Holding

Clauses (b) and (f) of Regulation 6A are ultra‑vires the Electricity Act, 2003 and the Constitution as they exceed the CERC’s delegated power and are unreasonably vague.

Summary

The Central Electricity Regulatory Commission (CERC) granted an interim inter‑state trading licence to Global Energy Ltd., but later invoked Regulation 6A of the 2006 amendment to disqualify the applicant on grounds of pending legal proceedings and a vague "fit and proper" test, revoking the licence. The appellants challenged the constitutional validity of clauses (b) and (f) of Regulation 6A, arguing that the CERC had exceeded its delegated authority under the Electricity Act, 2003 and that the provisions were vague, arbitrary and violative of Articles 19(1)(g), 14 and 21 of the Constitution. The Supreme Court examined the scope of the CERC’s rule‑making power under s.178, the requirement that subordinate legislation must conform to the enabling Act, and the need for clear, non‑arbitrary criteria for disqualification. It held that Regulation 6A introduced qualifications not contemplated by the Act, lacked sufficient guidelines, and therefore was ultra‑vires. Consequently, the Court set aside the CERC’s order, declared the impugned clauses void, and directed the Commission to consider the licence application afresh. The appeals were allowed with costs.

Issues considered

The scope of the CERC’s delegated authority under s.178 of the Electricity Act, 2003 to prescribe disqualification criteria.
Whether clauses (b) and (f) of Regulation 6A are ultra‑vires the Electricity Act and the Constitution.
Whether the disqualification provisions are vague, arbitrary and violative of Articles 19(1)(g), 14 and 21 of the Constitution.
Whether the applicant has a legitimate expectation to be considered under the criteria laid down in the Act.
The propriety of applying Regulation 6A retrospectively to an already granted interim licence.

Legislation cited

Constitution of Indias. Article 14, s. Article 19(1)(g), s. Article 21, s. Article 226, s. Article 245, s. Article 246, s. Article 32
Electricity Act, 2003s. 12, s. 14, s. 15, s. 16, s. 178, s. 19, s. 21, s. 245, s. 246, s. 29, s. 52

Subjects

Electricity Act 2003Regulation 6Ainter‑state trading licencedelegated legislationultra vireslegitimate expectationdisqualification criteriaArticle 19Article 14judicial reviewCERCsubordinate legislation

Judgment

[2009] 9 S.C.R. 22

'A GLOBAL ENERGY LTD. & ANR.
v.
CENTRAL ELECTRICITY REGULATORY COMMISSION
(Civil Appeal Nos.3457-58 of 2009)
'
MAY 11, 2009
B
[S.B. SINHA AND CYRIAC JOSEPH, JJ.]

Electricity Act, 2003 - ss. 52 and 178 - Central Electricity
Regulatory Commission (Procedure, Terms and Conditions
C for Grant of Trading License and other related matters)
Regulations, 2004 - Central Electricity Regulatory
Commission (Procedure, Terms and Conditions for Grant of
Trading License and other related matters) (Amendment)
Regulations, 2006 - Regulation 6A - Clauses (b) and (f) -
o Validity of - Challenge to - H.eld: Clauses (b) and (f) of
Regulation 6A are ultra vires the Constitution as also the Act
- The provisions inherently perpetuated injustice in award of
licenses for inter-state trade of electrical energy and brought
uncertainty and arbitrariness - Delegated /Subordinate
E legislation - Constitution of India, 1950-Articles 19(1)(g) and
245. /

Judicial Review - Parameters for - Held: Availability of
judicial review, by itself cannot be a ground to declare a
subordinate legislation valid which otherwise it is not -
F Constitution of India, 1950 - Articles 32 and 226 -
Administrative Law.

Doctrines - Doctrine of Legitimate Expectation -
Applicability of - In context of grant of inter-state trading
G license.
In exercise of its jurisdiction conferred by s.178 of the
Electricity Act, 2003, the Central Electricity Regulatory
Commission (CERC) framed Central Electricity

H 22
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 23
REGULATORY COMMISSION
Regulatory Commission (Procedure, Terms and A
Conditions for Grant of Trading License and other related
matters) Regulations, 2004. In terms of the Act and the
Regulations, license was required to be taken by a
person desirous of dealing in inter-state trade of electrical
energy. B

. Appellant no.1-company applied for inter-state
trading license and during pendency of consideration of
such application, applied for interim issuance of licence,
which was granted. Meanwhile, in 2006, the Regulations C
were amended vide the Central Electricity Regulatory
Commission (Procedure, Terms and Conditions for Grant
of Trading License and other related matters)
(Amendment) Regulations, 2006 whereby Regulation 6A
was brought into force, which provided for
disqualifications for grant of licence for inter-state D
trading. The CERC applied Regulation 6A with
retrospective effect and rejected the application of
appellant no.1 for inter-state trading license. An appeal
preferred thereagainst is pending before the Appellate
Tribunal for Electricity. Appellants filed Writ Petitions E
questioning the validity of the said Regulation which
were dismissed by the High Court.

In appeals to this Court, the constitutional validity of
clauses (b) and (f) of Regulation 6A was in question. F

Allowing the appeals, the Court

HELD: 1. Section 178 of the Electricity Act, 2003
provides for regulation making power. Sub-Section (1)
thereof empowers the Commission to make regulations G
consistent with the Act and the rules generally to carry
out the provisions of the Act. The rule making power "for
carrying out the purpose of the Act" is a general
delegation. Such a general delegation may not be held
to be laying down any guidelines. Thus, by reason of H
24 SUPREME COURT REPORTS [2009] 9 S.C.R.

A such a provision alone, the regulation making power
cannot be exercised so as to bring into existence
substantive rights or obligations or disabilities which are
not contemplated in terms of the provisions of the said
Act. The power of the regulation making authority, thus,
B must be interpreted keeping in view the provisions of the
Act. [Paras 13, 18 and 19] [38-C-D; 41-D]

Kunj Behari Lal Butail & Ors. vs. State of H.P. & Ors.
(2000) 3 SCC 40; State of Kera/a & Ors. vs. Unni & Anr.
(2007) 2 SCC 365 and A .P. Electricity Regulatory
C Commission vs. Mis R. V.K. Energy Pvt. Ltd. & Anr. (2008) 9
SCALE 529, relied on.

