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Official Citation: 2023 SCMR 1919
Court / Jurisdiction: Sindh High Court
Year of Decision: 2023
Decision Date: 2023-12-31
Parties: A & G Agro Industries Private Limited & Others vs Federation of Pakistan & JUDGMENT
Ruling Summary: This decision was rendered by the Sindh High Court on 2023-12-31, officially reported as 2023 SCMR 1919. In this matter between A & G Agro Industries Private Limited & Others and Federation of Pakistan & JUDGMENT, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
Case cited as 2023 SCMR 1919
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar, Sana Akram Minhas Title:A & G Agro Industries Private Limited & Others vs Federation of Pakistan &
JUDGMENT
Reported As: 2024 SHC 262 Result: Order Accordingly Judgment JUDGMENT Sana Akram Minhas, J: This single judgment decides the instant High Court Appeal No.92/2023 along with connected High Court Appeals[1] which call into question the common judgment and decree dated 18.2.2023 ("Impugned Judgment") passed by a learned Single Judge (Original Side) in the leading Suit No.1803/2020 ("Suit 1803") and other connected Suits. 2. The Appellants (who were all Plaintiffs in the Suits below) are retail consumers of natural gas supplied to them by the Sui Southern Gas Company ("SSGC") (which is a primary gas distribution company supplying gas in the Sindh & Baluchistan region) and, in the case of a few Appellants, by the Suit Northern Gas Company ("SNGPL"). Both SSGC and SNGPL are licensees of the Oil and Gas Regulatory Authority ("OGRA"). The Appellants operate industrial facilities dependent on natural gas and have contractual agreements for gas supply. The natural gas is employed by some Appellants in their production processes, while others utilize it for electricity generation purposes as well. Institution of Suits by Appellants (Plaintiffs) 3. What sparked the institution of legal proceedings (i.e. Suits) by the Appellants was the issuance of Gas Tariff Notification dated 23.10.2020 ("Impugned Notification") by OGRA on the advice of the Federal Government, which was sought to be enforced retrospectively with effect from 1.9.2020 and which Impugned Notification was issued under section 8(3) of the Oil & Gas Regulatory Authority Ordinance, 2002 ("OGRA Ordinance"). The Impugned Notification, which notified the sale price and minimum charges for natural gas for the Financial Year 2020-21 was challenged by the Appellants as it increased the tariff of natural gas for retail consumers. For General Industrial consumers the
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tariff was increased from Rs.1021 to Rs.1054 per MMBTU, and for Captive Power (General Industry) it was increased from Rs.1021 to Rs.1087 per MMBTU. 4. The Appellants filed separate Suits in this Court (on the Original Side) challenging various aspects of the Impugned Notification. On 20.11.2020, a learned Single Judge passed interim stay orders in leading Suit 1803 (and in connected Suits) restraining SSGC from coercive actions against the Appellants concerning bills issued pursuant to the Impugned Notification and on 30.11.2020, the Court directed the Appellants to pay bills based on the sale price prevailing before the Impugned Notification, with the differential amount to be deposited with the Nazir of the High Court. 5. A few weeks after institution of Suit 1803, SSGC (and not OGRA) submitted in Court a Notification dated 23.11.2020 containing the prescribed prices for each category of retail consumer. This Notification was issued four (4) months after OGRA's determination dated 14.7.2020, which according to the Appellants, constituted a violation of section 8 of the OGRA Ordinance. 6. The Appellants' Suits consisted of a diverse array of legal challenges where each Appellant sought to target a different facet of the Impugned Notification. Broadly, these legal challenges by the Appellants in their respective Suits centred around the following aspects of the Impugned Notification: i) Vires of the Impugned Notification for General Industrial consumers and Captive Power (General Industry); ii) Legality and fairness of tariff increase for General Industrial consumers and Captive Power (General Industry); iii) Definition of Captive Power Plant ("CPP") in the Impugned Notification, arguing against its inclusion of consumers (i.e. categorization of Appellants as CPP) who: a) generated electricity for self-consumption without selling it onward; b) generated electricity exclusively for onward sale. iv) Moratorium vide decision dated 21.1.2021 ("Impugned Moratorium") imposed by the Cabinet Committee on Energy on the supply of natural gas to CPPs: a) some Appellants contended that moratorium should not apply to industrial consumers using gas to generate electricity solely for self-consumption and not for sale; b) other Appellants, who were export-oriented industries and CNG stations, opposed the moratorium citing its impact on their electricity generation for self-consumption. The Impugned Judgment 7. The Appellants consented to the resolution of their Suits based on the legal issues[2] framed on various dates in the leading Suit 1803 and, therefore, no evidence was required to be adduced. 