million
       than 0.50 million
       0.1 million or more but      less   Rs. 100 million
       than 0.25 million
       Less than 0.1 million               Rs. 50 million
                                                                                              ‖


The minimum net-worth of the bidding entity is thus linked to the population of the

GA the entity is bidding for, as set out in 2011 Census data.


7.    Regulation 7 of the CGD Authorisation Regulations provides the criteria for

determining how the Board should evaluate rival bids for the same GA.

Regulation 7 is quoted below, in its entirety:

        ―7.   Bidding criteria.

                                                6
 1(a) The Board, while considering the proposal for authorisation, shall
 tabulate and compare all financial bids meeting the minimum eligibility
 criteria, as per the bidding criteria specified below, namely:-

Sl.        Bidding Criteria         Weightage               Explanation
No                                      %
1     Lowness of transportation         10         Bidder is required to quote
      rate for CGD – in rupees                     transportation rate for CGD
      per million British Thermal                  only for the first contract
      Unit (Rs./MMBTU)                             year which shall not be less
                                                   than Rs.30/MMBTU. Rates
                                                   for the subsequent contract
                                                   years shall be derived
                                                   considering the quoted rate
                                                   and escalation as per Note.
2     Lowness of transportation            10      Bidder is required to quote
      rate for CNG – in rupees                     transportation rate for CNG
      per kilo gram (Rs./kg)                       only for the first contract
                                                   year which shall not be less
                                                   than Rs.2/kg. Rates for the
                                                   subsequent contract years
                                                   shall be derived considering
                                                   the    quoted     rate   and
                                                   escalation as per Note.

3      Highness of number of             20                      -
       CNG stations (online and
       daughter booster stations)
       to be installed within 8
       contract years from the
       date of authorisation
4      Highness of number of             50                      -
       domestic piped natural gas
       connections to be achieved
       within 8 contract years from
       the date of authorisation
5      Highness of inch-kilometre        10                      -
       of steel pipeline (including
       sub-transmission        steel
       pipelines) to be laid within
       8 contract years from the
       date of authorisation
Note – Annual escalation shall be considered from the second contract year
and onwards based on the ―Wholesale Price Index (WPI) Data (2011-12 =100)‖
for ―All Group/ Commodity‖, as normally available on the website of the Office of
the Economic Adviser, Government of India, Ministry of Commerce and
Industry, Department of Industrial Policy and Promotion (DIPP) on the link
―http://eaindustry.nic.in/home.asp.‖


                                       7
Provided that in the case of the geographical areas of (i) Bilaspur, Hamirpur and
Una Districts; (ii) Panchkula (Except area already authorised), Shimla, Solan and
Sirmaur Districts and (iii) Barmer, Jaisalmer and Jodhpur Districts, it is not
mandatory to supply natural gas through steel-pipes. However natural gas has to
reach in all charge areas. The bidding parameters and their respective weightage
will, accordingly, be as under:-

Sl.       Bidding Criteria        Weightage               Explanation
No                                   %
1     Lowness              of    10               Bidder is required to quote
      transportation rate for                     transportation rate for CGD
      CGD – in rupees per                         only for the first contract
      million British Thermal                     year which shall not be less
      Unit (Rs./MMBTU)                            than Rs.30/MMBTU. Rates
                                                  for the subsequent contract
                                                  years shall be derived
                                                  considering the quoted rate
                                                  and escalation as per Note.
2     Lowness               of   10               Bidder is required to quote
      transportation rate for                     transportation rate for CNG
      CNG – in rupees per kilo                    only for the first contract
      gram (Rs./kg)                               year which shall into be less
                                                  than Rs.2/kg. Rates for the
                                                  subsequent contract years
                                                  shall be derived considering
                                                  the    quoted     rate    and
                                                  escalation as per Note.
3      Highness of number of 25                                 -
       CNG stations (online
       and daughter booster
       stations) to be installed
       within 8 contract years
       from     the     date   of
       authorisation
4      Highness of number of 55                                -
       domestic piped natural
       gas connections to be
       achieved      within     8
       contract years from the
       date of authorisation
Note: Annual escalation shall be considered from the second contract year and
onwards based on the ―Wholesale Price Index (WPI) Data (2011-12=100)‖ for
―All Group / Commodity‖, as normally available on the website of the Office of
the Economic Adviser, Government of India, Ministry of Commerce and
Industry, Department of Industrial Policy and Promotion (DIPP) on the link
―http://eaindustry.nic.in/home.asp.‖




                                      8
1(b) Successful bidder shall be required to achieve the year-wise work
programme within 8 contract years as per details given below, namely:-

PNG Connections         CNG stations              Inch-km of steel pipeline
     (cumulative)       (cumulative)              (cumulative)
By the     % of work    By the    % of work       By the   % of work
end of     programme end of       programme end of         programme
contract                contract                  contract
year                    year                      year
  st                         st
1              Nil         1            Nil          1st            5
2nd            10         2nd           15           2nd            20
3rd            20          3rd          30           3rd            40
4th            30          4th          45           4th            60
  th                         th                        th
5              40          5            60           5              70
  th                         th                        th
6              60          6            75           6              80
7th            80          7th          90           7th            90
  th                         th                        th
8              100         8           100           8             100
Note:- In case derived numbers are in fraction, the same shall be rounded off
to the nearest whole number and fraction 0.5 shall be rounded off to next
higher whole number.

Provided that in the case of the geographical areas of (i) Bilaspur, Hamirpur
and Una Districts; (ii) Panchkula (Except area already authorised), Shimla,
Solan and Sirmaur Districts and (iii) Barmer, Jaisalmer and Jodhpur Districts,
successful bidder shall be required to achieve the year-wise work programme
within 10 contract years as per details given below, namely:-

PNG Connections (cumulative)                CNG stations (cumulative)

By the end of     % of work         By the end of      % of work
contract year     programme         contract year      programme
       1st               Nil                 1st                 Nil
         nd                                   nd
       2                 10                 2                    10
         rd                                   rd
       3                 20                 3                    20
       4th               30                 4th                  30
         th                                   th
       5                 40                 5                    40
       6th               50                 6th                  50
         th                                   th
       7                 60                 7                    60
         th                                   th
       8                 70                 8                    70
       9th               80                 9th                  80
          th                                   th
      10                100                 10                   100
Note – In case derived numbers are in fraction, the same shall be rounded off
to the nearest whole number and fraction 0.5 shall be rounded off to next
higher whole number.



(2) ***********




                                      9
         (3) Bidder entity with the highest composite score, considering the criteria
         under sub-regulation (1) and as illustrated in Schedule C (1), shall be
         declared as successful bidder.

         Provided that in case of tie in the evaluated composite score, the successful
         bidder shall be decided based on the highness of numbers of PNG
         connections among the tied bidding entities. In case there is tie on number of
         PNG connections also, highness of inch-kilometer steel pipeline shall be
         considered and thereafter in case of tie in inch-kilometer as well, highness of
         numbers of CNG stations shall be considered;‖



Under Regulation 7, the Board while considering proposals for authorisation,

shall tabulate and compare all financial bids which meet the minimum eligibility

criteria in accordance with the bidding criteria set out as enunciated. The table

set out in Regulation 7(1)(a) provides for the tabulation of all eligible financial bids

on the basis of five parameters. The table enunciates the five bidding criteria and

the weightage which is to be ascribed to each of them. The criteria are as follows:


       (i)    The first criterion is the ‗lowness‘ of the transportation rate for CGD

              computed in rupees per million for a British Thermal Unit. The

              weightage ascribed to this criterion is 10 per cent. The explanation

              stipulates that a bidder is required to quote the transportation rate

              for CGD only for the first contract year at a rate not less than Rs 30

              per MMBTU;

       (ii)   The second criterion is the ‗lowness‘ of the transportation rate for

              CNG expressed in rupees per kilogram. The weightage ascribed to

              this criterion is 10 per cent. The bidder is required to quote the

              transportation rate only for the first contract year at a rate of not less

              than Rs 2 per kilogram;




                                               10
      (iii)   The third criterion is the ‗highness‘ of the number of CNG stations to

              be installed within eight contract years from the date of

              authorisation. The weightage ascribed to this parameter is 20 per

              cent;

      (iv)    The fourth criterion is the ‗highness‘ of the number of domestic

              piped natural gas connections to be achieved within eight contract

              years from the date of authorisation. The weightage ascribed to this

              criterion is 50 per cent; and

      (v)     The fifth criterion is the ‗highness‘ of the inch-kilometre of steel

              pipeline to be laid within eight contract years from the date of

              authorisation. The weightage ascribed to this parameter is 10 per

              cent.


Regulation 7(1)(b) sets out a year-wise work programme indicating the progress

which must be achieved by the successful bidder every year during the course of

eight contract years from the date of authorisation. Under Regulation 7(3), a

bidding entity with the highest composite score, in terms of the criteria contained

in sub-regulation (1), is to be declared as the successful bidder. This is illustrated

in Schedule C(1) of the CGD Authorisation Regulations. Schedule C(1) contains

the following illustration of the manner in which the weightage for PNG

connections is to be ascribed:


              ―(E) Number of PNG domestic connections

              Let,

              P1 = Number of PNG domestic connections by the 1st
              entity



                                          11
             P2 = Number of the PNG domestic connections by the
             2nd entity

             P3 = Number of the PNG domestic connections by the
             3rd entity

             Assume P1 is higher than P2 and P2 is higher than
             P3.;

             The highest number of PNG domestic connections bid
             (HP1) shall be given a score of 100% and the number of
             the other PNG domestic connections bids shall be given a
             score in relation to HP1 on a pro-rata basis as under :-



             HP1                      =        100%

             HP2                      =        100 % x (P2 ÷ P1)

             HP3                      =        100 % x (P3 ÷ P1)
                                                                          ‖

This illustration shows that the entity which has quoted the highest number of

PNG domestic connections to be achieved is allotted a score of 100 per cent.