The Rampur Distillery Co. Ltd. v. The Company Law
Board & Anr. (1969) 2 SCC 774, referred to.
D
2.1. Section 52 of the Electricity Act, 2003 lays ttown
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,
E capital adequacy requirement and creditworthiness for
being an electricity trader. [Para 13] [37-F]

2.2. Regulation GA is imperative in character. It is .,. .
couched in negative language and provides for
disqualifications. Regulation GA is a disqualifying statute.
F The statute, however, does not provide for any machinery
to collect independent material for being placed before
the proper authority as regards evaluation of credit
effectiveness and creditworthiness of the applicant.
[Paras 17 and 20) [42-E-F] .
G
2.3. A subordinate legislation should be read in the ).._
context of the Act. Thus read, Regulation GA should be
construed in terms of the requirements contained in
Section 52 of the Act. [Para 17] [40-C-D]
H
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 25
REGULATORY COMMISSION
3.1. Article 19(1 )(g) of the Constitution confers A
fundamental right on every citizen to carry out business,
trade, profession or occupation. Clause (6) of Article 19,
however, provides for imposition of reasonable
restrictions by a statute. In the event a statute provides
for licensing, in a case of this nature, the same must thus B
be found to satisfy the test of reasonableness. The
standard for determining reasonableness of a statute so
as to satisfy the constitutional scheme as adumbrated in
Article 14 of the Constitution must receive a higher level
of scrutiny than an ordinary statute. Such a higher level c
of scrutiny is necessary not for the purpose of
determining the Constitutionality of the statute alone vis-
a-vis the field of legislative power as envisaged under
Article 245 of the Constitution but also having regard to
the object and purpose, the statute seeks to achieve.
0
[Para 21] [43-D-G]

3.2. Participation of the private sector inter a/ia in
trading was encouraged by the provisions of the Act. The
Court's concern, therefore, would be not only to see that
the Statute is intra vires the Constitutional scheme E
including the legislative field, but also as to whether it
passes the test of reasonableness having regard to the
i
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 F
to be taken into ·consideration but therefor the doctrine
of purposive interpretation should also be resorted to.
[Para 21] (43-H; 44-A-C]

3.3. When a disqualification is provided, it is to G
operate at the threshold in respect of the players in the
field of trading in electricity. When, however, a regulatory
statute is sought to be enforced, the power of the
authority to impose restrictions and conditions must be
construed having regard to the purpose and object it H
26 SUPREME COURT REPORTS [2009] 9 S.C.R.

A seeks to achieve. Dealing in any manner with generation,
distribution and supply and trading in electrical energy is
vital for the economy of the country. The private players
who are permitted or who are granted licence in this
behalf may have to satisfy the conditions imposed. Such
B conditions must be reasonable. The doctrine of
proportionality may have to be invoked. The Superior
Court would ensure that the subordinate legislation has
been framed within the four corners of the Act artd is
otherwise valid. [Para 21] [44-E-G]
C, Udai Singh Dagar v. Union of India (2007) 10 SCC 306;
New India Assurance Company Ltd. v. Nusli Wadia and
Another (2008) 3 SCC 279 and UCO Bank & Anr. vs. Rajinder
Lal Capoor (2008) 5 SCC 257, relied on.

D Clariant International Ltd. & Anr. vs. Securities &
Exchange Board of India (2004) 8 SCC 524; Secretary,
Ministry of Chemicals & Fertilizers, Govt. of India vs. Gip/a Ltd.
& Ors. (2003) 7 SCC 1 and State of T.N. & Anr. vs. P.
Krishnamurthy & Ors. (2006) 4 SCC 517, referred to.
E
4.1. A legislative policy providing for qualification or
disqualification of a person for obtaining a trading licence
should not be vague or uncertain. Parameters must be
laid down therefor for determining the financial integrity,
reputation, character, efficiency and honesty of the
F applicant. An explanation appended to clause (f} of
Regulation 6A points out various aspeets that may be
considered while determining the said criteria. However,
what should be the criteria in regard to financial integrity,
character, reputation, etc. have not been defined. How
G and in what manner the said criteria are required to be
ascertained have not been_ laid down, the criteria are
subjective ones. [Para 26] [46-G-H; 47-A-C]

4.2. A disqualifying statute must be definite and not
H
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 27
REGULATORY COMMISSION
i, uncertain; it should not be ambiguous or vague. A
Requisite guidelines in respect thereof should be laid
.... down under the statute itself. [Para 27] [47-C-D]

4.3. Essential legislative functions cannot be
delegated. The delegatee m"ust be furnished with 8
adequate guidelines so that arbitrariness is eschewed.
On what basis and in particular, keeping in view the
possible loss of reputation and consequently the
business of an applicant for grant of licence would suffer, ,
it was obligatory on the part of the Parliament to lay down
requisite guidelines therefor. The factors enumerated in C
the 'Explanation' appended to clause (f) of Regulation GA ,
are unlimited. For determining the question as to whether ,
the applicant is a fit and proper person, a large number
ottactors may be taken into consideration. It for all intent ,
and purport would be more than the technical D
requirement, capital adeC"rJacy requirement and credit
worthiness for being an 'electricity trader' as envisaged
under Section 52 of the Act. [Para 27] [47-D-G]

State of Kera/a & Ors. vs. Unni & Anr. (2007) 2 SCC 365 .E
and State of Rajasthan & Ors. vs. Basant Natasha (2005) 12
sec 77' referred to.
5. The power of the Regulatory Commission to
impose qualification/restrictions should be read in line
with the larger object of the Act. The Consumer tariff is F
to be laid down by the Commission. How licensees would
operate their business lo the extent permissible under law
should be subject to Regulation, which ordinarily should
not be resorted to discourage private participation in the
power sector. A trader of electricity does not deal with G
consumers; he is merely an intermediary between a
generating company and a distribution licensee. The tariff
that a distribution licensee will charge from its consumers
is regulated. Even the margin that a trader can make is
regulated. It is, therefore, not correct to contend that H
28 SUPREME COURT REPORTS [2009] 9 S.C.R.

