# {2013] 3 S.C.R. 508 ARUN KUMAR AGRAWAL v. UNION OF INDIA & OTHERS

- **Citation:** [2013] 3 S.C.R. 508
- **Court:** Supreme Court of India
- **Decided:** 2013-05-09
- **Bench:** K.S. Radhakrishnan, Dipak Misra
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/2013-3-s-c-r-508-arun-kumar-agrawal-v-union-of-india-others-28932
- **Pages:** 39

## Headnote

CONSTITUTION OF /NOIA, 1950:
Art. 32 - Writ petition challenging approval granted by
Government of India for acquisition of majority stake in GIL
and for a direction to ONGC to exercise its right of preemption over sale of shares of GIL - Held: The decision taken
by ONGC not to exercise its RoFR was taken after elaborate
0 and due deliberations - ONGC and Government of India have
considered various commercial and technical aspects flowing
from PSC and also its advantages that ONGC would derive
if the Cairn and Vedanta deal was approved - Court cannot
sit in judgment over the commercial or business decision
taken by parties to the agreement after evaluating and
E assessing its monetary and financial implications, unless the
decision is in clear violation of any statutory provisions or
perverse or for extraneous considerations or improper motives
-On facts, as well as on law, ONGC and Government of India
have taken a prudent commercial and economic decision in
F public interest - It cannot be said that the decision is ma/a fide
or actuated by any extraneous or irrelevant considerations or
improper motive - Public interest litigation.
Arts. 298 and 299 - Power of Union or States to carry on
G trade and to enter into contracts - Held: State and its
instrumentalities can enter into various contracts which may
involve complex economic factors - State or State
undertaking being a party to a contract, have to make various
decisions which they deem just and proper - There is always
H
508
ARUN KUM/\R AGRAWAL v. UNION OF INDIA &
509
OTHERS
an element of risk in such decisions -
But if the decision is A
taken bona fide and in public interest, the mere fact that
decisiot.• has ultimately proved to be a wrong one, that itself
is not a ground to hold that the decision was ma/a fide or taken
with uilterior motives.
Art. 151 - Reporls of Comptroller and Auditor General of
India - Status of - Explained - In the instant case, it is factually
and le9ally incorrect to suggest that any exploration carried
out beyond the stated date was beyond the provision of PSC
B
- CAG·'s views on that aspect cannot be accepted -
Comptroller and Auditor General's (Duties, Powers and C
Conditions of Service) Act, 1971 - ss. 10, 13 and 16.
PUBLIC INTEREST LIT/GA TION:
Writ petition - Held: In the instant case, writ petition was · o
filed without appreciating or understanding the scope of the
decision or the decision making process concerning
economic and commercial matters which gives liberly to State
and its instrumentalities to take appropriate decision after
weighin,g advantages and disadvantages of the same -
E
Constitw'ion of India, 1950 - Arl.32.
In the instant petition filed in public interest, the
petitionier challenged the approval granted by the
Government of India on 24.1.2012 for acquisition of
majority st:ake in Cairn India Limited (CIL) and for a
F
direction te> Oil and Natural Gas Corporation of India
(ONGC) to exercise its right of pre-emption over of shares
of CIL oni the same terms without causing any loss or
profit to Cairn Energy as also for a direction to CBI · to
investigate the reasons for ONGC in not exercising its
G
rights unide.r Right of First Refusal (RoFR) and giving
clearanc·e tu CAIRN-Vedanta Deal on the basis of the
existing right to share the royalty and cess on pro-rata
basis. It was contended for the appellant that, but for the
decisio1n, the State Exchequer would have benefited to
H
510
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A the tune of Rs.1,00,000 crores. It was also contended that
the Government has unlawfully granted extension to CIL
for carrying out exploration activities beyond the period
framed by Rajasthan Block Production Sharing Contract
(PSC), which was commented upon by the Comptroller
B and Auditor General of India (CAG).
Dismissing the writ petition, the Court
HELD: 1. State and its instrumentalities can enter into
various contracts which may involve complex economic
C factors. State or the State undertaking being

## Text

_Characters 0–39,908 of 72,804. This is a partial read: ask again with offset=39908 for what follows._