The entities below the highest will be assigned a score in relation to the first entity

on a proportionate basis.


8.    Under Regulation 9, the grant of an authorisation is to be issued to a

successful entity after it furnishes a performance bond. The quantum of the

performance bond is based on the population of the GA as determined with

reference to the census data of 2011. Regulation 9 states:

             ―9.      Performance bond.

             (1)     Grant of authorisation shall be issued to the
             successful entity after it furnishes the performance bond
             in the form of demand draft or pay order or bank
             guarantee from any scheduled bank for the amount as per
             details given below, namely:-


             Serial      Population       in        the   Amount     of


                                               12
                  Number   Geographical Area, as          Performance
                           pre 2011 Census of India       Bond (Rupees)

                  1        5 million or more              500 million

                  2        2 million or more but less     330 million
                           than 5 million

                  3        1 million or more but less     250 million
                           than 2 million

                  4        0.5 million or more but less   150 million
                           than 1 million

                  5        0.25 million or more but       80 million
                           less than 0.50 million

                  6        0.1 million or more but less   30 million
                           than 0.25 million

                  7        Less than 0.1 million          15 million

                                                                          ‖
Under Regulation 10, the successful entity is to be issued a letter of intent7 upon

the finalisation of the bid. Under the CGD Authorisation Regulations, the

authorised entity must also obtain financial closure for the project from a bank or

financial institution within 270 days of authorisation.


9.          The period of implementation of the project under the ninth round of CGD

bidding is 2018 to 2026. The period for commercial operation is between 2018

and 2043.


10.         From an analysis of the CGD Authorisation Regulations, it becomes

evident that the 2011 census figures have been utilised to peg the net-worth

requirement in Regulation 5(6)(e) and the value of the performance bond to be

submitted to the Board post authorisation in Regulation 9. Significantly,

Regulation 7, which provides a table specifying the five bidding criteria to

7
    ―LOI‖

                                               13
evaluate competing bids, does not link the said criteria with the census figures of

2011.


Facts

of the present appeals

11. On 12 April 2018, the Board initiated the bidding process for authorising

entities to lay, build, operate or expand CGD networks for the ninth round. The

bids were invited by means of an application-cum-bid-document for each GA.8

The bidding process covered various GAs, including those of (i) GA 51 –

Puducherry District; (ii) GA – 61 Kanchipuram District; and (iii) GA 62 -Chennai-

Tiruvallur.

12. Clause 1.1. of the Bid Document was titled ‗Geographical area and related

information‘. Clause 1.1.1 stipulated that the Board had identified a GA and was

accordingly inviting applications-cum-bids for the grant of authorisation for

developing a CGD network in the GA. Each GA was depicted in a map at

Annexure-1 of the Bid Document for the relevant GA. Under Clause 1.1.3, it was

the responsibility of each bidder to obtain all information related to the present

gas supply availability, pipeline connectivity and information about existing

customers, if any, in the specified GA. Clause 1.1.3 stated:

―1.1.3. It is the bidder’s responsibility to obtain all
information related to the present gas supply availability
and pipeline connectivity and also existing customers, if
any, in the specified geographical area. The bidder can
also refer to list of NOCs/Permissions granted by PNGRB to
various entities under the provisions of the Internal Guidelines
for grant of NOC/Permission for (i) supply/distribution of
CBM/natural gas through cascades; and (ii) setting up of
CNG/LNG Daughter Booster Stations (DBS), in the areas
where the Board has not yet authorized any entity for

8
With respect to the relevant GA, ―Bid Document‖

14
developing or operating CGD networks at
http://www.pngrb.gov.in/CGD-NOCs.html.‖
(Emphasis supplied)

The scope of work was defined in Clause 1.2 of the Bid Document:

―The entities bidding for this work shall be required to lay,
build, operate or expand the CGD networks to meet
requirement of natural gas in domestic, commercial and
industrial segments including Natural Gas in the vehicular
segment in the said geographical area to be authorized and
also comply with the relevant regulations notified from time to
time.

The entities shall be required to carry out the development of
CGD project in line with the regulations laid down by the
PNGRB.‖

13. Clause 2.1.1 required the bidders to examine the contents of the Bid

Document and the regulations of the Board. Clause 2.1.2 described Annexure-1

as the map depicting the GA and charge areas. Under Clause 2.2.1, any

clarifications were required to be obtained from the Secretary of the Board on or

before the bid closing date. Clause 4.2 stipulated that all financial bids would be

tabulated and compared in accordance with the bidding criteria specified in

Regulation 7 and Schedule-C(1) of the CGD Authorisation Regulations.

Moreover, the bidder with the highest composite score would be declared as

successful in the bid. Under Clause 4.4 of the Bid Document, the Board reserved

the right to accept or reject any bid which it considered to be ―unreasonably high

or low‖:

―4.4 PNRGB’S RIGHT TO ACCEPT OR REJECT ANY OR
ALL APPLICATION-CUM-BIDS

4.4.1 PNRGB reserves the right to reject any Application-

cum-Bid comprising quoted work programme considered by it
to be unreasonably high or low.‖

15
On 31 May 2018, Addendum-1 to the Bid Document was issued by the Board.

Clause 14.2, inserted as a result of Addendum-1, contained the following

clarification:

―14.2 What should be considered to be the level of
“unreasonably high” or “unreasonably low” quotes shall be
decided by Board at the time of bid evaluation on a case to
case basis after considering the relevant factors.‖

According to the above stipulation, the Board clarified that the determination of an

unreasonably high or low quote would be made by the Board at the time of bid

evaluation on a case to case basis after considering the relevant factors.

14. On 10 July 2018, three bid evaluation committees9 were nominated by the

Board for evaluating the bid documents. On 12 July 2018, a press release was

issued by the Board setting out the date and time for the opening of technical

bids for different GAs. The technical bids for GA 51 (Puducherry) were to be

opened on 16 July 2018 at 14.00 hours; for GA 61 (Kanchipuram) on 17 July

2018 at 12.30 hours; and for GA 62 (Chennai-Tiruvallur) on 17 July 2018 at 13.30

hours. The technical bids were opened by the Board in the presence of the

bidders‘ representatives.

15. On 23 July 2018, a note10 was moved for the approval of the members of

the Board with a view to encourage serious bidders and to avoid

unrealistic/unreasonable bidding in terms of Clause 4.4.1 of the Bid Document.

The Board Note, insofar as is material provided:

9

(―BECs‖)
10
―Board Note‖

16
―Subject: Reasonability of Bidding Parameters

Bid evaluation for technical bid is under progress for all 86
GAs. Technical bid queries are being issued and it is
expected that the Financial bid opening may be started from
this week (24th July onwards) for various GAs. The bidding
parameters have been completely changed in current round.

In order to promote serious bidders and to avoid any
unrealistic/unreasonable bidding number committed by entity,
PNGRB has included a rejection clause in Para 4.4.1 of
application-cum-bid documents. The clause is reproduced
below:

―PNGRB reserves the right to reject any Application-cum-Bid
comprising quoted work programme considered by it to be
unreasonably high or law.‖

Since technical bids for some of the GAs are about to be
concluded, it is essential to decide upon the reasonability of
the bidding parameters which are constituting work
programme. In this regard, following is proposed:

1. No of PNG Domestic connections:

Lower Limit: Ministry of Petroleum and
Natural Gas (MoP&NG) vide letter No L-

16021/9/2013-GP-1 (pt.) dated 16th August
2016, constituted a committee to examine the
City Gas Distribution (CGD) bidding related
issues. The committee in its report
recommended minimum work programme
(MWP) for inter-alia PNG domestic
connections as 7.5% of within district
headquarters/ municipal limit. Prior to 9th
round, MWP for PNG domestic connections
was fixed for 5 % total household. Considering
above it is proposed that 2 % of total
Household (Census 2011 data) may be
considered as minimum.

Maximum Limit: In order to reach at
maximum value various possibilities has been
discussed in house which includes conversion
of LPG to PNG, maximum penetration at
present in GAs etc. It is proposed to keep
maximum limit of PNG Domestic connections
as 100 % of Household (Census 2011 data).

Beyond 100 % household may be treated as
unreasonable quote.‖

17
The Board Note was approved by the members of the Board including the

Chairperson. Between 24 July 2018 and 18 August 2018, the financial bids

submitted by the bidders for various GAs were opened by the Board.

16. The Board Note of 23 July 2018 adopted the Census 2011 data on the

total number of households as the basis for computing the minimum and

maximum limits for the purpose of determining unreasonably low or unreasonably

high quotes. The Board Note stipulated that 2 per cent of the total households in

terms of the Census 2011 data would be regarded as the minimum quote.

Anything below 2 per cent would be considered unreasonably low. Similarly, on

the upper end of the spectrum, the Board Note proposed that 100 per cent of the

total households in terms of the Census 2011 data would be regarded as the

maximum. A quotation beyond this upper limit would be construed to be

unreasonably high. Now, two features of the note of the Board Note dated 23 July

2018 must be noted. First, the Board Note was generated after the last date for

the submission of bids. Second, the Board Note was an internal document of the

Board which was not notified to the bidders.

