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CASE NO.: Special Reference Case  1 of 2001

PETITIONER: Under Article 143(1) of the Constitution of India

RESPONDENT: Splref1

DATE OF JUDGMENT: 25/03/2004

BENCH: S.R.Babu,K.G.Balakrishnan,P.V.Reddi,B.N.Srikrishna & G.P.Mathur.

JUDGMENT: J U D G M E N T

O P I N I O N

K.G. BALAKRISHNAN,  J.

       This is a Reference made by the President of India under Article 143(1) of  the Constitution of India.  The Gujarat State legislature passed an Act by name  "Gujarat Gas (Regulation of Transmission, Supply and Distribution) Act, 2001"   (hereinafter being referred to as "Gujarat Act"), which came into force w.e.f. 19th  December, 2000.  The object of the enactment is to provide for regulation of  transmission, supply and distribution of gas, in the interests of general public and  to promote gas industry in the State, and for that purpose, to establish Gujarat  Gas Regulatory Authority and for matters connected therewith and incidental  thereto.     The term "Gas" has been defined in the Gujarat Act under Section  2(h) as follows:-

"Gas" means a matter in gaseous state which predominantly  consists of methane."

       The State legislature passed the said enactment by tracing its legislative  competence under  Entry No. 25 of List II of the Seventh Schedule of the  Constitution.  The Parliament has passed various enactments under Entry No. 53  of List I dealing with the matters of petroleum and petroleum products.  The Entry  No. 53 of List I of the Seventh Schedule reads as follows:-

"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."          Entry No. 25 of List II reads as follows:-          "Gas and gas works"

       Article 246 of the Constitution lays down the principle that the Parliament  alone has exclusive powers to make laws with respect to any of the matters  enumerated in List I of the Seventh Schedule.   As regards entries in List II, the  legislature of the State has exclusive power to make laws subject, of course, to  clause   (i) and (ii)   of Article 246.     Article 246 reads as follows:-

"246. Subject matter of laws made by Parliament and by the  Legislature of States:

(1)     Notwithstanding anything in clause (2) and (3),  Parliament has exclusive power to make laws with respect to

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any of the matters enumerated in List I in the Seventh  Schedule (in this Constitution referred to as the "Union List");

(2)       Notwithstanding anything in clause (3), Parliament,  and, subject to clause (1),  the Legislature of any State also,  have power to make laws with respect to any of the matters  enumerated in List III in the Seventh Schedule (in this  Constitution referred to as "Concurrent List").

(3)     Subject to clauses (1) and (2), the Legislature of any  State has exclusive power to make laws for such State or  any part thereof with respect to any of the matters  enumerated in List II in the Seventh Schedule (in this  Constitution referred to as the "State List").

(4)     Parliament has power to make laws with respect to  any matter for any part of the territory of India not included  [in a State] notwithstanding that such matter is a matter  enumerated in the State List."

       When the State of Gujarat passed the Gujarat Act, the question arose  whether the State Government can pass an enactment in respect of gas,  including natural gas in all its forms by virtue of the legislative competence based  on Entry 25 of List II of the Seventh Schedule.  The Federal Legislature passed  Petroleum Act, 1934.  The Union of India, inter alia, enacted various legislations,  namely,  The Oil Fields (Regulation and Development) Act, 1948; Oil Industry  (Development) Act, 1974; The Petroleum and Minerals Pipelines (Acquisition of  Right of User in Land) Act, 1962; the Oil Industry (Development) Act, 1974.    All  these  legislations have been passed by the Union of India on the basis of the  legislative competence under Entry 53 of List I of the Seventh Schedule.  Oil and  Natural Gas Commission increased the price of natural gas supplied by them.   The Association of Natural Gas Consuming Industries of Gujarat and others filed  Civil Writ Petition before the High Court of Gujarat wherein they challenged the  legislative competence of the Union to make laws on "gas and gas works."     Therefore, the question arose 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."    It is in this  background, the following questions were referred to this Court under clause 1 of  Article 143 of the Constitution of India:

(1)     Whether natural gas in whatever physical form 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.

(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.

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

After the receipt of the Reference, notices were served on the States and  the Union Territories.  The learned Attorney General for India appeared for the  Union of India and all the States were represented through various  Counsel.  We  heard learned Attorney General for India and the learned Senior Counsel who  appeared for various States and Union Territories.