A Regulation 6A is in consumer interest as it has not been
shown how it will protect the consumer interest. [Para 30] ..
[49-E-G]

6.1. Regulation 6 deals with capital adequacy
requirement and creditworthiness. Regulation 6A (b),
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
C 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 of the Act does not empower tfte
Regulation making authority to provide for qualification
D or disqualification, the delegated l~gislation or a
subordinate legislation must conform exactly to the
power granted. [Para 31] [50-B-D]

6.2. Clause (b) of Regulation 6A provides for a
E disqualification only on the ground of involvement _of the
applicant or any of its promoters, partners, directors,
associates etc. in any legal proceeding. The same may
or may not by itself be sufficient to disqualify a person,
but the Commission must be satisfied that grant of
...
F licence in the circumstance may adversely affect the
interest of the electricity sector or of the consumers.
Such legal proceedings are, apart from the judgment of
convictions of an offence involving moral turpitude or
any economic offence on the part of the applicant or his
G partner, or promoter, or Director, or associates at any time
in the past, as it may have something to do with the I- ..._
pending legal proceedings in which the Commission is
· a party. The correctness of the Commission's
determination of a dispute between the applicant and the
Commission may be a subject matter of a legal
H
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 29
REGULATORY COMMISSION
proceeding. Only because a legal proceeding had been A
pending and the Commission is of the opinion that the
.......... same adversely affects the interest of the electricity
sector or of the consumers cannot by itself be an
objective criteria as by reason thereof the statutory
authority would necessarily be required to enter into the ' s
merit of the proceeding. The members of the Commission
need not necessarily be trained in law; they may not be
having legal background and, thus, a power conferred on
it so as to directly or indirectly enter into the merit of a
legal proceeding in which it may itself be involved would ,c
not be a fair and reasonable criteria. [Para 34] [52-D-H;
53-A-B]

6.3. Clause (f) to Regulation GA mandates recording
of reasons in writing. In the event, thus, if wrong reasons
are recorded a judicial review would be maintainable. But D
availability of judicial review itself, although is a relevant
factor, by itself cannot be a ground to declare a
subordinate legislation valid which otherwise it is not.
Judicial review from an administrative decision lies on a
very narrow compass. The superior courts in exercise of E
their jurisdiction under Article 226 or 32 of the
Constitution ordinarily would not enter into the merit of
the matter. Their primary concern are with the decision
making process. [Para 34] [53-8-E]
F
Supreme Court Employees' Welfare Association vs.
Union of India & Anr. (1989) 4 SCC 187 an·d Kera/a
Samasthana Chethu Thozhila/i Union vs. State of Kera/a &
Ors. (2006) 4 SCC 327, referred to.

7. It was urged that the appellant had no vested right G
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 H ·
30 SUPREME COURT REPORTS [2009] 9 S.C.R. ..

A are ultra vires. The submission that the appellant had no
locus standi to question the validity of the Regulation is -
not correct. [Para 35] [53-E-G]

Tashi Delek Gaming Solutions Ltd. vs. State of Kamataka
& ors. (2006) 1 SCC 442; Calcutta Gas Company
.
B
(Proprietary) Ltd. vs. State of West Bengal & ors. AIR 1962
SC 1044; State of Tamil Nadu vs. Mis Hind Stone & Ors.
(1981) 2 SCC 205; S.B. International Limited & Ors. vs.
Assistant Director General of Foreign Trade & Ors. (1996) 2
c sec 439, referred to.
8. In the present case, the appellant applied for grant
of licence and was found to be qualified therefor having
satisfied the statutory requirements. It was granted an
interim licence. It has started trading in electricity. It,
D therefore, had a legitimate expectation that in considering
the application for grant of licence, the same criteria as
laid down in the statute shall be applied. Though an
applicant by filing a mere application cannot be said to
have derived a vested right but he has a right to be
E considered. Such consideration must be made not only
on the basis of a valid statute but also rationale and
objective criteria should be applied therefor. [Paras 39 and
42] [55-A-B; 55-H; 56-A-B]
P. T.R. Exports (Madras) Private Limited & On. vs. Union
F of India & Ors. (1996) 5 SCC 268 and Commissioner of
Municipal Corporation, Shim/a vs. Prem Lata Sood & Ors.
(2007) 11 sec 40, distinguished.
9.1. If the statute provides for point-less discretion to
G agency, it is in essence demolishing the accountability
strand within the administrative process as the agency "- ..,.
is not under obligation from an objective norm, which can
enforce accountability in decision-making process. All
law making, be it in the context of delegated legislation
H or primary legislation, have to conform to the
- 1
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
REGULATORY COMMISSION
fundamental tenets of transparency and openness on A
31

... one hand and responsiveness and accountability on the
other. These are fundamental tenets flowing from Due
Process 1equirement under Article 21, Equal Protection
clause embodied in Article 14 and Fundamenta,I
Freedoms clause ingrained under Article 19. The B
approach to writing of laws, rules, notifications etc. has
~
to showcase these concerns. [Para 43] [56-C-F]

9.2. Law has to provide a basic level of "legal
security" by assuring that law is knowable, dependable
and shielded from excessive manipulation. In the context.
c
of rule making, delegated legislation should establish the.
structural conditions within which those processes can ,
function effectively. However, when the provision
'r
inherently perpetuates injustice in the award of licenses
D
,
and brings uncertainty and arbitrariness it would be best
to stop the government in the tracks. [Para 43] [56-G:..H;
57-A; 57-D]

9.3. Clauses (b) and (f) of Regulation GA are declared
ultra vires the Constitution as also the Act. [Para 44] [57- E
F)

Case Law Reference:
'1'
.... (2000) 3 sec 40 relied on Para 18
(2001) 2 sec 365 relied on Para 18
F

(2008) 9 SCALE 529 relied on Para 18
(1969) 2 sec 114 referred to Para 20

(2001) 1o sec 306 relied on Para 21 G
--\
i-• (2008) 3 sec 219 relied on Para 21

(2008) s sec 2s1 relied on Para 21
(2004) 8 sec 524 referred to Para 23
H
32 SUPREME COURT REPORTS [2009] 9 S.C.R.
!di

A (2003) 1 sec 1 referred to Para 23 1"

(2006) 4 sec 517 referred to Para 25 .,..'
;-
(2001) 2 sec 365 referred to Para 28
(2005) 12 sec 11 referred to Para 28
B
(1989) 4 sec 187 referred to Para 31
y;.
(2006) 4 sec 327 referred to Para 33 /L

(2006) 1 sec 442 referred to Para 36 '
c
AIR 1962 SC 1044 referred to Para 36
(1981) 2 sec 20s referred to Para 37
.,......'
1996) 2 sec 439 referred to Para .38
D (1996) s sec 268 distinguished Para 39 -t

(2007) 11 sec 40 distinguished Para 41
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. I
' ~
3457-3458 of 2009.
E
From the Judgment & Order dated 15.12.2006 of the High
Court of Delhi at New Delhi in Writ Petition No. 13822-23 of
2006. ..,.

Dipankar Gupta, Jaideep Gupta, Sanjay Sen, Rana S. .....
F
Biswas, Rajiv Yadav and Sarla Chandra for the Appellants

Parag P. Tripathi, ASG, Nikhil Nayyar and T.V.S.
Raghavendra Sreyas for the Respondents.