17. The Board commenced the process of opening the financial bids on 24

July 2018. On 2 August 2018, an agenda note was prepared for the Board. The

agenda note outlined that three BECs were nominated for evaluating the bids

received. Technical bids submitted by the bidders were evaluated by ICF, a

consultant, based on the requirements of the Regulations and the Bid

Documents. A summary sheet of the technical bid evaluation was prepared and

checked by the BEC. Thirty-eight entities had submitted bids against 86 GAs.

18
The financial bids of technically eligible bidders were recommended for opening.

The agenda note dated 2 August 2018 spelt out the stipulation contained in

paragraph 4.4.1 of the Bid Document, and of the previous decision of the Board,

to adopt 2 per cent of the total households as the minimum and 100 per cent as

the maximum, both on the basis of 2011 Census data. The agenda note

contained a tabulation of the bids of technically qualified entities. The agenda

note indicated that for four GAs: 35, 46, 48 and 49 where two bids had been

received for each, the highest bidder had quoted an unreasonably low number of

projected PNG connections at the end of eight contract years. Where the bid

below 2 per cent was the sole bid for the GA, the bid was accepted as the GA

would have gone ‗dry‘ otherwise. The agenda note proposed the adoption of

three courses of action with respect to the remaining bids:

(i) Rejection of the bids received for the above four GAs as being

unreasonably low;

(ii) Acceptance of the bids for the four GAs by extending to them the

same logic that was applied for single bid GAs; or

(iii) Inviting the concerned entities with the highest scores for each of

the GAs for negotiation to improve the quoted work programme.

18. The agenda note dated 2 August 2018 was presented before the Board for

deliberation on 3 August 2018. In its meeting, the Board accepted the proposal

for the issuance of LOIs to entities of 48 GAs mentioned in table 3 of the agenda

note. The proposal to invite entities with the highest scores which had submitted

unreasonably low bids for each of the GAs for negotiations and to improve the
19
quoted work programme was approved. Accordingly, on 3 August 2018, the

Board issued a press release recording that it had approved the issuance of LOIs

to 18 successful bidders for 48 GAs. The press release indicated that the

remaining GAs were being evaluated and the outcome would be notified shortly.

19. On 9 August 2018, an agenda note was issued by the Board noting that in

pursuance of the decisions which were taken by the Board on 3 August 2018,

letters have been addressed to the entities which had obtained the highest

composite score but had quoted unreasonably low PNG connections, to confirm

their acceptance of the minimum requirement of 2 per cent of households as per

the 2011 Census data. Table 5 to the agenda note contained a tabulation of bids

which were liable to be rejected due to unreasonably high or as the case may be,

unreasonably low quotes. Among these bids were the bids received from H1

bidders who had quoted unreasonably high PNG connections for the three GAs

which form the subject matter of the present appeals. These were:

―Table -5

Sl No GA Name of GA Name of Quote Remarks
No. bidding
entities

11. GA 61 Kanchipuram Consortium of 114% of 7 other
District AG&P LNG total HH valid bids
Marketing Pte remains
Ltd. & Atlantic
Gulf & Pacific
Company of
Manila Inc.

12. GA 62 Chennai & Torrent Gas 157.00% of 9 other
Tiruvallur Private Limited total HH valid bids
Districts remains

13. GA 63 Coimbatore IMC Limited 107.06% of 12 other
District total HH valid bids
remains

20
From the above Table-5, it can be seen that in 3 GAs have unreasonably
High PNG Connections quoted have been received & also happens to be H1
bidder and are liable for rejection.‖

20. At this stage it may also be necessary to note that table 4 contained a

tabulation of bids among them being those of bidders who were treated as not

―Not-Qualified‖. The agenda note recommended that in three GAs, the bids of the

highest bidders were liable to be rejected since they had quoted an unreasonably

high number of PNG connections to be achieved at the end of eight contract

years. Consequently, the names of the entities which were to be declared as

successful bidders were tabulated in table 6 of the agenda note. According to the

agenda note, after the names of the entities with the highest bids were removed,

IMC Limited was recommended for being declared as the successful bidder for

GA 61 (Kanchipuram District). Similarly, for GA 62 (Chennai & Tiruvallur

Districts), Adani Gas Limited was recommended to be the successful bidder after

the highest bid was declared as ―Not Qualified‖. The agenda note was prepared

by the Authorisation Division and records that it was concurred with by the

Member (I&T) and Member (C&M) and was approved by the Chairperson ―for

deliberations and approval of the Board‖.

21. On 10 August 2018, a meeting was held by the Board. The minutes of the

Board meeting recorded that out of four cases where the quotes for projected

PNG domestic connections were higher than 100 per cent of the households

under the 2011 Census, one of the bidders for GA 63 was not under

consideration as its composite score was not the highest amongst the bids

received for the GA. The other three bidders who had quoted more than 100 per

21
cent of the households for PNG domestic connections were reflected in the

following table:


Sl GA GA name Bidding Entity Quoted for PNG
No. No. Domestic
connections as %
of households as
per 2011 census

1. 61 Kanchipuram Consortium of 114%
Distt. AG&P LNG
marketing Pte
Ltd. and Atlantic
Gulf & Pacific
Company of
Manila Inc.

2. 62 Chennai & Torrent Gas Pvt 157%
Tiruvallur Ltd.

                           Districts
              3.    72     Medchal,        Torrent Gas Pvt     220%
                           Rangareddy      Ltd.
                           & Vikarabad
                           Districts
                                                                                  ‖

The minutes of the meeting went on to record that:

―During deliberations in the Board, the Board referred to
clause 4.4.1 of ACBD which reads, ―PNGRB reserves the
right to reject any application cum bid comprising quoted work
program considered by it to be unreasonably high or low.‖ In
terms of this clause vide note dated 23.07.2018 (i) lower and
upper limits were decided for PNG domestic connections (ii)
lower limits was decided for CNG Stations and (iii) no limit
(higher or lower) was decided for Inch-KM of Steel pipeline.
The Board deliberated that though lower and upper
households were decided, the same need not be a
mechanical exercise and an opportunity be given to affected
entities to explain reasonableness of their quotes.‖

22. The Board thus took a decision that the disqualification of bidders on the

basis of the lower and upper thresholds of 2 per cent and 100 per cent of the

2011 households which it had decided earlier ―need not be a mechanical

exercise‖. Hence, a decision was taken to offer to the three affected entities for

22
GAs 61, 62 and 72, an opportunity to present their case on why their bids should

not be rejected for being unreasonably high. The Board appears to have done so

on the basis that the rejection of their bids, without an opportunity to present their

case would not be ―legally correct‖. This is reflected in the following decision

which was taken by the Board on 10 August 2018:

―(a) To call the bidding entities for GA- 61, GA-62 and GA-
72 which quoted for PNG domestic connections higher than
fixed vide note that 23.07.2018 for discussion on 14.08.2018
to present their case as to why the bids submitted by them for
PNG domestic connections be not considered unreasonably
high. The Board also decided that under these
circumstances, it would not be legally correct to reject their
bids without providing them a chance to present their case.‖

23. On 10 August 2018, a press release was issued by the Board. In

pursuance of the decision which was taken by the Board, on 14 August 2018

presentations were made before it by the three entities for GAs 61, 62 and 72

which had quoted more than 100 per cent of the number of 2011 households.

Apart from the above three GAs, the financial bid for Puducherry (GA 51) was

opened on 18 August 2018. The bidder with the highest composite score for GA

51 had also quoted more than 100 per cent of the total 2011 households and was

called on 23 August 2018 for a presentation before the Board.

24. On 28 August 2018, an agenda note was prepared with respect to the

Board‘s decision on four GAs: 51, 61, 62 and 72. The agenda note contained a

summation of the submissions made by each of the four bidders who had been

called upon to explain why their bids in excess of 100 per cent of the total number

of households as per 2011 Census data should not be considered unreasonably

high. The agenda note contained a tabulation of the percentage of PNG

23
penetration in the projected households in 2026 with respect to the number of

households as per the 2011 Census. The comparative table is extracted below:

24

Sl    GA           GA                 PNG        HH as per 2011      Projected        PNG           PNG
No.   ID                          connections   Census i.e. Upper   HH in 2026*   penetration   penetration
                                   quoted by      Limit of PNG                     in 2026 as    in 2026 as
                                   the bidder   Connections fixed                 per PNGRB        per H1
                                                   by PNGRB                       upper limit      bidder

A     B             C                 D                E                F          G=(E/F)       H=(D/F)

                                                                                     *100          *100

1     51       Puducherry          2,75,000         2,31,513         3,91,852        59%           70%

2     61      Kanchipuram          11,51,111        10,06,245        20,89,765       48%           55%

3     62         Chennai                            12,70,391        20,87,729

                Tiruvallur                          10,63,109        21,34,971

             Total (Chennai &      33,00,000        23,33,500        41,87,734       56%           79%
                Tiruvallur)

4     72   Ranga Reddy (except     10,05,300        4,56,557         10,17,097       45%           99%
             authorised area)
           Presently, Medhchal,
              Rangareddy &
            Vikarabad Districts




                                                      25

25. The Board held a meeting on 29 August 2018. During the meeting, the

Board approved the submission of the following three bidders who had made

presentations before the Board with respect to the reasonableness of their

quotes:

―GA-51: Consortium of SKN Haryana City Gas Distribution
Pvt. Ltd.