The learned Attorney General contended that the various definitions in  

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different  encactments indicate that ’petroleum and petroleum product’ include  ’natural gas’ and it was urged that ’natural gas’  is a Union subject covered by  Entry 53 of List I.  It was contended that the Union Government passed various  legislations in respect of ’Petroleum and Petroleum Products’ and ’Mineral  Resources’, namely, The Oil Fields (Regulation and Development) Act, 1948;  The Oil Industry (Development) Act, 1974; Petroleum and Minerals Pipelines  (Acquisition of Right of User in Land), Act, 1962; and Petroleum & Natural Gas  Rules, 1959, Industries (Development and Regulation)  Act, 1951, as the  Parliament alone is competent to do so under Entry 53, List I of the Seventh  Schedule.  It was contended by the Attorney General that various definitions  indicate that there is uniform and consistent legislative practice and it is evident  that the terms "Petroleum and Minerals" include natural gas.  The Central  Government has undertaken the task of ensuring balanced growth in supply,  transmission and distribution of natural gas and natural gas being a ’petroleum  product’  falls exclusively in the domain of the Central legislation.   The ’natural  gas’  in whatever physical form, including Liquefied Natural Gas (LNG) is a Union  subject covered under Entry 53 of  List I and Entry 25 under List II of the Seventh  Schedule deals with "gas and gas works"  and it relates to manufacture of  synthetic gas.  Initially manufactured gas was used for lighting street lamps and  such other allied purposes.  Certain gases like acetylene, oxygen, carbon-dioxide  are locally manufactured and used in industries such as for welding purposes, or  in hospitals, or for preparing aerated drinks, etc. and Entry 25 under List II  enables the State Government to regulate and control the manufacture and  distribution of these gases by the local industry and mineral oil resources or  petroleum products  would not fall under Entry  25 of List II.  It was further  contended that the provisions of the Gujarat Act seek to trench upon the field  reserved for the Union.  It was  submitted that the Gujarat Act confers authority  upon the State Government to regulate the business of distribution and  transmission of gas and the provisions of that Act, ex facie, provide for taking  over the mineral oil fields and intermeddle in the activities relating to the drilling  for oil, etc.  It was also pointed out that some other provisions of the said  enactment, inter-alia, deal with the licensing and distribution of gas and these  provisions are ultra vires of the legislative competence of the State.

The learned Counsel for the State of Gujarat,  Shri Ashok Desai  contended that the 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    Calcutta Gas Company  (Proprietary) Ltd. Vs. State of West Bengal and Ors.  1962 (Suppl.) 3 SCR 1,  the scope and ambit of Entry 25 of List II had been  authoritatively pronounced by this Court and this Court 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 were only legislative  heads or fields of legislation and they demarcated the area over which the  appropriate Legislature could operate and the widest amplitude should be given  to the language of the entries.   It  was submitted by the learned Counsel for the  State that when there is a conflict between two entries, 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.  The learned Counsel strongly urged that the State has exclusive  powers to make laws dealing with  ’natural gas’   in whatever physical form,  and  that it also would include the Liquefied Natural Gas (LNG).    The learned  Counsel   for the  State   elaborately   argued    and   brought   to our attention  the   various   publications   and research papers on the subject to show as to  what is  ’natural gas’  and its derivative forms.

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.

The   plea   made  on  behalf  of  the State of Gujarat   was adopted  by

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almost all  the States.  The learned Senior Counsel appearing for the State of  Assam submitted that Entry 25 of List II is clear and unambiguous and it is  incorrect to suggest that "gas and gas works" should be limited only to  manufactured gases or to gases other than natural gas.  It was argued that the  entries in the  legislative lists are to be given widest amplitude and it is  constitutionally impermissible to add words of qualification to Entry 25 List II.  It  was argued that in commercial, scientific and industrial parlance, "Gas" (including  Natural Gas and Liquefied Natural Gas (LNG)) is quite distinct from "Petroleum  or Petroleum Products".   It was submitted that  at a   number of gas fields in  Assam,  operating in places like Pingri, Thangakhat, Chubua, Jorajan,  gases     were  extracted not in association with any other substance and   it is distinct  from petroleum and oil.  It was also pointed out that in a federal structure like  ours,   a natural resource like gas is fundamental to the very economic existence  and prosperity of a State  and  consistent with  the principles  of  federalism,  the  State  shall not be denied the opportunity to exploit the natural resources.  It  was  submitted,  relying on the observation in   Sir Byramji Jeejibhai Vs. Province of  Bombay   (1939) 3 FLJ (HC) 25 at 31,  that the Courts must, if possible,  reconcile conflicting items in the Central and Provincial Lists before falling back    to  the non obstante   clause   in Section  100   of the   Government   of  India    Act,    and in applying that principle the Court may restrict the general words of  the Federal   list   so   as   not   to nullify a particular power contained in the  Provincial list.