G The Judgment of the Court was delivered by

S.B. SINHA, J. 1. Leave granted. 1- ..
INTRODUCTION

H 2. Constitutional validity of clauses (b) and (f) of Regulation
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 33
REGULATORY COMMISSION [S.B. SINHA, J.]
6A of the Central Electricity Regulatory Commission A
(Procedure, Terms and Conditions for Grant of Trading License
and other related matters) (Amendment), Regulation 2006
(hereinafter referred to and called for the sake of brevity as
"Amended Regulation") is the question involved herein.
B
BACKGROUND FACTS
j;
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 c
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") D.
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 E
by an electricity dealer".

~
4. Appellant No. 1 is a Public Limited Company
incorporated and registered under the Indian Companies Act.
F
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 License under Category 'A' before
CERC on 23.3.2004. CERC published a notice as regards the
said application filed by the appellant No. 1 for grant of inter-
G
state Trading License in all editions of 'Indian Express',
-~ Financial Express' and a vernacular daily 'Jansatta'. Appellant
No. 1 also filed an interlocutory application seeking permission
to trade in the electricity pending final disposal of its petition
for grant of inter-state trading license as it had been engaged
H
34 SUPREME COURT REPORTS [2009] 9 S.C.R.

A· in inter-state trading of electricity prior to the commencement ,.
of the said Act. By reason of af1 order dated 31.3.2004, the said
application was allowed. Objections filed to the appellant No.1 's
application for grant of license pursuant to the aforementioned
notice were also rejected by an order dated 30.6.2004.
B
6. On or about 6.9.2004, CERC directed as under:

"(i) The petitioner No. 1 was qualified for the grant of
Category 'A' license for inter-state trading in electricity for
trading up to 100 million units in a year.
c
(ii) The CERC proposed to issue the license for inter-state
trading to the petitioner No. 1 as category 'A' trader.

(iii) The petitioner No. 1 was directed to publish a notice
under Section 15(5) of the Act. Section 15(5) of the Act
D
reads as follows:

'15. Procedure for grant of licence .

. E (5) Before granting a licence under section 14, the
Appropriate Commission shall-

(a) publish a notice in two such daily newspapers, as
that Commission may consider necessary, stating
the name and address of the person to whom it
F proposes to issue the licence;

(b) consider all suggestions or objections and the
recommendations, if any, of the Central
Transmission Utility or the State Transmission Utility,
G as the case may be."

7. After the publication of notices, objections were also ~-
received as regards appellant No. 1's trading in inter-state
supply of electrical energy pursuant to the aforementioned
H interim order. The matter was taken to High Court and interim
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 35
REGULATORY COMMISSION [S.B. SINHA, J.]
, license granted to appellant No. 1 was extended by the High A
Court from time to time.

Draft Regulations were published to which appellant No.
1 filed objection. The Amended Regulations were notified on
3.4.2006. By an order dated 20.8.2006, CERC rejected the
B
application filed by the appellant No. 1 for grant of inter-state
;; trading license opining that Regulation 6A brought in through
the amended Regulation will have a retrospective effect. An
appeal preferred thereagainst is pending before the Appellate
·Tribunal for Electricity.
c
•'
. 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.
y
D
CONTENTIONS

9. Mr. Dipankar Gupta, the learned Senior Counsei
appearing on behalf of the appellants, inter alia, would submit:-

i. Having regard to the objects and reasons for which E
the said Act was enacted, the High Court must be
held to have committed a serious error insofar as
' -4 it held that the Amended Regulations would apply
to the appellant No. 1's application.

ii. It was also contended that sufficient guidelines F
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.
G
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 H
36 SUPREME COURT REPORTS [2009] 9 S.C.R.

A appearing on behalf of the respondent, would, however, '
support the impugned judgment.

THE ACT

11. The said Act was enacted to consolidate the laws
B relating to generation, transmission, distribution, trading and
use of electricity and generally for taking measures conducive
to development of electricity industry, promoting competition
therein, protecting interest of consumers and supply of
electricity to all areas, rationalization of electricity tariff, ensuring
C transparent policies regarding subsidies, promotion of efficient
and environmentally benign policies, constitution of Central
Electricity Authority, Regulatory Commissions and
establishment of Appellate Tribunal and for matters connected
therewith or incidental thereto.
D
12. Indisputably, one of the objects and reasons for
enacting the said Act was to encourage private sector's
participation in generation, transmission and distribution of
electrical energy. Trading is considered to be a distinct activity.
E Preamble of the Act also refers to distribution and trading as
one of the objects sought to be achieved by reason of the said
Act.

13. Section 2(71) defines "trading" to mean purchase of .,..
electricity for resale thereof and the expression "trade" is
F construed accordingly. Part IV of the Act providing for licensing,
inter alia, mandates that no person shall undert~~e· tra~ing in
electricity unless he is authorized to do so byaJicence issued ..
under Section 14, or is exempt underSe~Ho.rl.13: .
~ ·~.J, ~' . ' '

Section 14 of the Act, inter alia, .provides for grant of
G licence to any pe.rson inter alia trading in electricity as an
electricity tradet.· · '" '.. ' ·: · '· ·· · · t-
. . . .. ~ ·,

Section 15 provides for the detailed procedures for grant
of licence as also the exercises required to be undertaken by
H
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 37
REGULATORY COMMISSION [S.B. SINHA, J.]

the appropriate commission therefor. Section 16 of the Act A
empowers the Appropriate Commission to lay down conditions
for grant of licence, which is as under:

"16. Conditions of licence. - The Appropriate
Commission may specify any general or specific B
conditions which shall apply either to a licensee or class
JI of licensees and such conditions shall be deemed to be
conditions of such licence:

Provided that the Appropriate Commission shall,
within one year from the appointed date, specify any C
general or specific conditions of licence applicable to the
licensees referred to in the first, second, third, fourth and
fifth provisos to section.14 after the expiry of one year from
the commencement of this Act."
D
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 E
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 F
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 G
.. (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 H
38 SUPREME COURT REPORTS [2009] 9 S.C.R.

A Commission. Functions of the Central Commission are laid
down in Section 79 thereof; clauses (e) and U) of Sub-Section
(1) whereof reads as under:

"(e) to issue licenses to persons to function as transmission
licensee and electricity trader with respect to their inter-
B
state operations;

)()()( )()()( )()()(

U) to fix the trading margin in the inter-State trading of
c electricity, if considered, necessary.

