Government Can Ask 10% More Share In Profits From Barmer Block To Extend Contract With Vedanta: High Court
Anil Agarwal, billionaire and owner of Vedanta Resources Plc, looks on during a panel discussion on the opening day of the Investing in African Mining Indaba in Cape Town, South Africa. (Photographer: Waldo Swiegers/Bloomberg)

Government Can Ask 10% More Share In Profits From Barmer Block To Extend Contract With Vedanta: High Court

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The Delhi High Court Friday said the Centre can demand 10% higher share in the profit derived from oil produced by Vedanta from the Barmer oil field in Rajasthan to extend the production sharing contract with the company for another 10 years.

A bench of Chief Justice DN Patel and Justice Jyoti Singh said no embargo can be placed on the right of the government to extend the contract on terms which are at variance with the initial terms of the PSC, "so long as they are in public interest and subserve the purpose of maximising revenue generation".

The court also said that Vedanta does not have the right to demand extension of the PSC on unilateral terms that suit its interest, overlooking the interest of the State, which is a trustee of the natural resources under a Constitutional mandate.

"For all the aforesaid reasons, we hold that there cannot be extension of the PSC unconditionally, on the same terms and conditions which were prevailing 25 years ago i.e. on May 15, 1995, the effective date," the bench said.

With these observations, the court set aside a single judge order of May 31, 2018 directing the government to extend the tenure of the contract in question for a period of 10 years, till 2030, on the same terms and conditions as existed on May 15, 1995, when the PSC was initially executed.

The judgement by the bench came on the appeal by the Centre, represented by Solicitor General Tushar Mehta, challenging the single judge's May 2018 order on Vedanta's plea for extension of the PSC which the company and the Oil and Natural Gas Corporation have with the government to extract oil from the Barmer block in Rajasthan

ONGC had communicated its approval for extension of the PSC in July 2016, after which the Centre had assured the court it would positively take a decision by October of the same year.

However, later it had sought more time as it was framing a uniform policy with regard to all such PSCs.

Thereafter, it came with a policy dated April 7, 2017 which was applicable to all existing PSCs and which stipulated that extension of a PSC, after expiry of initial period of contract, would be granted on payment of an additional 10% profit to the government.

Vedanta, represented by senior advocate Harish Salve, had on the other hand claimed that the PSC has to be extended on the same terms which existed when the contract was first entered into.

While the single judge had agreed with Vedanta's contention, the division bench in its 54 page judgement has said that the government has the power to impose a condition, in view of the policy decision, for a higher share in the profit, during the extended period.

The bench said that the government's demand for a 10% higher share in the profits came after 25 years of the initial date of contract and "cannot by any stretch be termed as unreasonable or arbitrary".

"We also do not see how the same would hinder the contractor in maximising the production of natural gas during the extended period of contract. Rather, in our view, by upholding the decision of the government for increase in the share of profit, we would only take forward the Constitutional mandate of achieving the maximum revenue in public interest," it said.

The bench further said, "We cannot lose sight of the fact that in contracts concerning natural resources, which are held by the State in trust on behalf of the people, the contractual provisions are to be interpreted in the backdrop of public interest and Constitutional goals.

"If the government has taken a policy decision, based on various considerations and taking into the views and suggestions of the stakeholders, including the respondents herein that the share of the State needs to be increased during the extended tenure of the PSC, in public interest, it deserves no interference, more particularly, when there is no challenge to the policy decision".

The bench also said that while the government has right to grant extension of contract with an additional or varied condition or stipulation and if the other party was not agreeing to it, then it can refuse extension of the PSC.

The bench also referred to various Supreme Court decisions and said that even the apex court has held that the government "is mandated to make every possible effort to get the best price for the valuable mineral resources and maximise the revenue generation, as rightly contended by the appellants (Centre).

Vedanta had moved the court after its request to the government in 2009 to extend the PSC did not elicit any response. It had claimed that the delay in a decision by the government was preventing it from infusing further investment of over Rs 30,000 crore in the project.

In its plea before the single judge, Vedanta had said that the estimated recoverable assets in the block were about 1.2 billion barrels of oil equivalent, of which 466 million barrels are expected to be recovered beyond current PSC period till 2030.

Besides, it was also producing natural gas from the block and supplying it to government companies, it claimed.

While the government's appeal was pending, the PSC was being extended from time to time for brief periods since May 2020.

The May 31, 2018 order had come on Vedanta's plea for extension of the PSC which the company and the Oil and Natural Gas Corporation have with the government to extract oil from the Barmer block in Rajasthan.

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