Sunday, December 16, 2012

Natural Gas - item in Union or State List ?


In 2001 Gujarat legislature passed a law regulating the supply, transmission and distribution of Natural Gas. It was aimed at promoting the use of gas in the state, by both industry and domestic consumers. This Act was sent to president for his assent to convert it into law. 

President did not give his assent, instead on 8th Oct 2001, he referred it to Hon'l Supreme Court under Clause 1 of Article 143 of the Constitution of India, which states that:
Article 143 (1) 

If at any time it appears to the President that a question of law or fact has arisen, or is likely to arise, which is of such a nature and of such public importance that it is expedient to obtain the opinion of the Supreme Court upon it, he may refer the question to that Court for consideration and the Court may, after such hearing as it thinks fit, report to the President its opinion thereon.
[Note: 

(i) There have been 15 presidential references so far to SC, out of which only 1 have NOT been answered so far, which was regarding a question on whether Ram temple was there in disputed area in Ayodhya. SC declined to answer this presidential reference.  

(ii) Recently Smt. Pratibha Patil had sent presidential reference to Supreme Court, regarding clarifying on distribution policy w.r.t Natural Resources. 

(iii) An Advisory Jurisdiction is an opinion which the Supreme Court expresses and hence not binding on President. Nevertheless, it is entitled to due weight and highest amount of respect by all courts and the Executive as well as the Legislature. The whole purpose of advisory jurisdiction is to be able to avoid problems rather than being confronted with problem and then the Court being brought in to adjudicate the issue. So this preventive power which has been vested in the President and the jurisdiction which has been vested in the SC is to avoid problems in the future which are clearly foreseeable.
A question had therefore arisen whether "Natural Gas" is a Union subject or State subject and whether the State of Gujarat and the other States have the legislative competence to make laws on the subject of "Natural Gas." 

Questions asked in the reference are as follows:

Q1. Whether Natural Gas in whatever physical form including Liquefied Natural Gas (LNG) is a Union subject covered by Entry 53 of the List I and the Union has exclusive legislative competence to enact?

Q2. Whether States have legislative competence to make laws on the subject of natural gas and liquefied natural gas under Entry 25 of List II of the Seventh Schedule to the Constitution?

Q3. Whether the State of Gujarat had legislative competence to enact the Gujarat Gas (Regulation of Transmission, Supply & Distribution) Act, 2001?

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What's there in Constitution?

Seventh Schedule of the Constitution of India has details as under:

Union List I - Entry 53 : Regulation and development of oilfields and mineral oil resources; petroleum and petroleum products; other liquids and substances declared by Parliament by law to be dangerously inflammable.

State List II - Entry 25: Gas and gas-works 

Court Proceedings:

There was intense debate on both sides(Union and State) explaining why "Natural Gas" should be considered as a subject enumerated in their list. 

Arguments by State:
The learned Counsel for the State brought to the attention the Hon'l SC of various publications and research papers on the subject to show as to what is 'natural gas' and its derivative forms. Elaborate arguments were made to this respect:
  • Expression "gas" used in Entry 25 of List II would include all types of gases and, therefore, any legislation related to "gas and gas works" is perfectly within the legislative competence of the State.
  • It was submitted that in previous judgement by SC held that the field of entire industry, dealing with "gas and gas works" would fall under Entry 25 of List II. 
  • It was further submitted that the entries in the three Lists(Union, State and Concurrent) were only legislative heads or fields of legislation and they only set boundary limit on the area over which the appropriate Legislature could operate. Widest amplitude should be therefore be given to the interpretation of the language of the entries.
  • When there is a conflict between two entries(Union Vs State list), the Court should reconcile the entries and attempt should be made to harmonise the apparently conflicting entries and the State should not be denuded of its power to legislate on the subject.
  • It was further contended that "gas" as defined in the Gujarat Act means matter in gaseous state which predominantly consists of methane and it will not come within the ambit of 'petroleum and petroleum products.'
  • It was argued that "gas" could be extracted from the bowl of the earth without there being any petrol or petroleum products and according to the learned counsel, it would fall within the domain of State legislation under Entry 25 of List II.