Section 178 of the ·Act provides for a regulations making
power. Sub-Section (1) thereof empowers the Commission to
make regulations consistent with the Act and the rules generally
to carry out the provisions of the Act. Sub-Section (2) of Section
D 178, inter alia, prescribes that such regulations may provide,
inter alia, for (a) period to be specified under the first proviso
to Section 14; (b) the form and the manner of the application
under sub-section (1) of Section 15; and (c) the manner and .
particulars of notice under sub-section (2) of section 15.
E
THE REGULATION

14. Sub-Regulation (4) of Regulation 2 applies to trading
carried out bilaterally between the generating company,
including captive generating plant, distribution licensee and the
F
electricity. trader on the one hand and the electricity trader and
the distribution licensee on the other. Supply to consumers is,
thus, not ageneral function.

15. Chapter II of the Regulations lay down the procedure
G for grant of licence for inter-state trading.

16. Chapter Ill lays down the requirements of being an
electricity trader. The title of Regulation 6 is Capital adequacy,
Requirement and Creditworthiness, in terms whereof the net
H worth of the electricity trader at the time of application is
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 39
REGULATORY COMMISSION [S.B. SINHA, J.]
required to be not less than the amounts specified thereunder. A
Chapter IV provides for the terms and conditions of the licence.
Regulation 7 lays down the obligations of the licensee.

AMENDMENT IN REGULATION

"5. Insertion of Regulation 6A: After regulation 6 of the 8
principal regulations, the following shall be inserted,
namely:-

"6A. Disqualifications: The applicant shall not be
qualified for grant of licence for inter-state trading, c
if:

(a)

-t- (b) The applicant, or any of his partners, or promoters,

• or Directors or Associates is involved in any legal
proceedings, and in the opinion of the Commission
grant of licence in the circumstances, may adversely
affect the interest of the electricity sector or of the
D

consumers; or
E
(c) ..........

(d) ..........
"'
-f
~

(e) ..........
F
(f) The applicant is not considered a fit and proper
person for the grant of licence for any other reason
to be recorded in writing;

Explanation: For the purpose of determining as to whether
the applicant is a 'fit and proper person', the Commission G
may take account of any consideration, as it deems fit,
including but not limited to the following, namely:-

(i) financial integrity of the applicant.
H
40 SUPREME COURT REPORTS [2009] 9 S.C.R.

A (ii) His competence;

(iii)· His reputation and character; and

(iv) His efficiency and honesty."

B INTERPRETATION
17. Regulation 6A has been inserted. The said provision
is imperative in character. It is couched in negative language.
It provides for disqualifications.
c 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.
D
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.
E It affects a pending proceeding. Because of the said
amendment, an interim licence granted in favour of the
appellant stood revoked.

This, however, would not mean that an amendment made
F in a regulation wou.id under no circumstance, affect pending
proceeding.

18. It is now a well settled principle of law that the rule
making power "for carrying out the purpose of the Act" is a
G general delegation. Such a general delegation may not be held
to be laying down any guidelines. Thus, by reason of such a
provision alone, the regulation making power cannot be
exercised so as to bring into existence substantive rights or
obligations or disabilities which are not contemplated in terms
H of the provisions of the said Act.

r
•
.. GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 41
REGULATORY COMMISSION [S.B. SINHA, J.]

.. 1
We may, in this connection refer to a decision of this Court
in Kunj Behari. Lal Butail & Ors. vs. State of H.P. & Ors .
((2000) 3 SCC 40], wherein a Three Judge Bench of this Court
held as under :
A

"14. We are also of the opinion that a delegated power to
B
legislate by making rules "for carrying out the purposes of
the Act" is a general delegation without laying down any
guidelines; it cannot be so exercised as to bring into
existence substantive rights or obligations or disabilities
not contemplated by the provisions of the Act itself."
c
(See also State of Kera/a & Ors. vs. Unni & Anr. (2007)
... 2 SCC 365 (Paras 32 to 37), A.P. Electricity Regulatory
Commission vs. Mis R. V.K. Energy Pvt. Ltd. & anr. (2008) 9
SCALE 529)
-+ ,D
19. The power of the regulatior making authority, thus, must
be interpreted keeping in view the provisions of the Act. The
Act is silent as regards conditions for grant of licence. It does
not lay down any pre-qualification therefor. Provisions for
impositjon of general conditions of licence or conditions laying
E
down the prequalifications therefor and/or the conditions/
qualifications for grant or revocation of licence, in absence of
'-1 such a clear provision may be held to be laying down
__..., guidelines by necessary implication providing for conditions/
qualifications for grant of licence also.
F
20. Mr. Tripathi had relied on a decision of this Court in
The Rampur Distillery Co. Ltd. V. The Company Law Board
&Anr. [(1969) 2 SCC 774). This Court therein was considering
the validity of a provision laying down the concept of a 'fit and
proper person' for the purposes of Section 326(2) of the G
~ -~ Companies Act, 1956 by reason whereof the Central
Government has been conferred power to refuse the approval
of appointment of a Managing Director, if in its opinion, he was
not a fit and proper person. This Court held that the satisfaction
>""i H
42 SUPREME COURT REPORTS [2009] 9 S.C.R. ·.
·~

-
A contemplated thereby must be the result of an objective
appraisal of relevant material and subject to tl)e 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
B 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
c for whose benefit, the power is to be exercised.
, r
This decision, therefore, itself may be considered to be an
- authority for the proposition that where the Parliament thought 4IJ=
it fit and proper to confer such a power upon an authority
exercising quasi judicial power, the same is specifically
D 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 arriving at a satisfaction that a person was fit
E and proper to be re-appointed as managing agent, all past
~-

conduct and actings were required to be taken into
consideration. Regulation 6A is a disqualifying statute. The
statute, however, does not provide for any machinery to collect - ·f-
independent material for being placed before the proper
F authority as regards evaluation of credit effectiveness and
creditworthiness of the applicant.

CONSTITUTIONALITY ISSUE

21. For deciding the question involved herein, we must
G notice the purport and object for which such disqualifications
have been brought into the statute book. In terms of Section 52 .. ~
.

of the Act, the creditworthiness of the applicant must be
apparent. Creditworthiness of an applicant can be considered
from two angles. It may have two concepts, one is positive and
H the other is negative. ""
. GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY
REGULATORY COMMISSION [S.B. SINHA, J.]
43

--;
Four aspects of creditworthiness are envisaged in ~he A

..... Regulations as would appear from the Explanation appended
thereto, which are as under:-

(i) financial integrity of the applicant;

(ii) his competence; B

(iii) his reputation and character; and

(iv) his efficiency and honesty.