8. The Impugned Judgment dismissed the Suits of the Appellants and upheld the validity of the Impugned Notification with the sole modification that it was applicable prospectively from 23.10.2020 (i.e. from date it was notified) and not retrospectively from 1.9.2020. 9. In upholding the Impugned Notification, the Single Judge gave his conclusions which are summarised below for convenience: i) OGRA's decision to withhold the prescribed price for each consumer category until the issuance of ex post facto Notification dated 23.11.2020 by OGRA (notifying the category-wise prescribed price of gas) was contrary to section 8(1) of the OGRA Ordinance and Rule 18(1) of the Natural Gas Tariff Rules 2002 ("Tariff Rules"). However, it did not result in any injustice to the Appellants. The Impugned Notification dated 23.10.2020 and the subsequent Notification dated 23.11.2020 (which the Appellants never challenged) were saved under Rule 21 of the Tariff Rules. ii) The Appellants failed to demonstrate that the rise in the sale price of gas through the Impugned Notification amounted to confiscation. iii) The Impugned Notification would take effect from 23.10.2021 (i.e. the date it was notified) and could not be applied retroactively from 1.9.2020.
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iv) The impugned definition of CPP in the Impugned Notification was determined to be lawful. Despite some Appellants utilizing gas for electricity generation exclusively for self-consumption without selling any portion, they still fell under the CPP classification when procuring gas under a General Sales Agreement(s) ("GSA") for "Power Generation". This classification was not contrary to the Supreme Court's (unreported) ruling dated 10.5.2019 titled Sui Northern Gas Pipelines Limited, Lahore v. Bulleh Shah Packaging (Pvt) Ltd[3]("Bulleh Shah"), the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 ("NEPRA Act") or the provisions or Articles 18 and 25 of the Constitution, 1973. v) The Appellants fell within the impugned definition of CPP given in the Impugned Notification. Additionally, the Cabinet Committee on Energy's decision on 21.1.2021 to enforce the Impugned Moratorium on natural gas supply to CPPs applied to certain Appellants (who fell within the impugned definition of CPP), irrespective of whether they utilized any portion of the electricity they produced for self-consumption. vi) The Federal Government's Natural Gas Allocation & Management Policy, 2005 ("Gas Policy") and the GSA(s) with the Appellants (executed with SSGC) never guaranteed indefinite or uninterrupted gas supply for electricity generation; it was always subject to conditions. The Appellants, therefore, could not claim a definitive "right" to gas for captive power use, rendering their challenge to the Impugned Moratorium, by reliance on promissory estoppel, vested rights and fundamental rights, unfounded. vii) Those Appellants involved in generating power exclusively for distribution to external entities, with no self-consumption, could similarly be classified as CPP, thus making them subject to the Impugned Moratorium. viii) The development surcharge, as outlined in section 8(5) of the OGRA Ordinance, is payable by SSGC/SNGPL to the Federal Government. This surcharge is incorporated into the sale price of gas when it surpasses the prescribed price and is regarded as part of the gas tariff, and did not amount to a tax. Respective Arguments 10. The arguments on behalf of the Appellants were presented by Mr. Ayan Memon, Mr. Rashid Anwer and Mr. Ovais Ali Shah, Advocate(s). In averring that the learned Single Judge erred in dismissing the Suits, they put forward the following submissions: i) Despite acknowledging that OGRA's failure to comply with section 8(1) of OGRA Ordinance would undermine the entire statutory pricing scheme for retail consumers of natural gas and its decision to delay specifying category-wise prices until after the Federal Government's advice on sale price was contrary to the law, the Impugned Judgment considered this non-compliance as a mere irregularity that did not invalidate the Impugned Notification which finding was contrary to the OGRA Ordinance and, thus, not sustainable. ii) The Impugned Judgment having determined that section 8(1) of the OGRA Ordinance and Rule 18(1) of the Tariff Rules were violated, should not have upheld the Impugned Notification dated 23.10.2020 and (the unchallenged) Notification dated 23.11.2020, as doing so would set a precedent suggesting that OGRA and/or the Federal Government are not obligated to adhere to the provisions of the OGRA Ordinance, rendering it redundant. iii) That the Impugned Judgment overlooked that OGRA, through its determination dated 14.7.2020, issued before the Impugned Notification dated 23.10.2020 had recommended a reduction in the average prescribed price of natural gas. This recommendation was based on OGRA's determination that SSGC's revenue exceeded its requirement, making the subsequent increase in the sale price, as per the Impugned Notification, illegal, arbitrary, baseless, and confiscatory. iv) Section 8(1) of the OGRA Ordinance and Rule 18(1) of the Tariff Rules mandated OGRA to estimate the total revenue requirement for each licensee (in this case SSGC) and then inform the
