Vedanta v. Directorate General of Foreign Trade & Ors.

(SLP 9731/2019)
Supreme Court
S. Petitioners Counsel in Delhi High Court Counsel in
No. Supreme Court
1. Vedanta Ltd., Gurgaon Mr. C.A. Sundaram, Sr. Adv.
With Gopal Jain, Sr. Adv.
2. Mr. Ananthakrishnan B Mr. Anish Kapur B. Vijayalakshmi
3. Cairn Energy Mr. Dhritiman Roy Menon
Hydrocarbons Ltd,
Scotland
Vs.
S. Respondents Counsel in Delhi High Court Counsel in
No. Supreme Court
1. Directorate General of Mr. Tushar Mehta. Ld. ASG, Mr. Tushar
Foreign Trade Mr. Anurah Ahluwalia, CGSG, Mehta. Ld. ASG,
2. Union of India, through Ms. Tejaswita Sachdeva, Shri N. L.
MoP&NG Shri N. L. Ganapathi Ganapathi
3. IOCL Nikhil Mundeja, Koura & Co.

Participating Interest
CIL: 35% (Operator); CEHL: 35%; ONGC: 30%.
Brief Facts
M/s Cairn India Limited (now “Vedanta”) filed a writ petition in the Delhi High court W.P.
(c) 11600/2015, seeking a writ of mandamus or any other appropriate writ, order or
direction to DGFT to issue to the petitioners necessary permissions/ approvals/ authorisation
for direct export or in the alternative, permission/ facilitation for canalised export of
petitioners share of crude oil extracted from the Rajasthan Block RJ-ON-90/1 to the
extent not lifted by MoP&NG or its nominee PSUs.
Product Sharing Contract
1. On 15.05.1995, the Product Sharing Contract was entered between the President of
India, acting through Under Secretary, MoP&NG as First Part and ONGC as Second Part
and Shell India Production Development as Third Part for block RJ-ON-90/1 (Rajasthan).
i. ONGC has been granted with exploration license, SPID (Shell) shall
acquire and make available, necessary financial and technical resources
and the technical and industrial competence and experience necessary
for performance under this Contract and further, Shell would provide the
Guarantee under Article 29 of the Contract. Accordingly, as per the
discussion between the representative of Government with SPID, the
Government and ONGC have entered into contract with SIPD with respect
to the said area.
ii. 35 years from effective date.

2. On 07.06.2000, Addendum No. 1 to the Product Sharing Contract was signed between
the Parties where the respective Participating Interest of ONGC and SIPD were 0 and
 100% respectively. Further, SIPD assigned 50% Participating Interest to Cairn Energy
India. Therefore, Participating interests were as follows: ONGC: Nil, SIPD: 50%, Cairn:
50%. Accordingly, Cairn Energy India (CEI) was made as a Fourth Party to the PSC.

3. Vide letter dated 20.06.2003, Under Secretary to the Government of India, MoP&NG
informed Director General, DGH to convey the approval of the Government to the
assignment of 50% participating interest by M/s Shell India Production Development to
M/s CEHL. The assignment would be effective from the date of issue of this letter. The
assignee company would provide necessary guarantees and documents and also furnish
parent company guarantee. The assignee would comply with the provisions of PSC.
Further, the assignor shall be discharged of its obligations only to the extent undertaken
by the assignee and accordingly, the revised participating interest of the company in
block would now be CEHL: 100% and SIPD: Nil

4. Vide letter dated 23.06.2003, Under Secretary to the Government of India, MoP&NG
informed Director General, DGH that the revised participating interest of the company in
the block would now be as under: CEI” 50%, CEHL: 50% and SIPD: Nil.

5. On 27.07.2004, Addendum No. 2 to the Product Sharing Contract was signed between
the Parties wherein SIPD desired to assign whole of its 50% share of its Participating
Interest in the Contract to Cairn Energy Hydrocarbons (CEHL) and CEHL acquired the
same with effect form 20.06.2003. Accordingly, Participating interests were as follows:
ONGC: Nil, SIPD: Nil, CEI: 50% and CEHL: 50%.