Learned senior Counsel Mr. P. Chidambaram appearing for the Common  Carriers Company contended  that any industrial activities connected to "gas and  gas works" are beneficial to the State and the State must be given power to  legislate on the subject.  The expression  "gas" mentioned in Entry 25 of List II  takes within its ambit ’natural gas’  which is to be considered as equivalent to  electricity and water.    It  was argued that  "natural gas" is defined as a naturally  occurring mixture of hydrocarbon and nonhydrocarbon gases found in the porous  geologic formations beneath earth’s surface and is used principally as a source  of heat in residential, commercial and industrial service  because of its clean  burning quality,  convenience of utilisation,  low cost and abundance.   In other  words,  ’natural gas’   is widely used as a energy source.  It was submitted that  the States  alone would be in a position to exploit the resources and distribute it  to the consumers.  It was also argued that   ’natural gas’  is classified in several  broad categories such as (1) wet gas which contains condensable hydrocarbons  such as propane, butane and pentane; (2) lean gas denotes an absence of  condensable hydrocarbons; (3) dry gas whose water content has been reduced  by dehydration process; (4) sour gas contains hydrogen sulfide and other sulfur  compounds and (5) sweet gas denotes an absence of hydrogen sulfide and other  sulfur compounds.  It was submitted  that these natural gases are not associated  with any petroleum products.   The learned counsel  argued that  the State had  got legislative competence to pass the  legislation in respect of natural gas,  as it  is not a petroleum product.

Before adverting to the main question regarding the legislative  competence of the State to pass the Gujarat Act, a brief  survey   of the various  provisions  thereof  may be of relevance.    The object of the enactment is to  provide the regulation of transmission, supply and distribution of gas, in the  interests of the general public and to promote gas industry in the State.  Under  section  2(h),    "gas"  has been defined as a matter in gaseous state which  predominantly consists of methane.     Under section 2(g), "distribution"   means  distribution of gas at a low pressure by means of pipelines to a consumer other  than a bulk consumer.  "Transmission"  is defined as means of transmission of  gas at high pressure by means of pipelines.  Chapter II of the Act proposes to  appoint an officer to be the Commissioner of gas.  Chapter III of the Act provides  for establishment and Constitution of authority, namely, Gujarat Gas Regulatory  Authority.  The authority shall consist of a Chairperson and two other members to  be appointed by the State Government.   The qualifications and the mode in  which vacancies are to be filled up are prescribed under Section 8 and 9 of the  Act.  The functions and powers of authority are mentioned in Chapter IV,  which  include, inter alia,  the function of  regulating transmission, supply and distribution

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of gas, to promote gas industry in the State in accordance with the direction  given by the State Government, to give directions to a licensee for ensuring  compliance of terms and conditions of a licence  held by him.  Under Section 18  of the Act, the Authority, for the purposes of any inquiry under the Act, have been  given powers of a civil court.  Chapter VI of the Act specifically says that no  person other than a specified company and a person referred to in sub-section  (1) of Section 55 shall carry on the business of transmission  in the State and that  subject to the rules, if any, a specified company shall carry on the business of  transmission in the State.  Section 25(2) says that no person shall lay pipelines  for distribution in the State unless he is a licensee.    Chapter IX of the Act deals  with  offences and penalties and Section 34(1) and (2) states that whoever  carries on business of transmission in contravention of clause (a) of sub-Section  (1) of Section 23 or of clause (a) or (b) of sub-Section (2) of Section 55 or  whoever carries on business of distribution or lays pipelines for such distribution  without a licence in contravention of Section 25, shall on conviction, be punished  with imprisonment which may extend to six months or with fine not exceeding five  lakhs of rupees or with both and in the case of a continuing offence an additional  fine not exceeding twenty thousand rupees for every day after the first, during  which the offence continues.