GA-61: Consortium of AG&P LNG Marketing Pte Ltd. &
Atlantic Gulf & Pacific Company of Manila Inc.

GA-62: Torrent Gas Private Limited.‖

The Board however rejected the submission of Torrent Gas Private Limited in

respect of the reasonableness of its quote for GA 72 and decided to award the

LOI to Megha Engineering & Infrastructure Private Limited, the entity with the

highest composite score after Torrent Gas Private Limited was disqualified. The

basis of the decision of the Board is contained in the following extracts from the

minutes of 29 August 2018 meeting:

―2. The Board further deliberated as under:

(a) Following the earlier decisions, the three bidders i.e.
Torrent Gas Private Limited, Consortium of AG&P
LNG and SKN Haryana City Gas Private Limited
were called for discussion on 14th and 23rd August
2018 to explain reasonableness of high PNG
connections quoted by them for the above GAs.

(b) The Board referred to table in Para 15 of the agenda
note wherein quoted PNG domestic connections for
the above four GAs were compared with the upper
limit fixed vide noted dated 23.07.2018 and
projected households in 2026 (considering the
number of households as per 2011 Census and the
historical growth rate during 2001 to 2011 as per
census data of 2001 to 2011). It was observed that
penetration of PNG domestic connections based
upon upper limit fixed by PNGRB with reference to
projected number of households in 2026 varied from
45% to 59%. However, penetration of PNG

26
domestic connections based upon quoted PNG
connections with reference to projected number of
households in 2026 varied from 55% to 99%. The
variation between two sets of numbers is 7% to
54%.

(c) The Board observed that the highest variation of
54% is in GA-72, which is based on untenable
assumptions made by the bidder as described in
Para 14.3 of the agenda note. Due to this,
10,05,300 PNG domestic connections quoted by the
bidder are 99% of the projected households by
PNGRB in 2026, which is unreasonably high. It was
also observed that for the remaining 3 GAs, the
variation between two sets of numbers given in para
15 of the Agenda note is 7% to 23% of projected
number of households in 2026 and PNG penetration
would be in the range of 55% to 79%.

(d) The Board also referred to regulation 16(2) of CGD
Authorisation Regulations, which provides for rates
of pre-determined penalty for shortfall in achieving
cumulative work program targets for each contract
year. The entities bidding aggressive number of
PNG domestic connections would be liable to pay
pre-determined penalties under afore-mentioned
regulation 16(2).

(e) In view of the above, it was decided to accept the
quoted PNG domestic connections and award the
Chennai & Tiruvallur District GA (GA-62) to Torrent
Gas Private Limited, Kanchipuram District GA (GA-

61) to Consortium of AG&P LNG Marketing Pte. Ltd
& Atlantic Gulf & Pacific Co. of Manila Inc. and
Puducherry District GA (GA-51) to Consortium of
SKN Haryana City Gas Distribution Pvt. Ltd. and
Chopra Electricals to the bidders with highest
composite score for respective GAs, where the
variation in two sets of numbers is in the range of 7
to 23%. Regarding Medchal, Rangareddy (except
area already authorised) & Vikarabad District GA
(GA-72), where the variation is around 54% and the
bid by Torrent Gas Pvt. Ltd. is based on untenable
assumptions and incorrect map, the bid of the entity
with highest composite score may be considered as
unreasonably high and rejected in terms of Clause
4.4.1 of ACBD. Accordingly, the GA may be
awarded to the bidder with second highest
composite score and LOI may be issued to Megha
Engineering & Infrastructure Pvt. Ltd. Subsequently,
on receipt of PBG, authorisation letter (Schedule D)
may be issued to the above entities.‖

27
The Board issued LOIs to SKN Haryana City Gas Distribution Private Limited and

Chopra Electricals11, AG & P LNG Marketing Private Limited and Atlantic Gulf &

Pacific Company of Manila12 and Torrent Gas Private Limited on 30 August 2018

as successful bidders for GAs 51, 61 and 62 respectively. On 6 September 2018

Adani Gas Limited wrote to the Board requesting a copy of the decision with

respect to the issuance of LOIs for the above three GAs. Subsequently, the

Board uploaded the details of the successful bidders under the ninth CGD round

on its website on 14 September 2018.

26. On 19 September 2018, Appeal No 292 of 2018 was instituted before the

APTEL by Adani Gas Limited, aggrieved by:

(i) The decision to award LOIs, in respect of the three GAs – 51

(Puducherry District), 61 (Kanchipuram District), and 62 (Chennai &

Tiruvallur Districts) on the ground that the successful bids were

beyond the unreasonably high limit adopted by the Board; and

(ii) The action of the Board in issuing the LOIs without uploading the

decision on the website and without communicating it to Adani Gas

Limited.

Following the institution of proceedings by Adani Gas Limited, IMC Limited also

instituted proceedings before the APTEL (Appeal No 323 of 2018) challenging

the grant of authorisation by the Board in respect of GA 61. The prayers in both

appeals were identical and the Tribunal heard both appeals together.

11

―SKN Haryana‖
12
―AG & P LNG‖

28

27. During the pendency of the appeal, by an order dated 11 October 2018 the

APTEL directed the Board to file an affidavit explaining its decision taken on 23

July 2018 and the reasons on the basis of which bids were rejected, including on

the ground of high and low quotes. In pursuance of the above order, the Board

filed an affidavit by which it disclosed the Board Note dated 23 July 2018 together

with a compilation of documents containing board agenda notes, minutes of

meetings and press releases. On a perusal of the documents submitted by the

Board, the competing standing of the various bidders is summarised below for

convenience:

      GA No            Area                   H1 Bidder             H2 Bidder


                                                                   Torrent Gas
       51           Puducherry               SKN Haryana
                                                                  Private Limited

       61          Kanchipuram               AG & P LNG             IMC Limited

                    Chennai –          Torrent Gas Private
       62                                                       Adani Gas Limited
                    Tiruvallur               Limited

In GA 51, Adani Gas Limited was the sixth highest bidder and in GA 61 Adani

Gas Limited was the third highest bidder. In Appeal No 292 of 2018 Adani Gas

Limited challenged the grant of authorisation in GAs 51, 61 and 62 and in Appeal

No 323 of 2018 IMC Limited challenged the grant of authorisation in GA 61.

28. On 28 February 2019, the APTEL pronounced a split decision. While the

Chairperson allowed the appeals filed by Adani Gas Limited and IMC Limited, the

Member Technical (Petroleum and Natural Gas) dismissed the appeals. In view

of the divergence of opinion between the Chairperson and Member Technical

29
(Petroleum and Natural Gas), the appeals were referred to the Judicial Member

of the APTEL. The Judicial Member recused from hearing the appeal on 7 March

2019, as a result of which proceedings were instituted before this Court. As noted

earlier, the appeals pending before the APTEL have been transferred to this

Court.

Analysis

29. Having set out the facts, we now turn to the issues raised by the present

dispute before this Court. The first aspect which forms the subject matter of the

controversy is the relevance of the 2011 Census data in the bidding process. The

primary plank on which the appellants contend that the 2011 Census data was

relevant to the bidding process was the reference to population/household figures

derived from 2011 Census data in the map annexed to the Bid Document.

30. Dr A M Singhvi, learned Senior Counsel appearing on behalf of Adani Gas

Limited, submitted that:

(i) The map which was attached to the Bid Document did not only

describe the land area but also the population and households

comprised in it;

(ii) The rationale for this was that the authorisation is to lay the CGD

network in a defined land area and to service the defined

households in that area;

(iii) The figures for population and number of households in the map

attached to the Bid Document were drawn from the 2011 Census;

30

(iv) In several areas out of the 86 GAs which were a part of the ninth

round of bidding, certain parts of the GAs were excluded from the

zone of authorisation;

(v) Whenever certain parts of the GAs were excluded from the zone of

authorisation, the population/household number was proportionally

reduced to reflect the population/households as per the reduced

area. Examples of the above are Surendranagar (GA-8); and

Medchal-Ranga Reddy (GA-72).

(vi) In GA 72, Medchal-Ranga Reddy:

(a) The original map attached to the Bid Document showed the

entire district with a corresponding number of households of

13,47,118 according to the 2011 Census;

(b) The Bid Document was amended to exclude the area in which

an existing entity was already laying a CGD network as a

result of which not only was the land area reduced but even

the number of households was reduced to 4,56,557;

(c) Torrent Gas Limited Private Limited, which was the highest

bidder for the reduced area had bid 10,05,300 PNG

connections, which worked out to 74.6 per cent of the original

number of households (13,47,118) and 220 per cent of the

reduced number of households (4,56,557);

(d) The Board, at its meeting on 29 August 2018 rejected the H1

bidder for GA 72 on the ground that the bid of 220 per cent of

the households was unreasonably high; and

31

(e) The bid of the H1 bidder for GA 72 was in fact 99 per cent of

the estimated households for 2026 but was yet rejected as

the ‗unreasonably high‘ norm was with reference to the 2011

census and not 100 per cent of the 2026 estimate because if

it was the latter, the H1 bidder would have been declared to

be successful.

(vii) The map annexed to the Bid Document depicted not only the land

area but also the population/number of households which were

intrinsically intertwined in the bid parameters;

(viii) Clause 1.1.3 of the Bid Document mandated bidders to look at the

―existing population‖. Hence, it is incorrect to suggest that the

bidders had to keep in mind the population in the GAs in 2018. On

the contrary, Clause 1.1.1 required bidders to bear in mind the

population/households as given in the map annexed to the Bid

Document; and

(ix) The reference to ‗charge areas‘ in Clause 1.1.2 of the Bid Document

means designated sub-areas which are part of the authorised GAs.

