TMI Blog2009 (5) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to and called for the sake of brevity as Amended Regulation ) is the question involved herein. BACKGROUND FACTS 3. It arises in the following factual matrix. The Parliament enacted Electricity Act, 2003 (hereinafter referred to as, the said Act ). In exercise of its jurisdiction conferred by Section 178 of the said Act, the Central Electricity Regulatory Commission (for short, CERC ) made Central Electricity Regulatory Commission (Procedure, Terms and Conditions for Grant of Trading License and other related matters), Regulation 2004 (for short, the Regulation ) Indisputably, in terms of the provisions of the said Act as also the Regulations, inter alia, license is required to be taken by a person who is desirous of dealing in inter-state trading, which in terms of Regulation 2(g) means transfer of electricity from the territory of one State to the territory of another State by an electricity dealer . 4. Appellant No. 1 is a Public Limited Company incorporated and registered under the Indian Companies Act. 5. Pursuant to or in furtherance of the said Act and the Regulations, the appellant No. 1 herein filed an application for grant of inter-State Trading Lic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n through the amended Regulation will have a retrospective effect. An appeal preferred thereagainst is pending before the Appellate Tribunal for Electricity. 8. Appellants filed Writ Petitions before the High Court questioning the validity of the said Regulation. By reason of the impugned judgment the said Writ Petitions have been dismissed. CONTENTIONS 9. Mr. Dipankar Gupta, the learned Senior Counsel appearing on behalf of the appellants, inter alia, would submit :- i. Having regard to the objects and reasons for which the said Act was enacted, the High Court must be held to have committed a serious error insofar as it held that the Amended Regulations would apply to the appellant No. 1's application. ii. It was also contended that sufficient guidelines having been laid down as regards disqualification of persons applying for grant of licence, the impugned Regulations must be held to be ultra vires Article 14 of the Constitution of India. iii. In any event, keeping in view the facts and circumstances of this case, the provisions should be read down. 10. Mr. Parag Tripathi, learned Additional Solicitor General appearing on behalf of the respondent, would, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of this Act. Section 17 imposes certain restrictions on activities of licensing. Section 18 empowers the appropriate commission to amend the terms of an existing licence in public interest. This power can be exercised by the appropriate commission either on an application made in this connection by the licensee or suo motu. Section 19 lists the grounds for revocation of a licence. Section 52 lays down the provisions with respect to eligibility of electricity trader for grant of licence. The said section provides that the Commission may specify the technical requirement, capital adequacy requirement and creditworthiness for being an electricity trader. Section 66 mandates that the Appropriate Commission shall endeavour to promote the development of a market (including trading) in power in such manner as may be specified and shall be guided by the National Electricity Policy referred to in Section 3 of the Act. Section 76 provides for constitution of a Central Commission. Functions of the Central Commission are laid down in Section 79 thereof; clauses (e) and (j) of Sub-Section (1) whereof reads as under: (e) to issue licenses to persons to function as transmis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in writing; Explanation: For the purpose of determining as to whether the applicant is a `fit and proper person', the Commission may take account of any consideration, as it deems fit, including but not limited to the following, namely:- (i) financial integrity of the applicant. (ii) His competence; (iii) His reputation and character; and (iv) His efficiency and honesty. INTERPRETATION 17. Regulation 6A has been inserted. The said provision is imperative in character. It is couched in negative language. It provides for disqualifications. Indisputably, a subordinate legislation should be read in the context of the Act. Thus read, Regulation 6A should be construed in terms of the requirements contained in Section 52 of the Act, namely, technical requirement, capital adequacy, requirement and creditworthiness for being an electricity trader. It affects the creditworthiness of the applicant. It also affects the credit effectiveness, namely, (1) financial integrity of the applicant; (2) his competence; (3) his reputation and character; and (4) his efficiency and honesty. It affects a pending proceeding. Because of the said amendment, an interim licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a