       Apart from the pre-constitutional laws, the Union has  passed series of  legislations relating to petroleum and petroleum products.  The Mines Act, 1952;  the Mines and Minerals (Development) Act, 1957;  Oil Fields (Regulation and  Development) Act, 1948; Petroleum and Minerals Pipelines (Acquisition of Right  of User in Land) Act, 1962; The Oil Industry (Development) Act, 1974; Industries  (Development and Regulation) Act, 1957; Petroleum and Natural Gas Rules,  1959 are some of the  legislations made by the Central Government.                                          The Constitution of India delineates the contours of the powers  enjoyed  by the  State Legislature and the Parliament in respect of various subjects  enumerated in the Seventh Schedule.   The rules relating to distribution of  powers are to be gathered from the various provisions contained in Part XI  and  the  legislative heads mentioned in the three lists of the Schedule.   The  legislative power of both Union and State Legislatures are given  in  precise  terms.   Entries in the lists are themselves not powers of legislation, but fields of  legislation.   However,  an Entry in one list cannot be so interpreted as to make it  cancel or obliterate another entry or make another entry  meaningless.   In case  of apparent conflict, it is the duty of the court to iron out the  crease and avoid  conflict by reconciling the conflict.   If  any entry overlaps or is in apparent conflict  with another entry, every attempt shall be made to harmonise the same.                  When  the question arose about  reconciling Entry 45 of List I, duties  of  excise,   and Entry 18 of List II,  taxes on the sale of goods,  of Government of  India Act, 1935,    Sir Maurice Gwyer, C.J.,  in In re: The Central Provinces  and Berar Act No. XIV of 1938 1939 ELR 18 at page 42-44 observed:

"A  grant of the power in general terms, standing by itself, would no  doubt be construed in the wider sense, but it may be qualified by  other express provisions in the same enactment, by the implication  of the context and even by considerations arising out of what  appears to be the general scheme of the Act."

It was further observed :

"\005\005an endeavour must be made to solve it, as the Judicial  Committee have said by having recourse to the context and  schemes of the Act, and a reconciliation attempted  between two  apparently conflicting jurisdictions by reading the two entries  together and by interpreting, and, where necessary modifying the  language of the one by that of the other.  If indeed such a  reconciliation should prove impossible, then, and only then, will the

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non-obstante clause operate and the federal power prevail."

       Although Parliament cannot legislate on any of the Entries in the State  List, it may do so incidentally while essentially dealing with the subject coming  within the purview of the Entry in the Union list.  Conversely, State Legislature  also while making legislation may incidentally trench upon the subject  covered in  the Union List.   Such incidental encroachment in either event need not make the  legislation ultra vires of the Constitution.   The doctrine of pith and substance is  sometimes invoked  to find out the nature and content of the legislation.    However, when  there is an irreconcilable  conflict   between the two legislations,   the Central legislation shall prevail.  However, every attempt would be made to  reconcile the conflict.

       In  Prafulla Kumar Mukherjee & Ors. vs. Bank of Commerce Limited,  Khulna  1947 (74) IA 23,  which was an appeal from the Federal Court of India,   the question arose regarding the validity  of the  provisions of Bengal Money  Lenders Act, 1940.  The main attack by the respondent therein was that the  Provincial   Legislature  had  no power to make any enactment under Entry 27  List II  --  "Money lending and Money lenders"  --  as it incidentally trenches on  "promissory notes"  and  "banking"   which is a subject matter reserved for   Federal Legislature.    It  was  observed :

"It is not possible to make  so clean a cut between the powers of  the various legislatures : they are bound to overlap from time to  time.   Moreover, the British Parliament   when enacting the Indian  Constitution Act had a long experience of the working of the British  North America Act and the Australian Commonwealth Act and must  have known that it is not in practice possible to ensure that the  powers entrusted to the several legislatures will never overlap."

The  following observations of Sir Maurice Gwyer, C.J. in Subramanyan  Chettiar vs. Muttuswami Goundar    (1940) FCR 188 were quoted with  approval :

"It must  inevitably happen from time to time that legislation, though  purporting to deal with a subject in one list, touches also on a  subject in another list, and the different provisions of the  enactment  may be so closely intertwined that blind observance to a strictly  verbal interpretation would result in  a large number of statutes  being declared invalid because the legislature enacting them may  appear to have legislated in a forbidden sphere.   Hence the rule  which has been evolved by the Judicial Committee, whereby the  impugned statute is examined to ascertain its ’pith and substance,’  or its ’true nature and character,’ for the purpose of determining  "whether it is legislation with respect to matters in this list or in that."      Their Lordships agree that this passage correctly describes the  grounds on which the rule is founded, and that it applies to Indian  as well as to Dominion legislation."  