The designation of ‗charge areas‘ is only to facilitate the Board in

determining whether the authorised entity has created its network in

all the GAs for which it is authorised.

31. Opposing the above submissions, Mr Paras Kuhad, learned Senior

Counsel appearing on behalf of the Board submitted a written note, explaining

32
the amendments that were made to the CGD Authorisation Regulations after they

were notified initially on 19 March 2008:

(A) 2008 CGD Authorisation Regulations:

Regulation 7 of the 2008 CGD Authorisation Regulations prescribed a four-

fold criterion for bidding:

(i) Criteria (a) was the lowness of the present value of the overall unit

network tariff with a weightage of 40 per cent;

(ii) Criteria (b) prescribed the lowness of the present value of the

compression charge for CNG for dispensing in the CNG stations

with a weightage of 10 per cent;

(iii) Criteria (c) prescribed the highness of the present value of the inch-

kilometre of steel pipelines proposed to be laid in the CGD network

during the period of exclusivity with a weightage of 20 per cent; and

(iv) Criteria (d) prescribed the highness of the present value of the

number of domestic customers proposed to be connected by PNG

with a weightage of 30 per cent.

Under the Regulations, no upper or lower ceiling was provided for bidding in

respect of the Criteria (a) to (d) of Regulation 7.

(B) 2013 Amendment to the CGD Authorisation Regulations13:

(i) The 2013 amendment amended criteria (a) and (b) and substituted

bidding criteria (c) and (d) with criteria (c);

13

21 June 2013

33

(ii) The successful bidder was required to achieve a Minimum Work

Programme14 in respect of the PNG domestic connections and inch-

kilometres of steel pipeline;

(iii) The minimum number of PNG domestic connections to be achieved

within the first five years of authorisation was to be worked out by

the Board. This was based on the total number of households to be

calculated as per the basic data sheet of the respective districts of

the GA and the population according to the latest census data;

(iv) The weightage of bidding was shifted to 70 per cent for criteria (a)

and 30 per cent for criteria (b). No weightage was given to PNG

domestic connections and inch-kilometres of pipeline; and

(v) The successful bidder was to achieve a target of 15 per cent by the

second year, 50 per cent by the third year, seventy per cent by the

fourth year and 100 per cent by the fifth year.

(C) 2014 Amendment to the CGD Authorisation Regulations15:

(i) The 2014 amendment substituted criteria (c) once again;

(ii) Under the 2014 amendment, the Board was to work out the target

for infrastructure for PNG domestic connections as 5 per cent of the

households of the respective GAs to be achieved by the successful

bidder during the first five years from the grant of authorisation; and

(iii) No weightage was given to criteria (c) – PNG domestic connections

and inch-kilometres.

14

―MWP‖
15
7 April 2014

34
(D) On 16 August 2016, the Ministry of Petroleum and Natural Gas constituted

a committee to examine alternative models for the bidding criteria to grant

authorisation for CGD networks. The committee in its report recommended a

MWP for PNG domestic connections at 7.5 per cent, within district

headquarters/municipal limits. Prior to the ninth round, the MWP was fixed at 5

per cent of the total households.

(E) 2018 Amendment to the CGD Authorisation Regulations16:

(i) The 2018 amendment substituted new criteria for bidding applicable

to the ninth round. The present batch of appeals deals with the ninth

round of bidding; and

(ii) Under the new criteria applicable to the ninth round of CGD bidding,

50 per cent weightage was given to PNG domestic connections.

Moreover, no minimum or maximum limits were set for PNG

domestic connections in the 2018 amendment.

Responding to the appellant‘s submissions on the binding nature of the Board

Note dated 23 July 2018 and the legality of the Board‘s decision to hear only the

highest bidder, Mr Paras Kuhad urged that:

(i) The agenda note dated 9 August 2018 is not binding on the Board

as it clearly states that the contents of the agenda note are subject

to the deliberations and approval of the Board;

(ii) Regulation 7 sets out five parameters on which the bids are to be

evaluated. Once a bidder fulfils the criteria set out in Regulations 5

16
6 April 2018

35
and 7 and emerges as the highest bidder, they have a statutory right

to be selected;

(iii) The CGD Authorisation Regulations do not set out criteria for

determining ―unreasonably high or low‖ bids and no such criteria can

be read into the Regulations and enforced on the Board;

(iv) Clause 4.4.1 read with Addendum 1 explicitly states that the Board‘s

power to determine ―unreasonably high or low‖ bids would be

exercised on a ―case to case basis after considering the relevant

factors‖;

(v) The challenge made by the appellants is an adversarial challenge

and not a Public Interest Litigation. The appellants cannot try and

advance their case by relying on decisions taken in relation to

separate GAs which are not presently under challenge; and

(vi) The calculations made by the appellants with respect to the growth

rate and projected number of households are based on irrelevant

factors.

32. Mr Gopal Subramanium, learned Senior Counsel appearing on behalf of

Torrent Gas Private Limited, supported the arguments urged by the Board and

further submitted that:

(i) Torrent Gas Limited has attended the hearing before the Board,

explained its methodology in calculating its quoted number of PNG

connections, and the quoted figure has been accepted by the Board

as reasonable;

36

(ii) The Board Note dated 23 July 2018 had been formulated

subsequent to the submission of bids. At the time of submitting its

bid, the only criteria known to Torrent Gas Private Limited were

those specified in Regulation 7 and the Bid Document, which did not

prescribe a maximum number of PNG connections; and

(iii) There is no condition in either the CGD Authorisation Regulations or

the Bid Document which require the quoted number of PNG

connections to be calculated on the basis of 2011 Census data.

33. Mr Gopal Sankaranarayanan, learned Senior Counsel appearing on behalf

of SKN Haryana, urged that:

(i) Adani Gas Limited was neither the second nor third placed bidder in

GA 51 on the basis of the composite score, and therefore has no

standing to challenge the LOI granted to SKN Haryana for GA 51;

(ii) Clause 14.2 of the First Addendum makes it clear that there were no

fixed parameters on which an ―unreasonably high or low‖ bid would

be determined, and specified that such determination would take

place on a case to case basis; and

(iii) According to the calculation of composite scores in Schedule C(1),

the bidder with the highest number of PNG connections is at 100%

and all other bidders are reduced in proportion to the highest

bidder‘s score. If 100% of the 2011 Census data was a ‗hard upper

limit‘ on the quoted number of PNG connections, the calculation in

Schedule C(1) would be rendered redundant.

37

34. Mr Kapil Sibal, learned Senior Counsel appearing on behalf of AG & P

LNG, submitted as follows:

(i) AG & P had quoted a figure of 11.51 lakh in its bid for GA 61.

According to the 2011 Census figures, the number of households in

GA 61 was only 10.06 lakhs. However, the Tamil Nadu Generation

& Distribution Corporation Limited (the state electricity board) noted

that as of 2018, there existed 15.91 lakh households in GA 61;

(ii) In GA 37, Indian Oil Corporation had quoted a number of PNG

connections below the 2% threshold and was the highest bidder.

The Board awarded the GA to Bharat Gas Resource Limited, which

had quoted above the 2% threshold. However, Indian Oil

Corporation has not challenged this decision of the Board before the

APTEL or any court, therefore the appellants cannot rely on the

case of GA 37; and

(iii) Each GA is a separate tender having its own unique geographical

and socio-economic factors. Therefore, one cannot compare cases

of other GAs with the GA of Kanchipuram where AG & P LNG has

been awarded the authorisation.

35. The submission which has been urged on behalf of the appellants in

regard to the relevance of the 2011 census data must first and foremost be

assessed in the context of the CGD Authorisation Regulations as amended on 6

April 2018. The Regulations postulate that bidders must submit both technical

and financial bids. The procedure specified in Regulation 5 applies to an

invitation by the Board for laying, building, operating or expanding a CDG

38
network. Regulation 5(6) requires the fulfilment of minimum eligibility criteria. For

a technical bid to pass muster, the minimum eligibility criteria require the bidder to

be qualified both with reference to technical and financial parameters. This is

evident from Regulation 5(6) under which the Board is to scrutinise the bids of

only those entities which fulfil the minimum eligibility criteria. The minimum

eligibility criteria include the technical capability of the bidding entity to (i) lay and

build; and (ii) operate and maintain a CGD network. Both of them are defined with

reference to qualifying criteria. Besides the technical criteria, the minimum

eligibility requirements under Regulation 5(6)(e) incorporate the financial ability to

execute the project and to operate and maintain it in the authorised area. The

financial criteria are defined with reference to the minimum net-worth of the

bidding entity. The net-worth required is dependent on the population of the GA

under the 2011 Census. The minimum net-worth required is specifically defined

with reference to the 2011 census figures of population for the GA. The bidding

entity is also required to submit a bid bond in the form of a performance bond

guarantee. The quantum of the guarantee is dependent on the population of the

GA.

