ADANI GAS LIMITED v. PETROLEUM AND NATURAL GAS REGULATORY BOARD AND ORS.

p. 155 Copy page pinpoint

REGULATORY BOARD [DR. DHANANJAYA Y CHANDRACHUD J.]

43Copy pinpoint43. 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 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.

44Copy pinpoint44. It is in the above background that the Board Note dated 23 C 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 D 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: E

“beyond 100 per cent households may be treated as unreasonably quote” (Emphasis supplied) The terminology adopted by the Board Note indicates that the 2- F 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 had reserved to itself G 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. H

p. 156 Copy page pinpoint

45Copy pinpoint45. 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 D ‘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 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.

46Copy pinpoint46. Another limb of the submission is that, with respect to GA 62, G 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 H agenda note which states:

p. 157 Copy page pinpoint

REGULATORY BOARD [DR. DHANANJAYA Y CHANDRACHUD J.]

“20. This Agenda note has been prepared by Authorization A 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 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.

47Copy pinpoint47. 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 question of hearing any other bidder would have arisen only if the H1 bidder stood disqualified, and the bidder with the H

p. 158 Copy page pinpoint

A 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. B

48Copy pinpoint48. 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. C 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: D (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 E (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 yearly growth of households in the previous twenty years. Based on this growth rate, the bidder calculated the F projected households till 2026 and accordingly presented this computation to the Board when called upon.

49Copy pinpoint49. 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. G 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 H

p. 159 Copy page pinpoint

REGULATORY BOARD [DR. DHANANJAYA Y CHANDRACHUD J.]

was between 7 per cent to 54 per cent. The Board noted that it was in A 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 GA72 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 B PNG domestic connections quoted by the Torrent Gas Private Limitedwas 99 per cent of the projected households by 2026 which was taken as an unreasonably high penetration figure. However, for the remaining threeGAs, 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 C 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 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.

50Copy pinpoint50. 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. G

51Copy pinpoint51. 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 H

p. 160 Copy page pinpoint

A 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 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: B “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 C 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. F 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 G been recorded by the Member Technical (Petroleum and Natural Gas) commends itself for acceptance.

52Copy pinpoint52. 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 also argued that the Compounded Annual H

p. 161 Copy page pinpoint

REGULATORY BOARD [DR. DHANANJAYA Y CHANDRACHUD J.]

Growth Rate17 considered by the Board for the period between 2001 A 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.

53Copy pinpoint53. 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 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 G 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 17 “CAGR” H

p. 162 Copy page pinpoint

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. B We therefore approve of the finding of the Member Technical with respect to the calculation of the number of households.

54Copy pinpoint54. 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 C 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. … D 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 62 were disqualified since their quote of PNG connections were beyond 100% of the total households of E 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. H

p. 163 Copy page pinpoint

REGULATORY BOARD [DR. DHANANJAYA Y CHANDRACHUD J.]

Reasonability of a bid has reference to subjective assessment/ A 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: B

(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 C 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. D

55Copy pinpoint55. 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 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 E 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 F 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 G 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 H

p. 164 Copy page pinpoint

A Document. Thus, the presence and hearing of other bidders was not necessary.

56Copy pinpoint56. 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 B Appeals are accordingly dismissed. Transferred Cases Nos 27 of 2019 and 26 of 2019 are disposed of. There shall no order as to costs.

57Copy pinpoint57. Pending application(s), if any, shall stand disposed of.

C Kalpana K. Tripathy Appeals dismissed.