Article 19(1 )(g) of the Constitution of India confers c
fundamental right on every citizen to carry out business, trade,
.... profession or occupation. Clause (6) of Article 19, however.
provides for imposition of reasonable restrictions by a statute.
[See Udai Singh Dagar v. Union of India, {(2007) 10 SCC
~
306 }]. D

In the event a statute provides for licensing, in a case of
this n~ture, the same must thus be found to satisfy the test of
reasonableness.

The standard for determining reasonableness of a statute E
so as to satisfy the constitutional scheme as adumbrated in
Article 14 of the Constitution of India must receive a higher level
1
of scrutiny than an ordinary statute. Such a higher level of
scrutiny is necessary not for the purpose of determining the
Constitutionality of the statute alone vis-a-vis the field of F
legislative power as envisaged under Article 245 of the
Constitution of India but also having regard to the object and
purpose, the statute seeks to achieve.

Electricity was subject to strict regulations. It, subject to just G
exceptions, was the monopoly of the State Electricity Boards,
,.,, 4
Public Sector Undertakings.

Participation of the private sector inter alia in trading was
I
• encouraged by the provisions of the Act. Court's concern,
H
44 SUPREME COURT REPORTS [2009] 9 S.C.R.

A therefore, would be not only to see that the Statute is intra vires I--
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
B 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}]
c 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
~
D object of the Act. Rule of purposive construction should,
subject of course to the applicat.:lity 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
E
threshold in respect of the players in the field of trading in
electricity.
1--
When, however, a regulatory statute is sought to be
enforced, the power of the authority to impose restrictions and
F conditions must be construed having regard to the purpose and
object it seeks to achieve. Dealing in any manner with
generation, distribution and supply and trading in electrical
energy is vital for the economy of the country. The private
players who are permitted or who are granted licence in this
G behalf may have to satisfy the conditions imposed.
No doubt, such conditions must be reasonable. .........
Concededly, the doctrine of proportionality may have to be
invoked. The Superior Court would ensure that the subordinate
legislation has been framed within the four corners of the Act !
H
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 45
REGULATORY COMMISSION [S.B. SINHA, J.]

... ~
and is otherwise valid .

22. The issue therefore which arises for our consideration
is as to whether the delegation having been made for the
A

-t purpose of carrying out the object, could the limitation be
imposed for ascertaining as to whether the applicant is fit and B
proper person and disregarding his creditworthiness. There
,, cannot be any doubt whatsoever that a statute cannot be vague
and unreasonable.

- 23. Strong reliance has also been placed by the learned
Additional Solicitor General on a decision of this Court in c
Clariant International Ltd. & Anr. vs. Securities & Exchange

.... Board of India [(2004) 8 sec 524], wherein it was held that a
discretionary jurisdiction has to be exercised having regard to
the purpose for which it was conferred, the object sought to be
~
achieved and the reasons for granting such wide discretion. It D
was furthermore held that when any criterion is fixed by a statute
or by a policy; an attempt should be made by the authority
making the delegated legislation to follow the policy formulation
broadly and substantially and act in conformity therewith. (See
also Secretary, _Ministry of Chemicals & Fertilizers, Govt. of E
India vs. Cipla Ltd. & ors., (2003) 7 SCC 1, para 4.1). There
cannot ·be. any doubt or dispute with regard to th-e
~ aforementioned legal proposition.

24, The question, which, however, falls for ou,r
consideration is as to whether the purported legislative policy
F
is valid or not. Such a question did not arise for consideration
in Clariant (supra).

25. Yet again in State of T.N. & Anr. vs. P. Krishnamurthy
& ors. (2006) 4 sec 517, whereupon reliance has been G
... 4 placed by Mr. Tripathi, it has been held:

"15. There is a presumption in favour of constitutionality or
validity of a subordinate legislation and the burden is upon
him who attacks it to show that it is invalid. It is also well
< H
46 SUPREME COURT REPORTS [2009] 9 S.C.R.

A recognized that a subordinate legislation can be .....
challenged under any of the following grounds:

(a) Lack of legislative competence to make the
....
subordinate legislation.
F-
B (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
c
or exceeding the limits of authority conferred by the
enabling Act.

(e) Repugnancy to the laws of the land, that is, arty
.._..

D
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 fules)

16. The court considering the validity. of a subordinate
E
legislation, will have to consider the nature, object and "'
scheme of the enabling Act, and also the area over which • 1

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 -0

F mandatory provision of the statute, th~n. of course, the task
of the court is simple and easy. But where the contention
is that the inconsistency or non-confbrmity Of the rule is not
with reference to any specific provision of the enabling Act,

.
but with the object and scheme of the parent Act, the court
G should proceed with caution before declaring invalidity."

26. A l'egislative policy providing for qualification or ·-
disqualification of a person for obtaining a trading licence
should not be vague or uncertain. Parameters must be laid
H down therefor for determining the financial integrity, reputation, -
'
-· GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 47
REGULATORY COMMISSION [S.B. SINHA, J.]
character, efficiency and honesty of the applicant. An A
explanation appended to clause (f) of Regulation 6A points out
various aspects that may be considered while determining the
said criteria.

However, what should be the criteria in regard to financial
8
integrity, character, reputation, etc. have not been defined. How
and in what manner the said criteria are requfred to be
ascertained have not been laid down, the criteria are subjective
ones.

27. +;A. disqualifying statute, in our opinion, must be definite C
and not uncertain; it should not be ambiguous or vague.
Requisite guidelines in respect thereof should be laid down
under the statute itself. It is well settled that essential legislative
function cannot be delegated.
D
It has been accepted by Mr. Tripathi that the explanation
appended to clause (f) of Regulation 6A is not exhaustive. .

It is now a well settled principle of law that essential
legislative functions cannot be delegated. The delegatee must
be furnished with adequate guidelines so that arbitrariness is E
eschewed. On what basis and in particular, keeping in view the
possible loss of reputation and consequently the business of
an applicant for grant of licence would suffer, it was obligatory
on the part of the Parliament to lay down requisite guidelines
therefore. The factors enumerated in the 'Explanation' F
appended to clause (f) of Regulation 6A are unlimited. For
determining the question as to whether the applicant is a fit and
proper person, a large number of factors may be taken into
consideration. It for all intent and purport would be more than
the technical requirement, capital adequacy requirement and G
credit worthiness for being an 'electricity trader' as envisaged
under Section 52 of the Act.

An applicant usually would be a new applicant. It is
possible that there had been no dealings by and between the H
,
48 SUPREME COURT REPORTS [2009) 9 S.C.R.

A applicant and the licensor. Each one of the criteria laid down , L
~

in the explanation refers to creditworthiness.
....
28. In State of Kera/a & Ors. vs. Unni & Anr. [(2007) 2
SCC 365), this Court has held:
B "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
c 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."