       The learned counsel  for the State of  Gujarat submitted that Entry 25 of  List II of the Seventh Schedule gives power to the State Legislature to make   legislation  on any subject relating to  gas and gas-works and  that  this  was  considered by this Court in Calcutta Gas Company (Proprietary) Limited   (supra)  and the Act passed by the State  legislature, namely, the Oriental Gas  Company Act,  1960 was held to be  constitutionally valid.   The  brief  facts of  the case are : The Oriental Gas Company  was registered in England.  It was  empowered to lay pipes in Calcutta and  its suburbs  and to excavate the streets  for the said purpose.   A firm carrying a business in India purchased 98 per cent  of the shares of the said Oriental Gas Company and floated a limited liability  company named the Calcutta Gas Company (Proprietary) Limited.  By an  agreement,  the Calcutta Gas Company was appointed as the  Manager of the

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Oriental Gas Company.   The West Bengal  Legislature  passed an Act whereby  the State Government took over for a period of five years the management and  control of  the Oriental Gas Company.   The appellant Calcutta Gas Company  (Proprietary) Limited filed a petition under Article 226 of the Constitution  challenging the constitutional validity of the  said  Act.   The State Government  contended that by virtue of  Entry 25 of List II,  the West Bengal Legislature was  competent to make  laws effecting the gas industry.  Speaking for the Bench,   Subba Rao, J.,  as he then was,  observed thus:   

"Entry 24 in the List II in its widest amplitude takes in all industries,  including that of gas and gas-works.  So too, entry 25 of the said  List  comprehends  gas industry.   There is, therefore, an apparent  conflict between the two entries and they overlap each other.   In  such a  contingency, the doctrine of harmonious construction must  be invoked\005\005\005    If industry in entry 24 is interpreted to include  gas and gas-works, entry 25 may become redundant, and in the  context of the succeeding entries, namely, entry 26, dealing with  trade and commerce, and entry 27, dealing with production, supply  and distribution of goods,  it will be deprived of all its contents and  reduced to "useless lumber."   If industrial, trade, production and  supply aspects are taken out of entry 25, the substratum of the said  entry would disappear : in that event we would be attributing to the  authors of the Constitution ineptitude, want of precision and  tautology."

       Though it is  stated in the Calcutta Gas Company’s case (supra) that  under Entry 25 of List II the State Legislature  has got powers to make any  legislation regarding gas and gas-works, it cannot be of any assistance to  support the constitutional validity of the  ’Gujarat Act’ as the definition of the word  ’gas’ under the Gujarat Act  is an inclusive definition and any matter in gaseous   state which predominantly contains methane would come within that  definition.     In  Calcutta Gas Company’s case,  the question  whether the gas and gas- works mentioned in Entry 25 List II would come within the expression ’petroleum  or  petroleum products’ was not directly involved nor  it was considered in that   case.   

       The controversy in the instant case could only be resolved by examining  the question   whether  the expression  ’petroleum’ and ’petroleum products’ or  ’mineral oil  resources’ mentioned in Entry 53 of List I of the Seventh Schedule  would take in its compass the natural gas or its derivative forms.  The above  question could be considered  by  properly understanding these terms.  The  parties on either side produced the extracts from various authoritative books on  the subject.                    In  Kirk-Othomer   Encyclopedia of Chemical Technology,   [Third  Edition],   Vol. 11  page 630,  ’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.       

To obtain a marketable product, the raw natural gas flowing from gas or oil  wells must be processed to remove water vapor, inert or poisonous constituents,  and condensable hydrocarbons.  The processed gas is principally methane, with  small amounts of ethane, propane butane, pentane, carbon dioxide and nitrogen.   This gas can easily be transported from the producing areas to the market in  underground pipelines under pressure or liquefied at low temperatures  and  transported in specially designed ocean-going tankers.

       Natural gas is found in areas of the earth that are covered with  sedimentary rocks.  These sediments were first laid down during the Cambrian  period, ca 500 million years ago, and this process continued until the end of the  Tertiary period ca 100 million years ago.   These sediments contain the organic  source materials from which natural gas and petroleum were produced.  Gas and  petroleum, being less dense than the water present in the rocks, tended to

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migrate upward until contained under impervious rock  barriers.    

       On page 634 of the above Encyclopedia,  Natural gas is classified in  several broad categories based on the chemical composition, which are : (1) wet  gas contains condensable hydrocarbons such as propane, butane, and pentane;  (2) lean gas denotes an absence of condensable hydrocarbons; (3) dry gas is a  gas whose water content has been reduced by dehydration process; (4) sour gas  contains hydrogen sulfide and other sulfur compounds; and (5) sweet gas  denotes an absence of hydrogen sulfide and other sulfur compounds. Natural  gas sold to the public is described as lean, dry and sweet.    

       The   composition of natural gas at the wellhead varies widely from field to  field.   Many undesirable components may be present that must be removed  by  processing before delivery to the pipeline.

       The technological advancement in the use of liquefied natural gas (LNG)  provided the gas industry with new methods to solve the problems of storage and  transportation.    Natural gas can be reduced to 1/600 of the volume occupied in  the gaseous state by  cryogenic processing, safely stored or transported in  double-walled insulated metal containers at near atmospheric pressure and   when required,  can be re-gasified.