Managing Director, if in its opinion, he was not a fit and proper person. This Court held that the satisfaction contemplated thereby must be the result of an objective appraisal of relevant material and subject to the judicial scrutiny. Stating that by reason thereof, the Central Government was not made the final arbiter of the existence of the ground on which the satisfaction may be founded. Such a power was held to be a quasi judicial one and not an administrative one, carrying with it a duty arising from the nature of the Act empowered to be done the job for which it is to be done, the conditions in which it is to be done and its repercussion upon the power of the company, the shareholders, the creditors and the general public for whose benefit, the power is to be exercised. This decision, therefore, itself may be considered to be an authority for the proposition that where the Parliament thought it fit and proper to confer such a power upon an authority exercising quasi judicial power, the same is specifically conferred by the provisions of the Act itself and not by a subordinate legislation. Paragraph 19 of the said decision clearly shows that for the purpose of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s concern, therefore, would be not only to see that the Statute is intra vires the Constitutional scheme including the legislative field, but also as to whether it passes the test of reasonableness having regard to the object and purpose of the Act. For achieving the aforementioned purpose not only the premise, relevancy of the constitutional scheme in relation thereto is required to be taken into consideration as would be noticed a little later but therefor the doctrine of purposive interpretation should also be resorted to. [ See New India Assurance Company Ltd. v. Nusli Wadia and Another, { (2008) 3 SCC 279 } ] In UCO Bank Anr. vs. Rajinder Lal Capoor [(2008) 5 SCC 257], this Court held: 26. It is now a well-settled principle of interpretation of statutes that the court must give effect to the purport and object of the Act. Rule of purposive construction should, subject of course to the applicability of the other principles of interpretation, be made applicable in a case of this nature. When a disqualification is provided, it is to operate at the threshold in respect of the players in the field of trading in electricity. When, however, a regulatory statute is so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinate legislation and the burden is upon him who attacks it to show that it is invalid. It is also well recognized that a subordinate legislation can be challenged under any of the following grounds: (a) Lack of legislative competence to make the subordinate legislation. (b) Violation of fundamental rights guaranteed under the Constitution of India. (c) Violation of any provision of the Constitution of India. (d) Failure to conform to the statute under which it is made or exceeding the limits of authority conferred by the enabling Act. (e) Repugnancy to the laws of the land, that is, any enactment. (f) Manifest arbitrariness/unreasonableness (to an extent where the court might well say that the legislature never intended to give authority to make such rules) 16. The court considering the validity of a subordinate legislation, will have to consider the nature, object and scheme of the enabling Act, and also the area over which power has been delegated under the Act and then decide whether the subordinate legislation conforms to the parent statute. Where a rule is directly inconsistent with a mandatory provision of the statute, then, of course, the task of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d between the applicant and the licensor. Each one of the criteria laid down in the explanation refers to creditworthiness. 28. In State of Kerala ors. vs. Unni anr. [(2007) 2 SCC 365], this Court has held: When a subordinate legislation imposes conditions upon a licensee regulating the manner in which the trade is to be carried out, the same must be based on reasonable criteria. A person must have means to prevent commission of a crime by himself or by his employees. He must know where he stands. He must know to what extent or under what circumstances he is entitled to sell liquor. The statute in that sense must be definite and not vague. Where a statute is vague, the same is liable to be struck down. In State of Rajasthan ors. vs. Basant Nahata [(2005) 12 SCC 77] Section 22-A of the Registration Act, 1908 which was inserted by Rajasthan Amendment Act 16 of 1976 was struck down, holding:-(1) The executive while making a subordinate legislation should not be permitted to open new heads of public policy, (2) the doctrine of public policy itself being uncertain cannot be a guideline for anything or cannot be said to be providing sufficient framework for the executive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not been shown how