D 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 ~

E
being uncertain cannot be a guideline for anything or cannot
be said to be providing sufficient framework for the executive "'
to work under it, (3) Essential functions of the legislature cannot
be delegated and it must be judged on the touchstone of
Article 14 and Article 246 of the Constitution, and (4) only the
F ancillary and procedural powers can be delegated and not the
essential legislative point.

29. Our attention has been drawn to some other
legislations wherein the concept of 'fit and proper person' had
G been applied, namely, Securities and Exchange Board of India
(Criteria for Fit and Proper Person) Regulations, 2004.
/

30. We have not been shown as to how the purpose and
object of the said Regulations can be said to be in pari materia
with the Regulations in question. It must also be borne in mind
H
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 49
REGULATORY COMMISSION [S.B. SINHA, J.]
that an elaborate public hearing process is provided for grant A
of licence in terms of Section 15 of the Act. Such an
independent inquiry cannot be carried out de hors the statute.
But the Parliament thought it fit to confer a hearing as regards
public objection only.
B
Regulation 6A in effect confers powers/discretion on
matters of licensing even in public hearing. Such relevant factors
;>(
which provide for the criteria laid down in Regulation 6A could
be brought on record. Section 15, however, empowers the
Commission to specify the form and manner of the application
and the fees that is required to be attached. The parliamentary
c
object must be read in the context of the preamble.

The reform legislation sought to bring in transparency in
the work of the public sector. It postulates competition from the
y private sector. Only such a competition now would give rise to D
a development of a proper market in the long run. The power
of the Regulatory Commission to impose qualification/
restrictions should be read in line with the larger object of the
Act. "The Consumer tariff is to be laid down by the Commission.
How licensees would operate their business to the extent E
permissible under law should be subject to Regulation, which
--.Ii
. ordinarily should not be resorted to discourage private
participation in the power sector. A trader of electricity does
~
not deal with consumers; he is merely an intermediary between
a generating company and a distribution licensee. The tariff that F
a distribution licensee will charge from its consumers is
regulated. Even the margin that a trader can make is regulated.
It is, therefore, not correct to contend that Regulation 6A is in
consumer interest as it has not been shown how it will prot~ct
the consumer interest.
G
ULTRA VIRES ISSUE

31. Section 52 of the Act is without prejudice to the
provisions contained in sub-Section (c) of Section 12. By
H
50 SUPREME COURT REPORTS [2009] 9 S.C.R.

A 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
B
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
c 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
D legislation or a subordinate legislation as is well known must ...,.
conform exactly to the power granted.

In Supreme Court Employees' Welfare Association vs.
Union of India & Anr. [(1989) 4 SCC 187], this Court has held:-
E
"62. Thus as delegated legislation or a subordinate
legislation must conform exactly to the power granted. So
far as the question of grant of approval by the President
of India under the proviso to Article 146 (2) is concerned,

F
no such conditions have been laid down to be fulfilled '
before the President of India grants or refuses to grant
approval. By virtue of Article 74(1) of the Constitution, the
President of India shall, in exercise of his functions, act in
accordance with the advice'of the Council of Ministers. In
other words, it is the particular department in the Ministry
G that considers the question of approval under the proviso
to Article 146 (2) of the Constitution and whatever advice
is given to the President of India in that regard, the 1-- .,
President of India has to act in accordance with such ,,
advice. On the other hand, the Chief Justice of India has
~l-
H

(
•'
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 51
REGULATORY COMMISSION [S.B. SINHA, J.]
to apply his mind when he frames the rules under Article A
146(2) with the assistance of his officers. In such
circumstances, it would not be unreasonable to hold that
the delegation of the legislative function on the Chief
Justice of India and also on the President of India relating
to the salaries, allowances, leave and pensions of the B
officers and servants of the Supreme Court involve, by
necessary implication, the application of mind. So, not only
that the Chief Justice of India has to apply his mind to the
framing of rules, but also the government has to apply its
mind to the question of approval of the rules framed by the c
Chief Justice of India relating to salaries, allowances, leave
or pensions. This condition should be fulfilled and should
appear to have been so fulfilled from the records of both
the government and the Chief Justice of India. The
application of mind will include exchange of thoughts and
0
views between the government and the Chief Justice of
India and it is highly desirable that there should be a
consensus between the two. The rules framed by the Chief
Justice of India should normally be accepted by the
government and the question of exchange of thoughts and E
views will arise only when the government is not in a
position to accept the rules relating to salaries, allowances,
leave or pensions."

32. We may now consider the provisions of Section 178
of the Act. Although various clauses contained therein are F
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 G
(1) of Section 178. We may only notice that clauses (a), (b),
(c) and (o) which are referabie 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.
H

' .
52 SUPREME COURT REPORTS [2009] 9 S.C.R.

A This Court in Kera/a Samasthana Chethu Thozhilali Union vs.
State of Kera/a & 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
B
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 nature. But,
c the factors enumerated in sub-section (2) of Section 29
are indicative of the heads under which the statutory
framework should ordinarily be worked out."

34. We have seen that clause (b) of Regulation 6A -
D provides for a disqualification only on the ground of involvement ~
of the applicant or any of its promoters, partners, directors,
.t]ssociates etc. in any legal proceeding. The same-may o~may
not by itself be sufficient to disqualify a person, but the
Commission must be satisfied. that grant of licence in the
E circumstance may adversely affect the interest of the electricity
sector or of the consumers. Such legal proceedings are; apart '
•
from the judgment of convictions of an offence involving moral
turpitude or any economic offence on the part of the applicant
f
or his partner, or promoter, or Director, or associates at any
F time in the past, as it may have something to do with the
pending legal proceedings in which the Commission is a party. ...
The correctness of the Commission's determination of a
dispute between the applicant and the Commission may be a
subject matter of a legal proceeding. Only because a legal
G proceeding had been pending and the Commission is of the
opinion that the same adversely affects the interest of the
electricity sector or of the consumers, in our opinion, cannot by
itself be an objective criteria as by reason thereof the statutory
authority would necessarily be required to enter into the merit
H of the proceeding. The members of the Commission need not

\
f

GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 53
REGULATORY COMMISSION [S.B. SINHA, J.]

necessarily be trained in· 1aw; they may not be having legal A
background and, thus, a power conferred on it so as to directly
or indirectly enter into the merit of a legal proceeding in which
it may itself be involved, in our opinion, would not be a fair and
reasonable criteria.
B
We are not unmindful of the fact that clause (f) to
>(
Regulation 6A of the Regulations mandates recording of
reasons in writing. In the event, thus, if wrong reasons are
recorded a judicial review would be maintainable. But
availability of judicial review itself, although is a relevant factor,
by itself cannot be a ground to declare a subordinate legislation
c
valid which otherwise it is not. {See State of Kera/a & Ors. vs.
Unni & Anr. [(2007) 2 sec 365]}

>y Judicial review from an administrative decision lies on a
ver/ narrow compass. The superior courts in exercise of their D
jurisdiction under Article 226 or 32 of the Constitution of India
ordinarily would not enter into the merit of the matter. Their
primary concern are with the decision making process.