6. On 18.10.2012, Addendum 3 to PSC, CIL was added as Party and CEIL removed.
Further, ONGC is the licensee/lessee of the Rajasthan Block and subsequent to
commercial discoveries in the Rajasthan Block, it has elected to take 30% Participating
interest in the development and production operations. Accordingly, Participating
Interests were as follows: CIL: 35% (Operator); CEHL: 35%; ONGC: 30%.

Relevant Articles of PSC:

Article 1.63: “Self-sufficiency” means, in relation to any Year, that the volume of Crude Oil
and Crude Oil equivalent of petroleum products exported from India during that Year either
equals or exceeds the volume of Crude Oil and Crude Oil equivalent of Petroleum products
imported into India during the same Year.
Article 18: Domestic Supply, Sale, Disposal and Export of Crude Oil and
Condensate
18.1 Until such time as India attains Self-sufficiency, the Contractor shall be required to sell to the
Government or its nominee all of the Contractor’s entitlement to Crude Oil and Condensate in
order to assist in satisfying the national demand.

18.2 Pursuant to Article 18.1 and subject to Article 18.4, the Contractor shall sell to the
Government (or its nominee) its total Participating Interest share of Crude Oil and
Condensate to which it is entitled under Articles 14 and 15 at the price determined in
accordance with Article 19 for sales to Government and the Government shall purchase the
whole thereof at the said price.

18.3 If, during any year, India attains Self-sufficiency, the Government shall promptly thereafter,
but in no event later than the end of the first Quarter of the following Year, so advise the
 Contractor by written notice. In such event, as from the end of the following year, or such
earlier date as the Parties ,may mutually agree. , Government’s obligation to purchase shall
be suspended and the Contractor shall have the right to lift and export its Participating
Interest share of Crude Oil and Condensate, subject to the Government’s option to purchase
by giving notice to the Contractor as provided in Article 18.4.

18.4 Following the services of notice under Article 18.3, that India has obtained self-sufficiency,
the Government shall have the option but not the obligation to purchase all the production in
a particular year of Crude Oil and Condensate from a Development Area representing the
Contractor’s Participating Interest share of Cost Oil and Profit Oil. The Government shall
indicate whether or not it intends to exercise its said option to purchase, in writing, not later
than ninety (90) days prior to the commencement of the Year in respect of which the sale is
to be made. Failure by the Government to give such notice within the period specified shall
be conclusively deemed an election to continue the election made in respect of the current
Year, or if no election has been made, to take all of the Crude Oil and Condensate produced
in the ensuing Year. The Government shall obliged to take and pay for the Crude Oil and
Condensate in respect of which it has or is deemed to have elected its option to purchase.

18.7 The Contractor shall be entitled to freely lift, sell and export any Crude Oil and Condensate
which the Government has elected not to purchase pursuant to this Article 18, subject to
Government’s generally applicable destination restrictions in respect of countries with which
the Government, for policy reasons, has severed or restricted trade.