       Natural gas is used mainly as fuel to provide heat for homes, commercial  buildings and industrial processing.                  In  Volume  17  on   page 119,   it   is stated   that the term ’petroleum’,  literally,   rock oil,   is applied   to  the   deposits   of   oily   material found in the   upper   strata  of   the   earth’s   crust.       Petroleum   was   formed   by a  complex   and   incompletely understood    series   of chemical      reactions    from   organic   material   laid    down   in previous geological eras.   Large  deposits   have    been found in widely   different parts of the world and their  chemical   composition    varies   greatly.   Consequently,   no   single  composition of petroleum   can   be defined.    It is not surprising that the  composition   varies,   since   the   local distribution   of plant,    animal and  marine    life is quite   varied    and, presumably,    was    similarly     varied when  the   petroleum    precursors   were    formed.      

       As per ’The New Book of Popular Science’ Vol. 2,   petroleum is an oily,  inflammable, liquid made up mostly of hydrocarbons \026 compounds containing  only hydrogen and carbon.  The hydrogen content of petroleum ranges from 50  per cent to 98 per cent.     The rest is made up chiefly of organic compounds  containing oxygen, nitrogen, or sulphur.

       According to a widely held theory, the remains of countless small marine  animals and plants dropped to the ocean bottom and were covered  over by mud.    Many layers of mud and plant and animal remains accumulated in the course of  time.   These sediments were subjected to great pressure and heat, and were  often squeezed and distorted as the earth’s crust moved.   Gradually they were   converted  into layers of sedimentary rock.  The plant and animal remains  contained within them were transformed into petroleum and natural gas.   The  details of  this transformation are not quite clear.

       Gas and oil are found in huge subterranean caverns.   They both occur in  minute pores of such rocks as  sandstone and limestone.  They are held captive  under great pressure by surrounding rock formations that are impervious to  seepage.   Finally  they are released  when the shifting of the earth’s surface  cracks the cap rock.

       ’Natural gas’ has been defined in the Webster’s new 20th Century  dictionary,  unabridged second edition, as follows :

"Natural  Gas : A mixture of gaseous hydrocarbons, chiefly  methane, occurring naturally in the earth in certain place, from  which it is piped to cities etc., to be used as a fuel." (p-756).

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       In    Ballantine’s Law Dictionary,  3rd Edn., 1969, ’Natural Gas’ has been  defined as "A mineral in the form of a vapor."  A gas characterized by  hydrocarbons in mixture, occurring naturally in the crust of the earth, obtained by  drilling, and piped to cities and villages,  industrial and commercial centres, for  use in   heating, illumination and other purposes.

       Learned Senior Counsel, Dr. A.M. Singhvi, appearing for the State of  Assam, placed reliance on the decision of the Privy Council in  Borys vs.  Canadian Pacific Railway Co. & Anr.  1953 (1) All ER  451 and contended that  gas and petroleum are two  distinct  commodities.   That  was a case where the  appellant owned an estate in Alberta.   The property had been acquired by his  predecessors   from Canadian Pacific Railway Co. (CPR).   In the original  conveyance,  CPR reserved to themselves all coal, petroleum and valuable stone  and in reliance on this reservation,  they leased to the second respondent all  petroleum that might be found within, on or under the land, together with the  exclusive right to work, win and carry it away, for a period of ten years, subject to  the right of renewal.   There was, in fact, under the appellant’s property and the  lands adjoining it,  a large reservoir of petroleum which was found in a bed of  porous rock.  This bed contained at the bottom water,   then  the petroleum and  on top a layer of gas.   The porous rock and the other substances were held in a  container,   which was impervious and shut  them off from the surrounding land  which lay outside it, but within the container they could move from place to place,  and, therefore, any withdrawal of water, petroleum or gas from one portion  of the  container would normally result in filling of the vacant space by one of those  three substances.   The particular substance of which the appellant claimed to be  owner, and to interference with which he objected,  was the gas contained in a  cap  situated on top of the petroleum and also any gas which was in solution in  the petroleum under his land or might be withdrawn from under his land.   Therefore, the problem arose  when they proceeded to bore  for oil, but before  they reached the container, the appellant, maintaining that their working would   remove his gas, whether free or in a solution, applied for, and obtained, an  interim injunction inhibiting them from penetrating into the chamber.  At the same  time, he brought an action claiming a declaration that he was the owner of the  natural gas within his lands .   It was decided that although the right to work the  petroleum granted in the lease to the second respondent was a  right which had  been in the original conveyance, the absence  of such a clause did not abrogate  or  limit the powers of the respondent.   The  second respondent had direct grant  of petroleum whereas the appellant had merely such residual rights as remained  in him subject to the grant to the respondents and it was held that respondents  were under no obligation to conserve the free gas within the appellant’s land with  the consequent denial of their right to recover the petroleum in the usual way.  