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Federal Government about the prescribed price for each category of retail consumer. However, OGRA, in contravention of its statutory obligations under section 8(1) of the Ordinance, failed to determine the prescribed price for each category of retail consumer in its determination dated 14.7.2020. Instead, it only determined the average prescribed price for all retail consumers. This omission meant that the Federal Government could not have advised any sale price for each category of retail consumer, as the determination of the sale price relies on knowing the prescribed price for each category of retail consumer beforehand. v) The Impugned Judgment incorrectly ruled that the 40-day time limit specified in section 8(3) of the OGRA Ordinance (regarding the Federal Government's advice to OGRA on sale prices for each retail consumer category) was not mandatory, whereas its mandatory character had already been established in the case of Pakistan Beverages (Pvt) Ltd v. Federation of Pakistan[4] ("Pakistan Beverages") (SBLR 2016 Sindh 1268) and upheld by a Division Bench of this Court in Sui Southern Gas Company Ltd v. Federation of Pakistan[5] ("Sui Southern") (PLD 2017 Sindh 733). vi) The Impugned Judgment in ruling that the 40-day time limit in section 8(3) is not mandatory, cited a later Division Bench decision in the case of Sindh Petroleum & CNG Dealers' Association v. Federation of Pakistan[6] ("Sindh Petroleum") (2020 CLC 851), which decision was per incuriam and also distinguishable as it pertained to a period of a Caretaker Federal Government, which lacked authority to make policy decisions. vii) Both the Impugned Judgment and the Sindh Petroleum decision incorrectly differentiated the previous ruling in Sui Southern Gas case, claiming it only invalidated a notification due to lack of advice from the Federal Cabinet, when in fact it upheld findings that OGRA's tariff notification for 2014-2015 was nullified for non-compliance with sections 7 and 8 of Ordinance and Tariff Rules. viii) The imposition of the development surcharge lacked legality, was arbitrary and without jurisdiction. The Impugned Judgment justified the imposition of the development surcharge under section 21(b) of the OGRA Ordinance which allowed the Federal Government to issue policy guidelines to OGRA when no evidence of such policy guidelines had been presented to demonstrate that the surcharge was being imposed based on an existing policy decision. ix) The Impugned Judgment's conclusion that the average prescribed price for 2020-2021 determined by OGRA was higher than the previous year's, leading to an inevitable increase in the sale price for 2020 is based on a misreading and misappreciation of facts. 11. The learned Counsel for the Respondents have argued for the dismissal of the Appeals and for maintaining the Impugned Judgment on the following grounds: i) The Impugned Notification dated 23.10.2020 was notified by OGRA under section 8(3) of the OGRA Ordinance pursuant to the advice of the Federal Government. This advice was conveyed vide letter dated 22.10.2020 after it had been ratified by the Federal Cabinet on 6.10.2020. ii) There is no penal provision under the OGRA Ordinance in the event that the Federal Government does not issue a notification within the required 40 days. iii) The non-advice or delayed advice from the Federal Government as required under section 8(3) read with Rule 18(2) of the Tariff Rules does not render the Impugned Notification as illegal. iv) That OGRA had acted in a timely manner and has no control over the actions of the Federal Government. v) The advice, delayed by roughly 58 days and surpassing the timeline prescribed in section 8(3) of the OGRA Ordinance, was held to be directory and not mandatory in the Sindh Petroleum case. The earlier Division Bench judgment in the Sui Southern Gas case did not address the impact of this timeline, thus eliminating the possibility of any conflict between the judgments. vi) The determination of category-wise prescribed prices constituted merely a calculation exercise and its omission did not disadvantage the Appellants or render the proceedings invalid. In any