it will protect the consumer interest. ULTRA VIRES ISSUE 31. Section 52 of the Act is without prejudice to the provisions contained in sub-Section (c) of Section 12. By reason of the said provision the appropriate Government is vested with the power to specify:- (1) Technical requirement; (2) Capital adequacy requirement and; (3) Creditworthiness in relation to an electricity trader. Regulation 6 deals with capital adequacy requirement and creditworthiness. Regulation 6A (b), therefore, cannot have anything to do with capital adequacy requirement and creditworthiness. The finding of the High Court to that effect cannot be upheld as Regulation 6A is a stand alone provision providing for a set of disqualifications. Although by the said provisions, it cannot be said that the legislature has exhausted itself but the same should also be taken into consideration for the purpose of determining the effect of the Regulations. As Section 52 does not empower the Regulation making authority to provide for qualification or disqualification, the delegated legislation or a subordinate legislation as is well known must conform exactly to the power granted. In Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh various clauses contained therein are merely illustrative in nature and not exhaustive, we will assume that although the matter relating to grant of licence is covered by Section 12 and 14 of the Act, the Regulation making power may also be available for the said purpose. 33. We have noticed hereinbefore the effect of sub-Section (1) of Section 178. We may only notice that clauses (a), (b), (c) and (o) which are referable to the provisions of Sections 14 and 15 as such do not provide for any power to deal with disqualification authorizing the respondent to frame regulation. This Court in Kerala Samasthana Chethu Thozhilali Union vs. State of Kerala ors. [(2006) 4 SCC 327] held as under: 37. Furthermore, the terms and conditions which can be imposed by the State for the purpose of parting with its right of exclusive privilege more or less have been exhaustively dealt with in the illustrations in sub-section (2) of Section 29 of the Act. There cannot be any doubt whatsoever that the general power to make rules is contained in sub-section (1) of Section 29. The provisions contained in sub-section (2) are illustrative in nture. But, the factors enumerated in sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not enter into the merit of the matter. Their primary concern are with the decision making process. LOCUS STANDI OF THE APPELLANT 35. Mr. Tripathi would urge that the appellant had no vested right in regard to grant of licence. It may be so. But then it has a right to be considered therefor. Consideration for such grant must be based on a legal and valid statute. The case of the applicant cannot be rejected at the threshold relying on or on the basis of statutory provisions which are ultra vires. Submission of Mr. Tripathi that the appellant had no locus standi to question the validity of the Regulation, therefore, is not correct. 36. In Tashi Delek Gaming Solutions Ltd. vs. State of Karnataka ors. [(2006) 1 SCC 442], this Court held: If by a statutory provision the right of an agent to carry on his business is affected, he may, in our considered opinion, in his own right maintain an action. [See also Calcutta Gas Company (Proprietary) Ltd. vs. State of West Bengal ors. (AIR 1962 SC 1044)] 37. Strong reliance has been placed by Mr. Tripathi as also by the High Court on State of Tamil Nadu vs. M/s Hind Stone ors. [(1981) 2 SCC 205]. One of the issues invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso like Hind Stone (supra) there was no intimation from the State Government to the applicant that it was found qualified for grant of mining lease. 41. Reliance has also been placed by Mr. Tripathi on Commissioner of Municipal Corporation, Shimla vs. Prem Lata Sood ors. [(2007) 11 SCC 40]. This Court therein was concerned with a planning and development statute framed under the Himachal Pradesh Town and Country Planning Act, 1977. In that case, this Court was considering the enforcement of right in several stages holding that the `conditions precedent' laid down therein unless satisfied no right can be said to have vested in the person concerned. 42. The cases relied upon by Mr. Tripathi are distinguishable on fact. We accept the general principle that an applicant by filing a mere application cannot be said to have derived a vested right but we are of the opinion that he has a right to be considered. It will bear repetition to state that such consideration must be made not only on the basis of a valid statute but also rationale and objective criteria should be applied therefor. EPILOGUE 43. The law sometimes can be written in such subjective manner that it affects ..... X X X X Extracts X X X X X X X X Extracts X X X X
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