Agp City Gas Private Limited & Anr. vs. Petroleum And Natural Gas Regulatory Board & Ors.

Facts

The petitioner, AGP City Gas Private Limited (AGP), assailed an order dated June 9, 2022, passed by the Petroleum and Natural Gas Regulatory Board (PNGRB). The PNGRB order held that AGP was not ready to supply natural gas through interconnected pipelines, and therefore, the third respondent could not be compelled to source gas from AGP. AGP sought a declaration that as the Authorized Entity (AE) for the Alappuzha, Kollam, and Thiruvananthapuram Districts (AKT GA), it alone was authorized to supply, market, and distribute natural gas in all its forms within that area. The dispute centers on the nature of exclusivity an AE can claim, the obligations placed upon it, and the circumstances under which exclusivity can be revoked, particularly concerning the interpretation of "City or Local Natural Gas Distribution Network" and "piped natural gas."

Held

The Court held that the Proviso to Regulation 3(2)(a) of the Authorization Regulations is applicable only when the Authorized Entity (AE) is found to be not ready or unable to supply natural gas and meet the needs of a consumer. A failure to adhere to work schedules and milestones, while it may expose an AE to other actions by the Board, cannot independently trigger the Proviso. The Court reasoned that the Act establishes exclusivity as a protection for the AE during the gestation period to recoup massive capital expenditure, but this is balanced by obligations to consumers. The exclusivity is intended to facilitate the creation of a national gas grid and incentivize investment. The Court found that the statutory regime aims to balance the rights of the AE and the consumer, with the Proviso serving as a safeguard for consumers when the AE cannot meet their requirements. The Court also rejected the argument that the statutory regime curtails the right of free choice under Article 19(1)(g) as the rights are subject to reasonable restrictions. The Court quashed the impugned order of June 9, 2022, and reserved liberty to the Board to re-evaluate the issue of MWP targets.

Key Issues

1. Whether the Petitioner No. 1, as the Authorized Entity (AE) for the AKT Geographical Area (GA), possesses exclusive rights to supply, market, and distribute natural gas in all its forms within the GA, as per Section 2(i) of the Act and Regulation 2(1)(i) of the Authorization Regulations? 2. Whether the Proviso to Regulation 3(2)(a) of the Authorization Regulations, which allows consumers to source natural gas from alternate suppliers if the AE is not in a position to meet their requirements, can be invoked solely based on the AE's failure to adhere to work schedules and milestones, or only if the AE is genuinely not ready or unable to supply? Petitioner's Arguments: AGP argued that it is the designated AE for the AKT GA and, by virtue of this status, holds exclusive rights for the supply and distribution of natural gas. They contended that the PNGRB's impugned order incorrectly interpreted the scope of exclusivity and the conditions under which the Proviso to Regulation 3(2)(a) could be applied. AGP relied on the comprehensive nature of its authorization and the need to protect its investments. Respondents' Arguments: The respondents, including PNGRB and other entities, argued that the AE's exclusivity is not absolute and is subject to its readiness to supply and meet consumer demands. They contended that the Proviso to Regulation 3(2)(a) is a crucial safeguard for consumers and can be invoked if the AE fails to meet its obligations, including developmental milestones. They also highlighted the policy objectives of promoting natural gas usage and protecting consumer interests.