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event, OGRA later communicated the category-specific prescribed prices via Notification dated 23.11.2020. vii) The Appellants did not dispute the prescribed price set by OGRA but instead solely challenged the sale price of gas established by the Federal Government. The determination of gas sale prices is considered a part of government policy and is, therefore, beyond the scope of judicial intervention. viii) The Impugned Notification pertained to a specific period of time and, thus, was made applicable retrospectively to cover that time period. Besides, retrospectivity of a notification can only be questioned where vested rights are affected, whereas the Appellant cannot claim any vested right in the gas-tariff Points For Determination 12. We have heard the arguments of the respective sides and have also considered the record. In accordance with Order 41 rule 31 CPC, the pivotal points formulated for determination herein are: (i) Whether the Division Bench judgment in Sindh Petroleum case is per incuriam and the Impugned Judgment by following it is also flawed? (ii) Whether the timeline prescribed in section 8(3) of the OGRA Ordinance is mandatory or directory? (iii) Whether OGRA's failure to determine the category-wise prescribed price invalidates the Impugned Notification? (iv) Whether the gas development surcharge was arbitrary and illegal? (v) Whether the categorization of Appellants as captive power consumers violates the Supreme Court's ruling in Bulleh Shah case? Overview Of Gas Tariff Determination Process & Regulatory Guidelines In Place At The Time Of Impugned Notification 13. The gas tariff determination process is outlined in section 8 of the OGRA Ordinance and the Tariff Rules, based on the "total revenue requirement" of the licensee. 14. Rule 4(2) of the Tariff Rules mandates the licensee to submit a petition to OGRA by December 1st each year, facilitating OGRA in estimating the "Estimated Revenue Requirement" (ERR) under section 8(1) and Rule 18(1). OGRA then informs the Federal Government of the prescribed price within three days for each category of retail consumer. 15. Section 8(2) in conjunction with Rule 4(3) mandates another petition at the end of the financial year for OGRA to assess the licensee's revised total revenue requirement called "Final Revenue Requirement" (FRR) incorporating actual changes. OGRA informs the Federal Government of revised prescribed prices within three days. 16. Section 8(3) in conjunction with Rule 18(2) provides that the Federal Government has to advise OGRA of minimum charges and sale prices for each category of retail consumer within 40 days, for notification in the official Gazette. 17. If the Federal Government fails to advise the sale price within 40 days, and OGRA's prescribed price is higher than the last notified sale price for that category of consumer, section 8(4) in conjunction with Rule 18(4) require OGRA to notify the higher prescribed price as the sale price. 18. Any deficit or shortfall in the licensee's total revenue requirement for a financial year is carried forward by it in the petition for the next financial year. OGRA addresses adjustments for the previous financial year in determining the revenue requirement of the licensee for the next financial year. 19. Consumer participation is incorporated in the tariff determination scheme. Therefore, upon admitting a petition of a licensee for revenue requirement, OGRA has the authority under Rule 5(4) to issue notices, including notice by publication to all persons likely to be affected
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by or interested in the petition, grant intervention under Rule 7, and conduct hearings for the petition under Rule 10. 20. Tariffs determined by OGRA are subject to policy guidelines set by the Federal Government as per sections 2(xxvi), 2(xxxix) and 7(1). Section 21 grants authority to the Federal Government to issue policy guidelines. Argument Evaluation Per Incuriam 21. The Appellants ground their arguments in the various provisions delineated within the OGRA Ordinance (summarised in paragraphs 13 to 20 above, titled "Overview Of Gas Tariff Determination Process & Regulatory Guidelines In Place At The Time Of Impugned Notification") and its accompanying Tariff Rules to bolster their submission that the Federal Government was required to render its advice within 40 days but failed to do so within the given time. Instead, the advice was sent after a delay of about 58 days whereafter the Impugned Notification dated 23.10.2020 was issued and the sale price was notified. The Appellants aver that since the advice was sent well beyond the mandatory time-limit of 40 days provided in section 8(3) of the Ordinance and Rule 18(2) of the Tariff Rules, therefore OGRA did not have jurisdiction to notify sale price of gas and issue the Impugned Notification. 22. Given that it is admitted that there was indeed a delay of 58 days in the rendering of advice by the Federal Government, this Court's task is only confined to considering the implications of not adhering to the prescribed timelines for notifying gas tariffs. This, in turn, necessitates an evaluation whether these timelines are mandatory or directory and whether any determination made in contravention of the said timeline is invalid. 23. The question regarding the mandatory or directory character of section 8(3) of OGRA Ordinance has been the subject of discourse in two earlier decisions rendered by two different Division Benches of this Court - first being the Sui Southern Gas case (decided on 15.8.2017), which upheld in appeal a Single Judge's judgment in Pakistan Beverages case (decided on 18.5.2016), and the second being Sindh Petroleum case (decided on 3.9.2019). 