AERA – Powers and Functions

The Indian civil aviation sector has been growing tremendously, and with the second-largest population, the total traffic at major airports is also massive. The Naresh Chandra Committee recommended setting up a regulatory authority to reduce the burden on the Airports Authority of India, which had been performing the role of operator and regulator. The Central Government set up the Airports Economic Regulatory Authority (AERA) to regulate tariffs and other applicable charges for the provision of aeronautical services at major airports. The Airports Economic Regulatory Authority Act, 2008 (AERA Act) vests the AERA with certain powers. This write-up examines the scope of powers vested in the AERA under the AERA Act.

”Powers” in Relation to ”Functions’‘

Chapter III of the Act deals with the Powers and Functions of AERA. Section 13 of the AERA Act lists the Functions of AERA, and the Powers of AERA are listed in Section 14 through Section 16. Section 14 gives AERA the power to inquire into the affairs of service providers, ask them to furnish information and even inspect the books of account or other documents.[1] The powers listed in this Section are extensive in nature, giving AERA the right to call for information/explanation to assess performance, undertake inquiry in relation to affairs of the service provider and inspect its books. These powers can be invoked whenever AERA considers it ”expedient”. It is argued that such power shall be exercised only to the extent it helps AERA discharge its functions under Section 13. This would still allow AERA extensive powers; however, the same shall give the service providers some clarity for the scenarios where information can be sought from them. It shall also act as a guiding principle for AERA to invoke these powers.

This issue was dealt with partially by the Supreme Court in the case of Delhi International Airport Ltd. V. Airport Economic Regulatory Authority of India[2] where the Court looked into the Project Costs that had been exceeding the original estimate regularly. Such Project Costs continuously affected the Regulatory Asset Base, which is used for determining tariffs.[3] Tariff determination is one of the primary functions of AERA; thus, AERA should have invoked the powers under Section 14(1)(a) and (b) to assess the performance of service providers.

The Court held that ““No independent study was conducted by AERA even though the same is a statutory obligation under the said Act. Escalated Project Costs had been allowed without conducting thorough prudence checks as mandated under the aforesaid provisions.”[4] This failure on AERA’s part was considered a dereliction of duty. Interestingly, these powers have been considered statutory obligations by the Supreme Court, making it mandatory for AERA to invoke these powers under some circumstances. From the judgement, tariff determination appears to be one of the functions for which AERA can invoke powers under Chapter III. AERA may enquire into any activity or function performed by a service provider if the same may affect tariff determination in any manner.

Powers in Relation to the Preamble

The Telecom Disputes Settlement and Appellate Tribunal, in the case of Bangalore International Airport Ltd And Ors. v. Airport Economic Regulatory Authority of India where the Tribunal looked into the power of AERA to issue directions to service providers to monitor their performance.[5] In addition to tariff determination, the Tribunal also highlighted the Preamble of the AERA Act which states, “to monitor performance standards of airports and for matters connected therewith or incidental thereto.“[6]

The Tribunal went on to hold that, “Monitoring of timely completion of vital projects like a terminal building has  intrinsic relationship with performance of airports.“[7] It was held that experts shall be used by AERA to constantly keep an eye over the aeronautical activities at the airports as AERA shall always act as a custodian of the airport user interests. Public interest is of great significance in determining tariffs. AERA shall take these steps to ensure that no wrong or reckless costs are being imposed, the burden of which shall be borne by the users. The Tribunal also held that AERA could also exercise the power of seizure under Section 16 for such matters.[8]

Powers of Seizure 

The power of seizure under Section 16 is exercisable only with respect to the subject matter of the inquiry.[9] The AERA Act offers no clarification if the inquiry mentioned in the Section is the same as the one made under Section 14(1)(b) of the Act.

The power of seizure under said Section 16 is subject to Section 100 of the Code of Criminal Procedure, 1973 which deals with ”Persons in charge of closed place to allow search”.[10] Said Section 100 lists out certain measures that need to be taken in case of such a search – such as being accompanied by 2 inhabitants as witnesses, list of seized materials, power to search body etc. It needs to be noted that the standards laid down, if not followed, do not mean that the seizure becomes void and unlawful. On numerous occasions, the Supreme Court has held that the prosecution shall not be vitiated if some of these measures have not been followed.[11]

This alone cannot be considered a ground to throw out the prosecution’s case. Therefore, the power granted under Section 16 also includes the power to search the premises as well, in order to conduct a thorough enquiry.

Viewpoint

• The AERA Act has granted discretion (arguably, unbridled) to AERA to use these powers whenever it considers it expedient to do so.
• In some cases, it is also the obligation of AERA to use these powers, such as tariff determination and monitoring performance at the airport. It would be logical to argue that AERA shall not use its powers for any purpose as they deem fit, but the same shall be in accordance with the functions vested in it by Section 13 and the Preamble of the AERA Act.
  The Apex Court has also clarified that on some occasions, these powers become obligatory to exercise to ensure that the tariff is being determined correctly. It would follow that the functions of AERA need to be looked into to invoke these powers.
• As the airports in India transition into a regime that involves participation from private players, AERA also has to be more vigilant in using its powers to ensure the performance standards are being met and that the users are not being burdened with additional charges. At the same time, this should not be construed to mean that AERA can invoke these powers with respect to every function undertaken by the service provider.
  The powers should not be used to adversely affect the private players, deterring them from entering the sector.
  Private service providers also have a crucial role in maintaining and improving performance standards at the airport. Their interests also need protection for an effective system under which public-private participation can thrive.

Suniti Kaur (Ms) and Ashwini Panwar (Mr)

Suniti Kaur (Ms)

Co-Founder &  Managing Partner at Alaya Legal

Ashwini Panwar (Mr)

Associate at Alaya Legal

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