36. Regulation 7 requires the Board to tabulate all financial bids which meet

the minimum eligibility criteria, in accordance with the bidding criteria specified in

the table. The Table incorporated in the Regulation provides five-fold criteria for

the tabulation and comparison of financial bids. The five criteria are:

(i) ‗Lowness‘ of transportation rate for CGD;

(ii) ‗Lowness‘ for transportation rate for CNG;

39

(iii) ‗Highness‘ of the number of CNG stations to be installed in eight

years from authorisation;

(iv) ‗Highness‘ of the number of domestic PNG connections to be

achieved within eight years of authorisation; and

(v) ‗Highness‘ of inch-kilometre of steel pipeline to be laid within eight

years of authorisation.

The third and fourth criteria together account for 70 per cent of the total

composite score. Among them, the fourth criterion – ‗highness‘ of the number of

domestic PNG connections accounts for 50 per cent of the total composite score.

Significantly, the bidding criteria in Regulation 7 are not linked to the 2011

Census figures. There are two significant facets of Regulation 7:

(i) The absence of a linkage of the projected number of domestic PNG

connections with the 2011 Census data; and

(ii) The absence of a cap or ceiling on the ‗highness‘ norm both in

relation to the third and the fourth criteria (iii and iv above).

37. Regulation 7 (1)(b) requires the successful bidder to achieve the target in

terms of an annual work programme within eight contract years. The programme

is distributed between the first and eighth years for PNG connections‘, CNG

stations‘ and Inch-kilometres of steel pipelines. For PNG connections, the

successful bidder must complete 10 per cent of the work programme at the end

of the second year, 20 per cent at the end of the third year, 30 per cent at the

end of fourth year, 40 per cent at the end of the fifth year, 60 per cent at the end

of the sixth year, 80 per cent at the end of the seventh year and 100 per cent at

40
the end of the eighth year. Under Regulation 7(3), a bidding entity with the

highest composite score in terms of the criteria specified in sub-regulation (1) of

Regulation 7 is to be declared as the successful bidder.

38. The provisions contained in the 2008 CGD Authorisation Regulations, as

amended on 6 April 2018, indicate that where a specific linkage was sought with

reference to the 2011 Census data, a clear and categorical provision was made

to that effect. Such provisions are found in regard to the financial capability of a

bidder as part of the minimum eligibility criteria in Regulation 5(6)(e) and the

extent of the performance bond in Regulation 5(6)(h).

39. Absent a condition in Regulation 7 linking the ‗highness‘ of the number of

PNG connections to be achieved within eight years from the date of authorisation

with the 2011 Census data, it would be contrary to basic principles of

interpretation to read such a restriction into the CGD Authorisation Regulations. A

conditionality which has not been incorporated in Regulation 7 cannot be

introduced as a matter of construction. The court must first and foremost read the

Regulation in accordance with its plain and natural meaning. There is evidently a

reason why Regulation 7 did not introduce a ceiling or provide for a linkage with

the Census data of 2011. Consumers or users, as the case may be, in a CGD

network broadly comprise of four categories namely:

      (i)     Domestic;

      (ii)    Commercial;

      (iii)   Industrial; and

      (iv)    Vehicular.


                                        41

40. The Board has submitted with justification that in a model of

cross/subsidisation, the viability of the project has to be perceived from a twenty-

five-year perspective. Gains in one category of users can offset the losses in

another category. The CGD Authorisation Regulations are intended to subserve

the object of establishing the infrastructure necessary for setting up an

operational CGD network. In creating the infrastructure, the successful entity is

contractually bound to set up a project for the future. The infrastructure so

created would be of service to consumers or, as the case may be, users.

Infrastructural projects cater to future needs and can legitimately be forward

looking. It is from this perspective that except for the tariff in the first two bidding

criteria of Regulation 7 (the transportation rates for CGD and CNG), no ceiling

was provided by the Board for the criteria set out in Regulation 7. More

particularly, Regulation 7(3) provided for a mandate to tabulate and compare the

bids of all entities which had met the minimum eligibility criteria upon their

qualifying in a competitive bidding process. The Regulations did not contemplate

the disqualification of a bidder with reference to a norm which would limit a bid to

100 per cent of the population figures provided by the 2011 Census data. For the

Board to stipulate an absolute norm to that effect, when it has not been

specifically incorporated in the Regulations would have rendered the decision

making process vulnerable to a challenge on the ground that it was not consistent

with Regulation 7.

41. Now it is in this background, that it becomes necessary to evaluate the Bid

Document. Clause 1.1.1 incorporates a reference to the GA as depicted in the

map set out in Annexure-1, for which the Board was inviting bids for the grant of

42
an authorisation to develop a CGD network. The main plank of the submissions

of the appellants is that the map contained a reference to population and

household figures on the basis of the 2011 Census. Clause 1.1.3 places the

responsibility on the bidder to obtain information about the present gas supply

availability, the pipeline connectivity and the existing customers in the GA.

Significantly, the scope of work in Clause 1.2 required bidding entities ―to lay,

build, operate or expand the CDG networks‖ to meet the requirement of natural

gas ―in domestic, commercial and industrial segments including natural gas in the

vehicular segment in the said Geographical Area to be authorised.‖ Bidders are

required under Clause 2.1.1 to examine the contents of the Bid Document

including instructions, terms and conditions and regulations of the Board. The

bidder was required to carefully study the GA and the charge area before

submitting the bid. In other words, bidders were on notice of the actions required

to be taken to implement the Regulations. The Bid Document necessarily had to

be in conformity with the CGD Authorisation Regulations. The map, at best was a

compendium of the latest official record of the GA. The map did not dictate how

the number of domestic PNG connections was to be calculated. There is no such

indication particularly in Clause 1 of the Bid Document where the map is

referenced. The mere attachment of a map to the Bid Document would not result

in the imposition of conditions of eligibility or qualification. These have been

provided in the Regulations which have a statutory character. The depiction of

the GA in a map attached to the bid document does not over-ride the specific

requirements of the bidding criteria as defined in Regulation 7.

43

42. The next basis of the challenge by the appellants is that the decision which

was taken in the form of the Board Note dated 23 July 2018 had categorically

stipulated a range of 2 per cent to 100 per cent of the number of households as

per the 2011 Census as the minimum/maximum thresholds to judge the

reasonableness of the bids. It has been urged that despite this, the decision of

the Board dated 10 August 2018 virtually reversed the earlier decision recorded

in the Board Note of 23 July 2018, thereby tainting the decision-making process

with arbitrariness. The nuances to this challenge have been brought out in the

submissions of Dr AM Singhvi, Mr Vikas Singh, learned Senior Counsel on behalf

of Adani Gas Limited and Mr KV Vishwanathan and Mr Buddy Ranganathan,

learned Senior Counsel on behalf of IMC Limited and can broadly be catalogued

in the form of the following points:

(i) The 2 – 100 per cent criterion based on the 2011 Census data is the

basis on which the bids for 79 out of 86 GAs were evaluated;

(ii) In respect of the bids for four GAs (out of the remaining seven GAs)

where the highest bidder had bid a number of PNG connections

below 2 per cent of the number provided by the 2011 Census, those

four bidders were furnished with an opportunity to improve their bids

and match the 2 per cent threshold;

(iii) It is only for the three bidders with the highest composite scores in

GAs 51, 61 and 62 that the bids were evaluated with reference to

the projected number of households in 2026;

(iv) For example, in GA-62 (Chennai-Tiruvallur), there were ten bidders

of whom the bids of nine were evaluated with reference to the 2011

44
Census data on the number of households, whereas the bid of one

bidder (Torrent Gas Private Limited) has been evaluated with

reference to the number of projected households in 2026;

(v) The agenda note dated 9 August 2018 which was approved by three

out of the four Board members recommended that Torrent Gas

Private Limited was not qualified and Adani Gas Limited be declared

as the successful bidder. Yet on 10 August 2018, the four Board

members including the three who had approved the Board Note

concluded that, though the lower and upper thresholds were

decided ―the same need not be a mechanical exercise‖;

(vi) Neither the Bid Document nor the CGD Authorisation Regulations

contain any provision allowing the Board to call upon bidders to

improve their bids;

(vii) The Board Note dated 23 July 2018 which defined the minimum and

maximum threshold (2-100 per cent of the number of households as

per the 2011 Census) without any caveat or provision for relaxation

has been virtually reversed on 10 August 2018, thereby upsetting

the level playing field between bidders;

(viii) The only reason for the reversal of the decision, which is that the

criterion need not be a mechanical exercise is not supported by

reasons and this volte face introduced un-canalized subjectivity in

the process which was earlier considered to be objective and

definite;

45

(ix) The Board decision dated 28 August 2018 wrongly adopts the 2011

Census number as 23,33,500 whereas in the Board Note, the

number of households as per the 2011 census is 21,01,931;

(x) There has been a breach of the principles of natural justice for the

following reasons:

(a) In the Board decision dated 10 August 2018, it was decided to

give a hearing to all affected parties;

(b) The Board undertook the exercise of hearing only Torrent

Gas Limited, AG & P LNG and SKN Haryana; and

(c) The violation of natural justice lies in the fact that these ―not-

qualified‖ bidders were heard on why their bids were

reasonable despite being above 100 per cent of the 2011

Census household data. Neither Adani Gas Limited nor any of

the other unsuccessful bidders were heard on why the bids of

the ―not-qualified‖ bidders were actually unreasonable.

(xi) This Court is justified in reviewing the process adopted by the Board

in evaluating the bids for the ninth round of CGD bidding. It is well

settled that judicial review cannot be denied even in contractual

matters to prevent arbitrariness.