LOCUS STANDI OF THE APPELLANT
E
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 grc~nt
must be based on a legal and valid statute. The case of the
applicant cannot be rejected at the threshold relying on or on F
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.
G
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,
H
,1
54 SUPREME COURT REPORTS [2009] 9 p.C.R.

A 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
B by the High Court on State of Tamil Nadu vs. Mis Hind Stone
& ors. [(1981) 2 SCC 205]. One of the issues involved therein
was renewal of existing mining lease where applicants had filed
applications before the coming into force of the new mining
policy. Merely an application was filed and no further action had
C been taken. In the aforementioned fact situation, this Court while
opining that applications for grant of mining lease should be ·
dealt with within a reasonable time but on that account the
applicant would not be clothed with a right for disposal thereof,
stating:
D
" ... No one has a vested right to the grant or renewal of a
lease and none can claim a vested right to have an
application for the grant or renewal of a lease dealt with
in a particular way, by applying particular provisions. In the
absence of any vested rights in anyone, an application for
E
a lease has necessarily to be._dealt with according to the
rules in force on the date of the disposal of the application
despite the fact that there is a long delay since the making
of the application."

F No exception thereto can be taken. Here, however,
appellant was found eligible for grant of trading licence. He was
found to be qualified.

38. Reliance has also been placed on S.B. International
G Limited & Ors. vs. Assistant Director General of Foreign Trade
& Ors. [(1996) 2 SCC 439]. wherein in the scheme and context ..
it was held that no vested right accrued to the licensee for
issuance of advance licence.

H
,-

GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 55
REGULATORY COMMISSION [S.B. SINHA, J.]
LEGITIMATE EXPECTATION A

39. Appellant applied for grant of licence. He was found
to be qualified therefor having satisfied the statutory
requirements. It was granted an interim licence. It has started
trading in electricity. It, therefore, had a legitimate expectation
8
that in considering the application for grant of licence, the same
criteria as laid down in the statute shall be applied.

In P. T. R. Exports (Madras) Private Limited & ors. vs.
Union of India & Ors. [(1996) 5 SCC 268], whereupon reliance
has been placed, this Court inter alia opined that in the matter C
of grant of licence the doctrine of legitimate expectation would
have no role to play as it would depend upon the policy
prevailing on the date of grant of licence.

It was again a case where an Export and Import Policy to D
be notified by the Central Government under the Foreign Trade
(Development and Regulation) Act, 1992 was involved.

40. Reliance has also been placed on M.P. Ram Mohan
Raja vs. State of T.N. & Ors. (supra). Therein also like Hind
Stone (supra) there was no intimation from the State E
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, Shim/a vs. Prem F
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' G
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 I
applicant by filing a mere application cannot be said to have H
56 SUPREME COURT REPORTS [2009] 9 S.C.R.

A derived a vested right but we are of the opinion that he has a
right to be considered. It will bear repetition to state 1hat such -
consideration must be made not only on the basis of a valid
statute but also rationale and objective criteria should be
applied therefor.
B
EPILOGUE

43. The law sometimes can be written in such subjective
manner that it affects efficiency and transparent function of the
government. If the statute provides for point-less discretion to
C agency, it is in essence demolishing the accountability strand
within the administrative process as the agency is not u.nder
obligation from an objective norm, which can enforce
accountability in decision-making process. All law making, be
it in the context of delegated legislation or primary legislation,
D have to conform to the fundamental tenets of transparency and
openness on one hand and responsiveness and accountabllity
on the other. These are fundamental tenets flowing from Due
Pro~ess requirement under Article 21, Equal Protection clause
embodied in Article 14 and Fundamental Freedoms clause
E ingrained under Article 19. A modern deliberative democracy
can not function without these attributes. The constitutive
. understanding of aforementioned guarantees under the
·Fundamental Rights chapter in the Constitution does not give
rise to a mere rhetoric and symbolic value inhered by the polity
F but has to be reflected in minute functioning of all the three wings
of state - executive, legislature and judiciary. When we talk of
state action, devil lies in the detail. The approach to writing of
laws, rules, notifications etc. has to showcase these concerns.

The image of law which flows from this framework is its
G neutrality and objectivity: the ability of law to put sphere of
general decision-making outside the discretionary power of
those wielding governmental power. Law has to provide a basic
level of "legal security" by assuring that law'is knowable,
~ependable and shielded from excessive manipulation. In the
H context of rule making, delegated legislation should establish
GLOBAL ENERGY LTD. v. CENTRAL ELECTRICITY 57
REGULATORY COMMISSION [S.S. SINHA, J.]

the structural conditions within which those processes can A

- function effectively. The question which needs to be asked is
whether delegated legislation promotes rational and
accountable policy implementation.

While we say so, we are not oblivious of the contours of
8
the judicial review of legislative acts. But, we have made all
endeavours to keep ourselves confined within the well-known
parameters.

A subjectively worded normative device also enables the
agency to acquire rents. It determines the degree of C
accountability and responsiveness of officials and of political
..... and judicial control of the bureaucracy .

However, when the provision inherently perpetuates
injustice in the award of licenses and brings uncertainty and o
arbitrariness it would be best to stop the government in the
tracks. Since the vi res of the regulation is under challenge, we 1

took the opportunity to consider the propriety and
constitutionality of generic decision-making process
encapsulated under the impugned legislation. Amongst others, E
in this context, we strike· down the impugned clause. '

44. For the reasons aforementioned, the impugned
judgment cannot be sustained. It is set aside accordingly.

Clauses (b) and (f) of Regulation 6A are declared ultra F
vires the Constitution of India as also the Act. The Commission
is directed to consider the matter from the same stage as if
the provisions had not come into force, as expeditiously as
possible, and preferably within a period of three months from
the date of receipt of a copy of this order. G

.- ~ 45. The appeals are allowed with costs. Counsel fee
assessed at Rs.50,000/-.

8.8.8. Appeals allowed.

1