Procedural Brief
 The matter was filed before Delhi High Court.
 Single Judge of Delhi High Court Justice Manmohan vide judgment dated 18.10.2016
held that the reasons given by the Empowered Committee of Secretaries on 27.01.2016
that, “the request of Cairns India Ltd cannot for export is a contractual as well as a
policy issue, and till time, India becomes a self-sufficient, crude oil produced
domestically cannot be allowed to be exported as it would be detrimental to the energy
security of country and would also be violative of the provisions of the PSC, therefore,
the request of Cairns India is rejected.” is valid ground to decline the request for export
of crude oil. In fact, the policy prohibiting export of crude oil has nexus with the energy
security of the country. Even if it is assumed that that the requirement of India having
attained self –sufficicency was dispensed with, it was on the condition that unutilised
crude oil would be sold to domestic private refineries. If petitioners are being forced to
sell at a price lower than the international price, it is free to invoke the dispute resolution
mechanism in the contract. Further, it cannot be said that the petitioners and Union of
India are suffering a loss on account of non-export of crude oil.
 Thereafter, Vedanta filed a Letters Patent Appeal against the said judgment before the
Division Bench of Delhi High Court (LPA 48/2017 in Writ Petition (C) 11600/2015). DGH
defended the matter on behalf of MoP&NG. Division Bench of Delhi High Court Justice
Ravindra Bhat and Justice Sanjeev Sachdeva vide judgment dated 28.11.2018, dismissed
the appeal of Vedanta, against the judgment of Single Judge, and held that the reasons
given by the Central Government cannot be characterized as arbitrary or unreasonable.
Since the Petitoners were permitted to sell quantities of crude oil to private refineries in
India by the decision of the Empowered Committee of Secretaries dated 17.08.2009,
subject to certain conditions, it is evident that unutilised crude oil would be sold to
domestic private refineries. A further condition that crude oil would be sold at
International price, was also imposed.
 The Division bench of Delhi High Court vide judgment dated 29.11.2018 It was expected
that the Contractor may likely to file the SLP before the Supreme Court, therefore, the
 caveat has been filed by DGH. Thereafter, Vedanta has filed the SLP before Supreme
Court on 05.04.2019.
 In this regards, we have engaged Shri N.L. Ganpathi as counsel on behalf of DGH an as
per the rates of ONGC for Panel Advocates in Middle Level Category along with Ld.
Solicitor General Shri Tushar Mehta.
Cause of Action
Under the Foreign Trade policy of India read with the Indian Trade Classification based on
Harmonized System of Nomenclature (“ITC (HS) Classification”), IOCL is duty bound, in law,
to consider the application of Petitioners for canalized export of Rajasthan Block Crude Oil.
Petitioners have approached DGFT to provide the necessary approvals to Petitioners to
directly export their share of the Rajasthan Block Crude Oil, to the extent MoP&NG unable to
lift the said Crude Oil. The Foreign Trade Policy of India contemplates direct export of the
Rajasthan Block Crude Oil by Petitioners, however, DGFT, despite being aware that MoP&NG
is not and has never been able to purchase more than 30% of the annual Rajasthan Block
Crude Oil production, has failed and neglected to consider the application of Petitioners. Till
date, MoP&NG has lifted only 16.2% out of the total produced Rajasthan Block Crude Oil.
Specific Relief sought against MoP&NG
No relief is claimed against MoP&NG, who has been joined as a proper party to this writ
petition. Some of the reliefs from the perusal of pleadings are as follows:
1. MoP&NG and its nominated PSU are unable to lift beyond 30% of the annual
Rajasthan Block Crude Oil Production . Accordingly, on 17.08.2009, MoP&NG
dispensed with the requirement of notifying self sufficiency before permitting export,
and permitted the Petitioners to sell excess Rajasthan Block Crude Oil to domestic
private refineries. Petitioners alleged that that they were legally entitled to export the
Rajasthan Block Crude Oil which would be a necessary business consequence if
either the demand of the Rajasthan Block Crude Oil or the price which the same
commands in the domestic market is insufficient. Accordingly, Petitioner sought to
export the Rajasthan Block Crude Oil as they are entitled to do so.
2. MoP&NG‘s revenue from oil and gas fields principally flows from Profit Petroleum,
Royalty (payable to State Government i.e., Rajasthan State) and cess, and in relation
to the Rajasthan Block, such revenue, including that of its nominee/ licensee from
the oil and gas field(s) is approx.. 60% to 70% of the production outflow. The
entitlement of MoP&NG over the life of the Rajasthan Block is approx. 80% and the
Licensee ONGC. The Rajasthan Block has an estimated 7.3 billion barrels equivalent
to HIIP (Hydrocarbons Initially in Place), and corollary capability of producing over
1.2 billion barrels of crude oil or equivalent. Accordingly, there is a loss to public
exchequer.
3. The Petitioners along with other joint venture partner have invested substantial sums
for construction of pipeline from Salaya to Bhogat , with terminal and marine
facilities inter alia to sell to coastal refineries and facilitate export of the Rajasthan
Black Crude Oil through Petitioners along with other joint venture partner have
invested in the region of US$516 million. It was in the legitimate expectation that the
inability of MoP&NG’s nominees to receive the entire offtake and/or pay the price
which is capable of being yielded internationally will necessarily result in the
reasonable decision of permitting exports (whether direct or canalized) and thereby
avert further losses to the exchequer. Despite steps having been taken by Petitioners
immediately thereafter, to secure permissions for export, there is no response at all
forthcoming.
Reply on behalf of MoP&NG
The relationship between MoP&NG and Petitoners is contractual in nature and every aspect
of the same is governed by the PSC dated 15.05.1995. PSC provides for adjudication of
disputes between the parties initially the appointment of an expert and thereafter before an
Arbitral Tribunal constituted as per the agreed terms between the Parties.
1. Under the policy, MoP&NG is entitled to lift the entirety of the Crude Oil produced from
the Rajsthan Block till such time as India attains “Self Sufficiency”.The question as to
whether the Petitioner can be permitted to export Rajasthan Block Crude Oil is
essentially a question of policy which is to be decided keeping in mind the national
interest and public purpose. Further, on 27.01.2016, the meeting of the Empowered
Committee of Secretaries convened under the chairmanship of MoP&NG opined that it
would be against the energy security of the nation to permit the Petitioners to export
Rajasthan Block Crude Oil. That India has a total refining capacity of 223 million tonnes
of Crude Oil. Currently, only 38 million tonnes of Crude Oil from domestic production is
available for refining in the Indian Refineries. That the balance of Crude Oil is required to
be imported to meet the domestic refinery capacity. Hence, allowing export of domestic
production of Crude oil is not economically justified.