24. The Appellants, in support of their submission before the learned Single Judge that the timeline of 40-days in section 8(3) of the Ordinance was mandatory, relied on the Sui Southern Gas case while the Respondents placed reliance on Sindh Petroleum case to argue that the said timeline was only directory. The Appellants further argued that since the earlier Division Bench had held to the contrary in Sui Southern Gas, the subsequent judgment in Sindh Petroleum was per incuriam as the later Division Bench was bound by the earlier. 25. The Single Judge (for reasons set out in paragraph 17 of the Impugned Judgment) followed the Division Bench judgment of Sindh Petroleum and held that the latter judgment was binding precedent for the proposition that the timeline in section 8(3) of the Ordinance was not mandatory and, therefore, the Impugned Notification could not be annulled for failing to adhere to the timeline in section 8(3) of the Ordinance. 26. Following their unsuccessful attempt to persuade the Single Judge, the Appellants have now reiterated their arguments anew before us with much emphasis laid on the point that the Sindh Petroleum decision being per incuriam was not a binding precedent and, the Single Judge erred in following it. 27. The word "per incuriam" is a Latin term which means "through lack of care" (see Jameel Qadir v. Government of Balochistan: 2023 SCMR 1919 in paragraph 12) or "carelessness" (see Fasihud- Din Khan v. Government of Punjab: 2010 SCMR 1778 in paragraph 10). A court decision is considered per incuriam when rendered in ignorance of a statute or a rule having the force of statute.
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28. In Sindh High Court Bar Association v. Federation of Pakistan (PLD 2009 SC 879)[7], the Supreme Court dilated upon what constitutes "per incuriam" by discussing what it entails: 38. What is meant by giving a decision per incurium [sic] is giving a decision when a case or a statute has not been brought to the attention of the court and they have given the decision in ignorance or forgetfulness of the existence of that case or that statute or forgetfulness of some inconsistent statutory provision or of some authority binding on the court, so that in such cases some part of the decision or some step in the reasoning on which it was based was on that account demonstrably wrong ... ... .... 29. Taking into account the above precepts of "per incuriam" and applying them to the decision rendered in the Sindh Petroleum case, it can be observed that the latter decision has carefully considered the earlier decision of Sui Southern Gas and distinguished it (based on differences in facts or legal reasoning), explaining that the facts were sufficiently different to warrant a different outcome. Therefore, Sindh Petroleum case would not be considered per incuriam. 30. There is a growing inclination to employ the term "per incuriam" in a less strict manner, often invoking it more broadly or casually, even in situations where there was indeed a thoughtful deliberation (perhaps more as a criticism or to undermine a decision), than its precise legal definition warrants. Timeline - Mandatory Or Directory 31. We now proceed to consider whether the timeline is mandatory or directory. 32. In Reference No.1 of 1988, Made by the President of Pakistan (PLD 1989 SC 75 at p.103), the Supreme Court ruled: Where the provision of the Constitution or Statute relates to the performance of a public duty and where the invalidation of acts done in neglect of them would work serious general inconvenience or injustice to persons who have no control over those entrusted with the duty, without promoting the essential aims and objects of the maker thereof, such prescription are generally understood as directory only. The neglect of them may be penal but it does not affect the validity of the act done in disregard of them. 33. In The State v. Imam Bakhsh (2018 SCMR 2039), the Supreme Court echoed the principles laid down in the Reference No.1 [supra]): 11. To distinguish where the directions of the legislature are imperative and where they are directory, the real question is whether a thing has been ordered by the legislature to be done and what is the consequence, if it is not done. Some rules are vital and go to the root of the matter, they cannot be broken; others are only directory and a breach of them can be overlooked provided there is substantial compliance. The duty of the court is to try to unravel the real intention of the legislature. This exercise entails carefully attending to the scheme of the Act and then highlighting the provisions that actually embody the real purpose and object of the Act. A provision in a statute is mandatory if the omission to follow it renders the proceedings to which it relates illegal and void, while a provision is directory if its observance is not necessary to the validity of the proceedings. Thus, some parts of a statute may be mandatory whilst others may be directory. It can even be the case that a certain portion of a provision, obligating something to…
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