       In that case, the question was whether the lease-holder had the right to  extract petroleum without causing  loss of the natural gas embedded in the  earth’s crust.     That question arose because of the nature of conveyance  obtained by the lease-holder and the specific lease granted to the lease-holder.   Therefore, the decision in Borys’ case  (supra)  is  of no assistance.

       All the materials produced before us would only show that the natural gas  is a petroleum product.   It is also important to note that in various legislations  covering the field of petroleum and petroleum products, either the word  ’petroleum’ or ’petroleum products’ has been defined in an inclusive way, so as to  include natural gas.   In Encyclopaedia Britannica, 15th Edn. Vol. 19, page 589  (1990), it is stated that "liquid and gaseous hydrocarbons are so intimately  associated in nature that it has become customary to shorten the expression  ’petroleum and natural gas’ to ’petroleum’ when referring to both."  The word  petroleum literally means ’rock oil’.  It originated from the Latin term petra-oleum.  (petra-means rock or stone and oleum-means oil).  Thus, Natural Gas could very  well be  comprehended within the expression   ’petroleum’   or  ’petroleum  product.’

       In the    State of Madras   vs. Gannon Dunkerley & Co. 1959 SCR 379,  it was observed that it is important to consider the legislative practice  in

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interpreting the various words used in the Constitution.    Venkatarama Aiyar, J.,  speaking for the bench, said:  

"Turning next to the question as to the weight  to be attached to  legislative practice in interpreting words in the Constitution, in Croft  v. Dumphy (1933) AC 156, the question was as to the validity of  certain provisions in a  Canadian statute providing for the search of  vessels beyond territorial waters.   These provisions occurred in a  customs statute, and were intended to prevent evasion  of its  provisions by smugglers.   In affirming the validity of these  provisions, Lord Macmillan referred to the legislative practice  relating to customs, and observed :

"When a power is conferred to legislate on a particular  topic it is important, in determining the scope of the  power, to have regard to what is ordinarily treated as  embraced within that topic in legislative practice and  particularly in the legislative  practice of the State  which has conferred the power."

In Walace Brothers & Co. Ltd. v. Commissioner of Income-tax,  Bombay City and Bombay  Suburban District, Lord Uthwatt  observed :

"Where Parliament has conferred a power to legislate  on a particular topic it is  permissible and important in  determining the scope and meaning of the power to  have regard to  what is ordinarily treated as embraced  within that topic in the legislative practice  of the  United Kingdom.  The point of the reference is  emphatically not to seek a pattern to which a due  exercise of the power must conform.   The object is to  ascertain the general conception involved in the  words in the enabling Act."

       A survey of the various  legislations  on the topic   would show that the  term  ’petroleum’  or   ’petroleum products’ has been given a wide meaning to  include natural gas and other similar products.     

       In   the   Pipelines Act,  1962 of  the United Kingdom,   ’petroleum’ has  been defined as follows :

"Petroleum includes any mineral oil or relative  hydrocarbon and  natural gas existing in its natural condition in strata, whether or not  it has undergone any processing; but does not include coal or  bituminous shales or other stratified deposits from which oil can be   extracted by destructive distillation."

Petroleum  has  been   variously   defined   in  different   Acts,  noted  hereinbelow :

Petroleum  (Production) Act, 1934  (UK) "Petroleum includes any mineral oil or relative hydro-carbon and  natural gas existing in its natural condition in strata, but does not  include coal or bituminous shales or other shales or other stratified  deposits from which oil  can be  extracted by destructive  distillation."

Petroleum  Act,  2000 (Sec. 4),  Australia  

"Petroleum"  means a naturally occurring substance consisting of a

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hydrocarbon or mixture of hydrocarbons in gaseous, liquid or solid  state but does not include coal or shale unless occurring in  circumstances in which the use of techniques for  coal seam  methane production or  in situ gasification would be appropriate."

Liquid Fuel Emergency Act, 1984 (Sec. 3)    "petroleum" means : a.      any naturally occurring hydrocarbon or mixture of  hydrocarbons, whether in a gaseous, liquid or solid state; or

b.      any naturally occurring mixture of a hydrocarbon or  hydrocarbons and  of another substance or other substances,  whether in a gaseous, liquid or solid state.

The   various    legislations   passed   by   the Indian  Parliament and the  relevant rules   also would show that ’natural gas’ was treated as  mineral  oil   resource   or   petroleum product.

