Regulation & Regulatory Framework Issues FOIR Workshop on 17 th June 2010

1. Regulation & Regulatory Framework IssuesFOIR Workshop on 17th June 2010 Arijit Maitra P A Legal

2. BACKGROUND – Infrastructure Reforms • In India reforms started in 1991-92 to permit private participation in the POWER & TELECOM Sector. • 1995-96 reforms introduced in the PORT Sector. • Need for an INSTITUTIONAL REGULATORY FRAMEWORK was identified post-economic liberalization period • Independent Regulation was necessary for – • Balancing the interest of consumers • Ensuring financial viability of the industry • Provide comfort to private sector This type of governance was new to Indian Sub continent

3. BACKGROUND – Infrastructure Reforms (contd) • Independent Regulatory bodies were set up for areas such as– • Power • Road • Telecom • Water • Oil and Gas • The creation, design and consequences of independent regulatory agencies represent a classic example of delegation to non-majoritarian institutions. They are created by legislation, hence elected officials are their principals. They are organizationally separate from governments and headed by unelected officials. They are given powers over regulation, but are also subject to controls by elected politicians and judges.’ {Mark Thatcher. West European Politics, Vol.25 1 (January 2002),pp 125-147}.

4. Genesis of Regulation • “Orissa model” of reforms • World Bank 1993 policy makes independent regulation one of several explicit conditions • Focus on sending signal of credibility to investors • ERC Act 1998: Electricity regulation extended as national law

5. Challenge to Regulation in India • Large information gap • Basic information on losses unavailable • Strong threat of “political capture” • Regulation to de-politicise the sector • Low regulatory capacity • Small staff and budgets • Weak stakeholder capacity • Few organizations, little technical knowledge

6. Emerging Regulatory Issues • Interpretation of Laws • General Act vs. Special Act • Former enactment vs. later enactment • Interpretation of legislative entries in List I, List II & List III not applicable in cases where the statutes have been enacted by the same legislature, viz. The Union Parliament • “over riding effect over all laws” • “The 2003 Act is enacted as an exhaustive code on all matters concerning electricity” • PTC Ltd Vs. CERC [unreported] in Civil Appeal No. 3092 of 2006; Constitution Bench Supreme Court Judgment dated 15th March 2010; • Would not “all matters concerning electricity” include forward contracts in electricity, futures in electricity, electricity derivatives?

7. Regulation making – width of scope “PTC India Ltd. versus Central Electricity Regulatory Commission” Doctrine and jurisprudence of delegated legislation Trading Margin Regulations 2006 challenged Disputed issues Whether APTEL has jurisdiction to examine the validity of Regulations? Whether Parliament has conferred power of judicial review on APTEL? Whether capping of trading margins could be done by Regulations?

8. Regulation making – width of scope [Contd] Appellants contention – Fixing trading margin is same as price fixation and as such margin must be fixed by an Order and not by way of regulation. A regulation must be traced to a section giving the power to make such a regulation APTEL is as an expert second tier regulatory authority to review actions of Regulatory Commissions, including regulations framed by first tier regulatory bodies when regulation framed is either not consistent with the provisions of the Act or does not result in due performance of the duty or functions entrusted to the Commission

9. Regulation making – width of scope [Contd] Ratio laid down by Supreme Court Principle of “Generality” versus ”Enumeration” A distinction must be made between delegation of legislative function and investment of discretion to exercise a particular discretionary power by a statute. One must understand the reason why a regulation has been made Regulation has the effect of interfering and overriding the existing contractual relationship between the regulated entities across the board which cannot be achieved by an order The words in the enumerated provision are not a fetter; they are not words of limitation, but they are words for general guidance. The 2003 Act is enacted as an exhaustive Code on all matters concerning electricity. A holistic reading of the 2003 Act leads to the conclusion that regulations can be made as long as two conditions are satisfied, namely, that they are consistent with the Act and that they are made for carrying out the provisions of the Act. To regulate is an exercise which is different from making of the regulations

10. Regulation making – width of scope [Contd] Regulatory Commissions are vested with the power to frame policy, in the form of regulations, under various provisions of the 2003 Act. A Regulation stands on a higher pedestal vis-à-vis an Order (decision) A regulation is not a precondition to the order (decision).

11. Regulation making – width of scope [Contd] APTEL has appellate and revisional powers. APTEL can also issue issue orders, instructions or directions to Commission for the performance of statutory functions No power of judicial review of regulations No jurisdiction to decide the validity of the Regulations Validity of Regulations may be challenged by seeking judicial review under Article 226 of the Constitution of India.

12. Regulation making – width of scope [Contd] Supreme Court’s judgement empowers regulators to make regulations on a wide range of topics and aspects even if they are not expressly mentioned in the parent statute but so long as they are consistent with the statute and that they are made for carrying out the provisions of the statute. Regulations could be interfered with only in those few cases where the view reflected in the regulation was not possible to be taken at all.

13. Thank you