2. Since MoP&NG is not the direct owner of any refinery, it designated the PSU refineries
i.e., MRPL and HPCL to lift the Rajasthan Block Crude Oil. Due to high viscosity of
Rajasthan Block Crude Oil, which did not permit free flow of the same during
transportation and processing. Therefore, the PSU refineries were not in a position to lift
the Crude Oil from Rajasthan Block. In 2010, the Rajasthan Block Crude Oil which has
not been picked by PSU refineries is being sold to domestic private refineries, which is
equal or slightly more than the price the PSU refineries are paying to the Petitioners.
Therefore, the claim of the Petitioners that refusal of permission to export Rajasthan
Block Crude Oil is causing loss to the public exchequer is only a notional loss without any
basis. Neither do the Petitioners have a Contractual Right nor a Contractual Right, to lift
and export Rajasthan Block Crude Oil unless MoP&NG has notified the petitioner in
writing that India has attained self sufficiency in terms of Article 18.3 of PSC. Therefore,
the question of the alleged violation of Article 14 or 19(1)1(g) does not arise on part of
the Respondents.

3. That the Petitioner approached MoP&NG for laying a 600 KMS long insulated/ heated
special purpose pipeline for transporting the Crude Oil upto Bhogat in Gujarat. Petitioner
further requested MoP&NG to include the cost of contract for the purpose of cost
recovery. MoP&NG gave consent to the request of the Petitioner and the Crude Oil
pipeline was made part of the contract cost to facilitate distribution and consumption of
Rajasthan Block Crude Oil within the country.The delivery point as per PSC is the Outlet
flange of the delivery facility i.e., Mangala Processing Terminal in Barmer. However, PSU
refineries has constraint in lifting the Rajasthan Block Crude Oil due to the high level of
viscosity. Therefore, MoP&NG allowed construction of insulated/ heated pipeline from
Barmer to Bhogat along with designation of additional delivery points en route at IOCL,
Viramgam and Radhapur. Further, petitioners recovered the cost of construction of
pipeline as part of the contract cost. Further, the Petitioners have wrongly claimed that
the expenditure of US $ 516 mn on the construction of the Crude Oil pipeline from
Salaya to Bhagot stating that it was incurred by them primarily for the purpose of export
 of Rajsthan Block Crude Oil and the same has been approved by the Management
Committee is factually incorrect.
Supreme Court Listing Orders
22.04.2019: Issue has been noticed, to be returnable within 4 weeks. Next date not fixed.