43. Our analysis of the CGD Authorisation Regulations, as amended on 6 April

2018, as explained earlier, reveals that the Regulations did not contain any

stipulation determining a range of 2 to 100 per cent of the number of households

under the 2011 Census as the criterion to evaluate bids. The Regulations in fact

do not link the ‗highness‘ factor of domestic PNG connections to the 2011

46
Census data. In Clause 4.4.1 of the Bid Document, the Board reserved to itself

the right to reject any unreasonably high or low bid. In Addendum-1 to the Bid

Document, the Board clarified to all prospective bidders that the evaluation of

whether a bid was unreasonably low or high would be conducted on a case to

case basis at the time of bid evaluation.

44. It is in the above background that the Board Note dated 23 July 2018 must

be assessed. The Board Note was formulated after the last date for the

submission of bids. The criterion which the Board Note proposed had not been

notified to bidders. Bidders were not on notice that this would be the basis on

which their bid would be evaluated. The Board Note took notice of Clause 4.4.1

of the Bid Document and stipulated that since technical bids for some GAs were

about to be evaluated, it was necessary to decide upon the reasonableness of

the bidding parameters which constituted the work programme. It was in this

background that the Board Note proposed that; ―…2 per cent of total households

(as per the 2011 Census data) may be considered as minimum‖. As regards the

maximum, the Board note proposed that:

―beyond 100 per cent households may be treated as
unreasonably quote‖

(Emphasis supplied)

The terminology adopted by the Board Note indicates that the 2-100 per cent

range was not laid down as an absolute or inflexible basis for disqualifying bids

below the minimum or in excess of the maximum. On the contrary, the use of the

expression ―may be‖ is one indicator that a bid which was below 2 per cent or in

excess of 100 per cent may trigger the exercise of the power which the Board

47
had reserved to itself in clause 4.4.1 of the Bid Document. On its plain terms, the

Board Note cannot be construed to have laid down an absolute norm by which

bids quoting below the minimum of 2 per cent or above the ceiling of 100 per cent

of the number of households under the 2011 Census data would automatically be

rejected as unreasonable.

45. If the Board Note of 23 July 2018 were to be construed in the manner in

which the learned Senior Counsel for the appellants urged, the automatic

disqualification of bidders based on a criterion introduced by the Board Note

would raise serious doubts about its fairness and legality. This is because the

Board Note was not notified to bidders as a basis for the evaluation of bids before

the date for the submission of the bids had closed. To disqualify a bidder on the

basis of a criterion which was not notified and of which bidders had no knowledge

would be arbitrary and would constitute an infraction of Article 14. The Board was

thus correct in determining that the automatic disqualification of a bid on the basis

of a criterion specified in the Board Note (which was never notified to the bidders)

would not be ―legally correct‖. Hence, it would be reasonable to interpret the

Board Note dated 23 July 2018 as being the formulation of a guideline for the

Board. As a guideline in the process of evaluation, the decision taken by the

Board on 23 July 2018 was not to the effect that every bid below 2 per cent or

above 100 per cent would necessarily stand disqualified. Consistently with the

use of the word ‗may be‘, as already noticed, the decision of the Board meant

that the power which the Board reserved to itself in Clause 4.4.1 could be

invoked if it came to the conclusion that the bid had not been justified to be

reasonable. In other words, the breaching of the range of 2-100 per cent was a

48
trigger for the Board to scrutinise the bid and determine whether the power under

Clause 4.4.1 should be invoked. Hence, the course of action which the Board

followed of calling upon the bidders with the highest composite scores in GAs 51,

61 and 62 to justify their bids in terms of their reasonableness cannot be faulted.

On the contrary, if the Board had rejected these bids solely on the ground that

they were above the limit of 100 per cent of households under the 2011 Census

data, the decision would have been seriously flawed for having applied a criterion

which was not a part of the Regulations, was not embodied in the Bid Document

and in any event, was not notified to bidders before they had submitted their bids.

46. Another limb of the submission is that, with respect to GA 62, three out of

the four members of the Board had in the Board agenda dated 9 August 2018

recommended that Torrent Gas Private Limited was not qualified and that Adani

Gas Limited be declared as the successful bidder. This, in our view, is an

incorrect reading of the agenda note. What this submission misses is the last

paragraph of the Board agenda note which states:

―20. This Agenda note has been prepared by Authorization
Division, concurred by Member (I&T) & Member (C&M) and
approved by Chairperson for deliberations and approval of
the Board.‖

(Emphasis supplied)

The agenda note dated 9 August 2018 was a recommendation which was

prepared on the basis of the 2–100 per cent criterion contained in the Board Note

dated 23 July 2018. Obviously in the light of that decision, a recommendation

was made which was still to be deliberated upon by the Board as a body. When

the Board met on 10 August 2018, it correctly came to the conclusion that the

49
lower and upper thresholds were not to be applied mechanically to disqualify

bidders. This decision, as we have indicated earlier, was justified not only by the

terms of the Board Note dated 23 July 2018 but was intrinsic to a fair exercise of

power by the Board. The Board decided that it would call the bidders with the

highest composite score to explain the reasonableness of their bids. This was a

fair opportunity which was granted to the bidders who had the highest composite

score to justify the basis of their computation of projected households over the

eight-contract years.

47. There is no merit in the submission that there was a breach of the

principles of natural justice in calling only the bidders with the highest composite

score to explain the reasonableness of their bids. None of these bidders was

being called upon to revise or improve their bids. In terms of the CGD

Authorisation Regulations, the bidder with the highest composite score has to be

declared as the successful bidder. If despite having the highest composite score,

a bidder was being considered for rejection by the Board, it was that bidder who

was justifiably called to explain the reasonableness of the bid. The other bidders

had no locus to participate in the process. It is a settled principle of law that the

rules of natural justice are attracted where a decision affects a right of a party

against whom the decision has to be made. After the composite score of all

bidders is calculated, the second highest bidder has no rights vis-à-vis the

highest bidder or the Board unless the method of calculating the highest

composite score itself is impugned. Calling upon the bidders with the highest

composite score to explain the reasonableness of their bid did not alter the

composite score of the H1 bidders or any other bidder for the same GA. The

50
question of hearing any other bidder would have arisen only if the H1 bidder

stood disqualified, and the bidder with the next highest composite score also

breached the 2-100 per cent range, thereby warranting scrutiny from the Board.

In the present situation, when the Board decided to call the bidders with the

highest composite score in order to allow them an opportunity to explain

reasonableness of their bid, the administrative decision taken by the Board

cannot be faulted as being in violation of the principles of natural justice.

48. At the 82nd meeting of the Board, which was held on 29 August 2018, the

reasonableness of the bids submitted for GAs 51, 61, 62 and 72 came up for

consideration. In GA 62 (Chennai-Tiruvallur) Torrent Gas Private Limited, relied

on the current LPG domestic connections (41,73,073) according to the statistics

of the Tamil Nadu government. This was extrapolated until 2026 taking the

growth rate at 5 per cent per annum. On this basis, Torrent Gas Private Limited

as the H1 bidder justified before the Board its quoted figure of PNG connections

of thirty-three lakhs. For GA 61 (Kanchipuram), AG & P LNG explained that its

computation was based on:

(i) The urbanisation rates in the Kanchipuram district;

(ii) Extrapolations of the number of households based on historical

growth rates;

(iii) The twin city status of Chennai and Kanchipuram; and

(iv) The per capita income growth in Kanchipuram district.

On this basis, AG & P LNG justified its number for projected PNG connections.

For GA-51 (Puducherry), SKN Haryana based its computation on the compound

51
yearly growth of households in the previous twenty years. Based on this growth

rate, the bidder calculated the projected households till 2026 and accordingly

presented this computation to the Board when called upon.

49. In its minutes dated 29 August 2018, the Board noted that the four GAs:

51, 61, 62 and 72 were compared with the upper limit fixed by the agenda note

dated 23 July 2018 and projected households in 2026. The penetration of PNG

domestic connections based on the upper limit fixed by the Board with reference

to the projected number of households in 2026 varied from 45 per cent to 59 per

cent. However, the penetration of PNG domestic connections based on quoted

PNG connections with reference to the projected number of households in 2026

varied from 55 per cent to 99 per cent. The variation between the two sets of

numbers was between 7 per cent to 54 per cent. The Board noted that it was in

GA 72 where the highest variation of 54 per cent took place. The bid submitted

by Torrent Gas Private Limited for GA 72 was consequently rejected. The Board

observed that the computation for GA 72 by Torrent Gas Private Limited was

based on untenable assumptions as described in para 14.3 of the agenda note.

According to these assumptions, the PNG domestic connections quoted by the

Torrent Gas Private Limited was 99 per cent of the projected households by 2026

which was taken as an unreasonably high penetration figure. However, for the

remaining three GAs, the variation was between 7 per cent to 23 per cent of the

projected households in 2026, and PNG penetration would be in the range of 55

per cent to 79 per cent. This exercise was carried out by the Board to enable it to

consider the reasonableness of the bids. Torrent Gas Limited, whose bid was

accepted for GA 62, was however not considered for acceptance for GA 72 since

52
its computation of the number of projected households and penetration rate was

deemed unreasonable. In our view, the Board has certainly given a possible

basis for coming to the conclusion that the bids submitted by the bidders with the

highest composite score for GAs 51, 61 and 62 were reasonable and ought not to

be rejected.