Arguments by Union:
  • The learned Attorney General argued that the various definitions in different enactments(in past) indicate that there is uniform and consistent legislative practice and it is evident that 'petroleum and petroleum product' include 'natural gas' and hence 'natural gas' is a Union subject covered by Entry 53 of List I.
  • The Entry 25 under List II of the Seventh Schedule deals with "gas and gas works" and it relates to manufacture gas like acetylene, oxygen, carbon dioxide, which are locally manufactured and used in industries e.g welding purposes, hospitals, preparing aerated drinks etc. and hence enables the State Govt to regulate and control the manufacture and distribution of these gases by the local industry.
  • Union govt. then tried to establish that Natural Gas is a Petroleum product:
    • "Petroleum" means naturally occurring hydrocarbons in a free state, whether in the form of natural gas or in a liquid viscous or solid form, but does not include helium occurring in association with petroleum, or coal, or shale, or any substance which may be extracted from coal, shale, or other rock by the application of heat or by a chemical process.
    • "Natural gas' is defined as a naturally occurring mixture of hydro-carbon and non-hydrocarbon gases found in the porous geologic formations beneath the earth's surface, often in association with petroleum.
  • In Cauvery Water Dispute Tribunal, the right to flowing water of rivers was described as a right 'publici juris', i.e. a right of public. So also the people of the entire country has a stake in the natural gas and its benefit has to be shared by the whole country. There should be just and reasonable use of natural gas for national development. If one State alone is allowed to extract and use natural gas, then other States will be deprived of its equitable share. This position goes on to fortify the stand adopted by the Union and will be a pointer to the conclusion that "natural gas' is included in Entry 53 of List I. Thus, the legislative history and the definition of 'petroleum', 'petroleum products' and 'mineral oil resources' contained in various legislations and books and the national interest involved in the equitable distribution of natural gas amongst the States - all these factors lead to the inescapable conclusion that "natural gas" in raw and liquefied form is petroleum product and part of mineral oil resource, which needs to be regulated by the Union.
Conclusion:
  • Natural gas being a petroleum product, the court was of the view that under Entry 53 List I, Union Govt. alone has got legislative competence.
  • Entry 25 of List II, as suggested for the States, will have to be read as a whole. The expressions therein cannot be compartmentally interpreted. The word 'gas' in the Entry will have to be read along with other word 'gasworks'. In Ballantine's Law Dictionary 'Gas Works' is defined as "a plant for the manufacture of artificial gas". Similarly in Webster's New 20th Century dictionary, it is defined as "an establishment in which gas for heating and lighting is manufactured". The meaning of the term 'gas works' is well understood in the sense that the place where the gas is manufactured. So it is difficult to accept the proposition that 'gas' in Entry 25 of List II includes Natural Gas, which is fundamentally different from manufactured gas in gas works. Therefore, Entry 25 of List II could only cover manufactured gas and does not cover Natural Gas within its ambit. 
  • In view of this specific Entry 53, for any petroleum and petroleum products, the State Legislature has no legislative competence to pass any legislation in respect of natural gas. To that extent, the provisions-contained in the Gujarat Act are lacking legislative competence.

In the result, the Reference is answered in the following terms :

Q.1. Whether Natural Gas in whatever physical form including Liquefied Natural Gas (LNG) is a Union subject covered by Entry 53 of the List I and the Union has exclusive legislative competence to enact.
A .1. Natural Gas including Liquefied Natural Gas (LNG) is a Union subject covered by Entry 53 of List I and the Union has exclusive legislative competence to enact laws on natural gas.

Q. 2. Whether States have legislative competence to make laws on the subject of natural gas and liquefied natural gas under Entry 25 of List II of the Seventh Schedule to the Constitution.
A. 2. The States have no legislative competence to make Saws on the subject of natural gas and liquefied natural gas under Entry 25 of List II of the Seventh Schedule to the Constitution.

Q. 3. Whether the State of Gujarat had legislative competence to enact the Gujarat Gas (Regulation of Transmission, Supply & Distribution) Act, 2001.
A.3. The Gujarat Gas (Regulation of Transmission, Supply & Distribution) Act, 2001, so far as the provisions contained therein relating to the natural gas or liquefied natural gas (LNG) are concerned, is without any legislative competence and the Act is to that extent ultra vires of the Constitution.

ORDER
In the light, of the opinion rendered in Special Reference No. 1/2001 under Article 143(1) of the Constitution of India, the Writ Petition and the Civil Appeals was dismissed.

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