1.      The Oil Fields  (Regulation & Development)  Act, 1948

3(c)"Mineral Oils" include natural gas and petroleum.          2.      Mines Act, 1952 2(jj)      "minerals" means all substances which can be obtained  from the earth by mining, digging, drilling, dredging,  hydraulicing, quarrying or by any other operation and  includes mineral oils (which in turn include natural gas and  petroleum)"

3.  The Mines & Minerals (Development and Regulation) Act, 1957

3.(b)  "minerals oils" includes natural gas and petroleum.

4.   Petroleum and Natural Gas Rules, 1959

3(k)   "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."

3(n)  "petroleum product" means any commodity made  from petroleum or natural gas and shall include refined  crude oil, processed crude petroleum, residuum from  crude petroleum, cracking stock, uncracked fuel oil,  fuel oil, treated crude oil residuum, casing head  gasoline, natural gas gasoline, naphtha, distillate,  gasoline, kerosene, waste oil, blended  gasoline,  lubricating oil, blends or mixture of oil with one or more  liquid products or by-products derived from oil  condensate, gas or petroleum hydrocarbons, whether  herein enumerated or not."

5.      The Petroleum and Minerals Pipelines (Acquisition of Right       of User in Land) Act, 1962

2. (c)  "petroleum" has the same meaning as in the Petroleum   Act, 1934, and includes natural gas and refinery gas."

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6.   The Oil Industry (Development) Act, 1974

     2. (h).  "mineral oil" includes petroleum and natural gas."                2. (m). "petroleum product" means  any  commodity made from  petroleum or natural gas and includes refined crude oil,  processed crude petroleum, residuum from crude  petroleum, cracking stock, uncracked fuel oil, fuel oil,  treated crude oil residuum, casing head gasoline, natural  gas, gasoline, naphtha, distillate gasoline, kerosene,  bitumen, asphalt and tar, waste oil, blended gasoline,  lubricating oil, blends or mixture of oil with one or more  liquid products or by products derived from oil or gas and  blends or mixtures of two or more liquid products or by- products derived from oil condensate and gas or  petroleum hydrocarbons not specified  hereinbefore."

Under Entry 53 of List I,   Parliament has got power to make legislation for  regulation and development of oil fields, mineral oil resources; petroleum,  petroleum products, other liquids and substances declared by Parliament by law  to be dangerously inflammable.    Natural gas product extracted from oil wells is  predominantly comprising of methane. Production of natural gas is not  independent of the production of other petroleum products; though from some  wells the natural gas alone would emanate, other products may emanate from  subterranean chambers of earth.  But all oil fields are explored for their potential  hydrocarbon.  Therefore, the regulation of oil fields and mineral oil resources  necessarily encompasses the regulation as well as development of natural gas.   For free and smooth flow of trade, commerce and industry throughout the length  and  breadth   of   the country,   natural   gas   and   other   petroleum products  play a vital role.       

In Re: Cauvery Water Dispute Tribunal 1993 (Supp.1) SCC 96,  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.  

Natural  gas being a petroleum product, we are of the view that  under  Entry 53 List I, Union Govt. alone has got legislative competence.   Going  by the  definition of gas as given in Section 2(g)  of the Gujarat Act wherein "gas" has  been defined as "a matter of gaseous state which predominantly consists of  methane",   it would certainly include natural gas also.  We are of the view that  under Entry 25 List II of the Seventh Schedule, the State would be competent to  pass a legislation only in respect of gas and gas-works and having regard to  collocation of words ’gas and gas works’, this Entry would mean any work or  industry relating to  manufactured gas which is often used for industrial, medical  or other similar purposes.  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 take colour from other words ’gas- works’.  In Ballantine’s Law Dictionary, 3rd edition, 1969 ’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".  In the  www.freedictionary.com ’gas works’ is

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explained as "a manufactory of gas, with all the machinery and appurtenances; a  place where gas is generated."  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.  This will negative the argument of States that  only they have exclusive powers to make laws dealing with Natural Gas and  Liquefied Natural Gas. Entry 25 of List II only covers manufactured gas. This is  the clear intention of framers of the Constitution.  This reading will no way make  that entry a ’useless lumber’ as feared by the States, because Natural Gas was  never intended to be covered by that entry.  It is also difficult to accept the  argument of States that all ’gas’ could be categorized as dangerously  inflammable and thus arriving at the conclusion that Natural Gas is also covered  in State List  because  this differentiation is based not on the characteristics of  gas, but on the manner of its origin.  Entry 25 of List II covers the gas  manufactured   and used  in gas works.  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 laws 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.