50. The agenda note dated 9 August 2018 merely tabled discussion on the

disputed GAs. The highest bidders for GAs 61 and 62 were heard by the Board

on 14 August 2018. The highest bidder for GA 51 was heard by the Board on 23

August 2018. The final decision to award authorisation in GAs 51, 61 and 62 to

AG & P LNG, Torrent Gas Private Limited and SKN Haryana (the highest

bidders) respectively was finally taken by the Board in its meeting on 29 August

2018. This decision was taken after hearing the bidders on whether their bids

were reasonable or not. The Board did not reject all other bidders or

presumptively announce these entities as successful bidders before making a

determination as to the reasonableness of their bids. In light of this chronology of

events, at no point did the Board reverse its decision with respect to the GAs in

question.

51. The appeals before APTEL pertained to GAs 51, 61 and 62. The present

proceedings were not in the nature of a public interest litigation instituted under

Article 226 of the Constitution before a High Court challenging the entirety of the

tendering process. Both before this Court and APTEL, it was contended that the

Board had rejected bids in other GAs which were not-qualified on the ground that

they were either below 2 per cent or above 100 per cent of the number of

53
households as per the 2011 Census figures. The Member Technical (Petroleum

and Natural Gas) at APTEL examined the submission in paragraph 60 of the

decision and held:

―60. Though the appeal pertains to only GAs, 51,61 & 62, the
Appellant also submits that the Board rejected 37 numbers of
bids which were not qualified because their bids were below
2% and higher than 100% of 2011 census figures as per the
Board‘s Press Release dated 10.08.2018 uploaded in its
website. Though, the instant appeal also strictly pertains to
only highness of PNG domestic connections, still for the sake
of completeness, let me understand the status of these bids.

On clarification, the Board has stated that there were only 9
bids with H-1 bidders quoting below 2% and above 100%
limits of 2011 census. These 9 bids were accordingly
highlighted to the Board, and final decisions were taken on
these 9 bids by the Board after proper application of mind,
hearing the parties and taking an objective decision. Out of 9
bids, 4 bids having lower than 2% connections were accepted
after raising their bids through discussions with the bidders,
otherwise, these GAs would have gone dry. In GA-37, IOC‘s
bid was rejected because of lower than 2% quote, but this
decision of the Board has not been challenged by IOC. Out of
the remaining 4 GAs where H-1 bidders quoted more than
100% of PNG connections of 2011 census household
numbers for 3 GAs (51, 61 & 62), H-1 bidders were declared
successful bidders after hearing them on their
reasonableness of quotes. For the 4th GA (GA No. 72), the
bid of the H-1 bidder who is the R-2 in the instant case was
rejected having found its bid unreasonable and the GA was
awarded to the next highest bidder and the H-1 bidder has
not challenged this decision.‖

This clarification by the Board as well as the findings which have been recorded

by the Member Technical (Petroleum and Natural Gas) commends itself for

acceptance.

52. In addition to their submissions with respect to the binding nature of the 2 –

100 per cent range set out in the Board Note dated 23 July 2018, the appellants

54
also argued that the Compounded Annual Growth Rate 17 considered by the

Board for the period between 2001 and 2011 was higher than the actual annual

growth rate, leading the Board to project a higher number of households for 2026

than may actually exist. It was alleged that the Board used the figure of 23,33,500

as the number of households existing in 2011 instead of 21,01,931 in calculating

the growth rate, resulting in an inflated growth rate. This high growth rate,

according to the appellants, led the Board to accept the submissions made by

Torrent Gas Private Limited in justifying an ―unreasonably high‖ quote for the

number of households for the year 2026.

53. In his judgement, the Member Technical noted that the appellant had in

fact calculated the CAGR using overall population growth instead of using

household growth. Evidently, for the purpose of projecting the number of PNG

connections within a GA, it is the number of households and not the overall

population that is relevant as each household is unlikely to have more than one

PNG connection. Moreover, as neither the CGD Regulations nor the Bid

Document required the number of projected households to be calculated on the

basis of 2011 Census data, the decision of the Board to accept the justification

provided by the bidders cannot be attacked on the ground that the figures

provided did not strictly match the numbers extrapolated from the 2011 Census

data. Lastly, the Member Technical (Petroleum and Natural Gas) observed:

―51. … Moreover, the calculations have been done by an
expert body (the Board) which has been constituted as per
Statutory Act. In addition, the estimates on future PNG
domestic connections made by the 3 bidders based on
various parameters are only estimates. These are not
meant to be arrived at by any specified formula or direct

17
―CAGR‖

55
mathematical precision. The power to weed out
unreasonably high or low quote is only an enabling
power and not a yardstick or parameter for evaluation.‖

(Emphasis supplied)

The power granted to the Board under Clause 14.2 of the Bid Document is an

enabling clause that allows the Board to apply its mind to a quote and determine

its reasonableness. The quotes submitted by all bidders with respect to the

projected number of households in 2026 are admittedly estimates. Similarly, the

Board‘s own determination of a baseline for comparing the reasonableness of

various quotes is also an estimate. Therefore, the Board‘s use of the baseline

figure and its consequent acceptance of the reasonability of a quote cannot be

faulted because it did not strictly adhere to one particular methodology of arriving

at a number of projected households unless the methodology used is arbitrary,

having no correlation with the result sought to be achieved. We therefore approve

of the finding of the Member Technical with respect to the calculation of the

number of households.

54. The present batch of appeals arises from two divergent opinions of the

Chairperson and the Member Technical (Petroleum and Natural Gas) of the

APTEL. Several arguments urged by the appellants before us find voice in the

opinion of the Chairperson. Therefore, for the sake of completeness it is

necessary to briefly advert to the opinion of the Chairperson allowing the appeals.

The Chairperson observed as follows:

―136. … On 23.07.2018 certain criteria/parameters were
indicated by this so called Evaluation Committee in the
Agenda Note. … This indicates that the exercise so far as
criteria/ parameters was uniform for all the bids. …. The
report on Agenda Note dated 09.08.2018, in fact,
recommended that the highest bidders of GA 51, 61, and

56
62 were disqualified since their quote of PNG connections
were beyond 100% of the total households of 2011 census.
… However, the Minutes of the Board dated 10.08.2018
indicate that the four members of the Board out of which three
had approved Agenda Note, changed their opinion so far as
disqualification of highest bidder of these three GAs 51, 61
and 62. It‘s also noticed from the affidavit of the Board filed
09.11.2018 that the Board has correctly applied the
unreasonable low criteria to all the bidders whose bid
was below 2%, but surprisingly the bids which were
beyond the limit of 100% of 2011 census, the Board
thought it fit to relax the criteria by calling the high bidders
for negotiation. If the Board thought it fit to hear the
affected parties, then it ought to have invited all the
affected parties of the said GA i.e., all the bidders who
stand to lose the bid, since such procedure was exercised
so far as unreasonably low criteria to all bidders who quoted
below 2% of 2011 census. Assessment of reasonability of
a bid cannot be equated with the concept of rejection of a
bid as not qualified for a particular criteria. Reasonability
of a bid has reference to subjective assessment/satisfaction.

The assessment of a bid based on the available material
would amount to objective assessment.‖
(Emphasis supplied)
It is evident from the above extract that the Chairperson‘s findings are based on

three key assumptions:

(i) The Board Note dated 23 July 2018 was binding on the Board and

the agenda note dated 9 August 2018 was evidence of the Board

Note‘s binding nature;

(ii) Because the Board disqualified certain other bidders by applying the

2 – 100 per cent range, it was bound to do so against the successful

bidders in GAs 51, 61 and 52; and

(iii) Because the assessment of reasonability was a ―subjective

assessment‖, the Board was obligated to hear other bidders in the

disputed GAs before declaring successful bidders.

55. As noted previously, on a bare construction of the Board Note dated 23

July 2018 and the fact that the Board Note was formulated after the last date for

57
the submission of bids, the Board Note did not set out absolute criteria for

disqualification of bids. The agenda note dated 9 August merely tabled a

proposal to apply the criteria of 2-100 per cent range but the Board did not

subsequently adopt this course of action, a decision within its power and indeed

necessary to preserve the integrity of the bidding process. Having established

that the Board Note was not an absolute binding criteria, and the Tribunal was

approached only with respect to GAs 51, 61 and 62, the Board‘s treatment of

other GAs cannot be decisive in determining the legality of the authorisations

granted in GAs 51, 61 and 62, especially where the Board‘s actions in respect of

these other GAs have not been independently challenged. Lastly, the

Chairperson has construed the assessment of the reasonability of the highest

bidder‘s quote as a decision affecting the rights and liabilities of all other bidders

for the GAs, thus requiring them to be heard. As noted previously, the

assessment of the reasonability of the bid was a matter solely between the

highest bidder and the Board. Such an assessment would not alter the scores of

the highest bidder vis-à-vis the scores of the other bidders. The sole question

was whether the highest bidder‘s quote was reasonable, and the power to

determine such reasonability resided solely with the Board by virtue of Clause

14.2 of the Bid Document. Thus, the presence and hearing of other bidders was

not necessary.

56. For the above reasons, we disagree with the opinion of the Chairperson

and concur with the view which was taken by the Member Technical (Petroleum

and Natural Gas) to dismiss the appeals. The Appeals are accordingly dismissed.

58
Transferred Cases Nos 27 of 2019 and 26 of 2019 are disposed of. There shall

no order as to costs.

57. Pending application(s), if any, shall stand disposed of.

…….………….…………………………………………J.
[DR DHANANJAYA Y CHANDRACHUD]

……..…..…..…….………..……………….………..J.

[HEMANT GUPTA]

New Delhi;

February 17, 2020.

59



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