A
B
c
{2013] 3 S.C.R. 508
ARUN KUMAR AGRAWAL
v.
UNION OF INDIA & OTHERS
(Writ Petition (Civil) No. 69 of 2012)
MAY 09, 2013
[K.S. RADHAKRISHNAN AND DIPAK MISRA, JJ.]
CONSTITUTION OF /NOIA, 1950:
Art. 32 - Writ petition challenging approval granted by
Government of India for acquisition of majority stake in GIL
and for a direction to ONGC to exercise its right of preemption over sale of shares of GIL - Held: The decision taken
by ONGC not to exercise its RoFR was taken after elaborate
0 and due deliberations - ONGC and Government of India have
considered various commercial and technical aspects flowing
from PSC and also its advantages that ONGC would derive
if the Cairn and Vedanta deal was approved - Court cannot
sit in judgment over the commercial or business decision
taken by parties to the agreement after evaluating and
E assessing its monetary and financial implications, unless the
decision is in clear violation of any statutory provisions or
perverse or for extraneous considerations or improper motives
-On facts, as well as on law, ONGC and Government of India
have taken a prudent commercial and economic decision in
F public interest - It cannot be said that the decision is ma/a fide
or actuated by any extraneous or irrelevant considerations or
improper motive - Public interest litigation.
Arts. 298 and 299 - Power of Union or States to carry on
G trade and to enter into contracts - Held: State and its
instrumentalities can enter into various contracts which may
involve complex economic factors - State or State
undertaking being a party to a contract, have to make various
decisions which they deem just and proper - There is always
H
508
ARUN KUM/\R AGRAWAL v. UNION OF INDIA &
509
OTHERS
an element of risk in such decisions -
But if the decision is A
taken bona fide and in public interest, the mere fact that
decisiot.• has ultimately proved to be a wrong one, that itself
is not a ground to hold that the decision was ma/a fide or taken
with uilterior motives.
Art. 151 - Reporls of Comptroller and Auditor General of
India - Status of - Explained - In the instant case, it is factually
and le9ally incorrect to suggest that any exploration carried
out beyond the stated date was beyond the provision of PSC
B
- CAG·'s views on that aspect cannot be accepted -
Comptroller and Auditor General's (Duties, Powers and C
Conditions of Service) Act, 1971 - ss. 10, 13 and 16.
PUBLIC INTEREST LIT/GA TION:
Writ petition - Held: In the instant case, writ petition was · o
filed without appreciating or understanding the scope of the
decision or the decision making process concerning
economic and commercial matters which gives liberly to State
and its instrumentalities to take appropriate decision after
weighin,g advantages and disadvantages of the same -
E
Constitw'ion of India, 1950 - Arl.32.
In the instant petition filed in public interest, the
petitionier challenged the approval granted by the
Government of India on 24.1.2012 for acquisition of
majority st:ake in Cairn India Limited (CIL) and for a
F
direction te> Oil and Natural Gas Corporation of India
(ONGC) to exercise its right of pre-emption over of shares
of CIL oni the same terms without causing any loss or
profit to Cairn Energy as also for a direction to CBI · to
investigate the reasons for ONGC in not exercising its
G
rights unide.r Right of First Refusal (RoFR) and giving
clearanc·e tu CAIRN-Vedanta Deal on the basis of the
existing right to share the royalty and cess on pro-rata
basis. It was contended for the appellant that, but for the
decisio1n, the State Exchequer would have benefited to
H
510
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A the tune of Rs.1,00,000 crores. It was also contended that
the Government has unlawfully granted extension to CIL
for carrying out exploration activities beyond the period
framed by Rajasthan Block Production Sharing Contract
(PSC), which was commented upon by the Comptroller
B and Auditor General of India (CAG).
Dismissing the writ petition, the Court
HELD: 1. State and its instrumentalities can enter into
various contracts which may involve complex economic
C factors. State or the State undertaking being a party to a
contract, have to make various decisions which they
deem just and proper. If the decision is taken bona fide
and in public interest, the mere fact that decision has
ultimately proved to be a wrong, that itself is not a ground
D to hold that the decision was mala fide or done with
ulterior motives. [Para 38] [535-G-H; 536-A-B]
State of M.P. and Others v. Nandlal Jaiswal and others
1987 (1) SCR 1 = (1986) 4 SCC 566; Life Insurance
E Corporation of India v. Escorts Ltd. and Others 1985 (3)
Suppl. SCR 909 = (1986) 1 sec 264; Liberty Oil Mills and
Others v. Union of India and Others 1984 (3) SCR 676 =
(1984) 3 SCC 465; Villianur lyarkkai Padukappu Maiyam v.
Union of India 2009 (9) SCR 225 = (2009) 7 SCC 561; Bajaj
F Hindustan Limited v. Sir Shadi Lal Enterprises Limited And
Another 2010 (15) SCR 156 = (2011) 1 SCC 640; Bhavesh
D. Parish and Others v. Union of India and Another (2005) 5
SCC 471; and Centre for Public Interest Litigation and
Another v. Union of India and Others (2000) 8 SCC 606 -
referred to.
G
Morey vs. Dond 354 US 457; and Metropolis Theatre
Co. v. State of Chicago 57 L Ed 730 referred to.
2.1. ONGC had pre-emptive rights in relation to
H participating interest of Cairn and/or its affiliates. Under the
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
511
OTHERS
various agreements with the Government of India and ONGC
A
and Cairn and/or its affiliates consent of ONGCwas required
besides other governmental approval to consummate the
proposed transaction. [para 34] [533-G-H]
2.2. The question 'JVhether the CEIL, the operator of 8
the block, has to include Royalty "as recoverable cost"
and whether it is commercially viable for the ONGC to
exercise its RoFR were elaborately considered by the
ONGC Board in its meetings held on 29.1.2011 and
27.9.2011. The Board after due deliberations and
considering the offered right at Rs.4Q5/- per share vis-aC
vis the internal assessed value of Rs.290/- per share,
noticed that acquisition stake offered by Vedanta Cairn
for the proposed transaction of sale of shares of CEIL
was much above the ONGC evaluated value of the
proposed transaction, and, therefore, it was not advisable
D
for the ONGC to acquire shares. Further, there was an
ongoing issue/dispute relating to cost recovery of
Royalty being paid by ONGC for the entire crude oil
producing field - RJ-OA-90/1 block, pursuant to provisions
of accounting procedure of PSC. There was also a
E
dispute between CEIL and CEHL and ONGC as to the
liability of cess under the PSC for the Rajasthan Block.
CEIL and CEHL had initiated arbitration proceedings in
respect of the same. It was noticed that a large sum,
running into several million US $ would have been
F
payable by ONGC had CEIL and CEHL were successful
in the arbitration. [para 35] [534-B-F]
2.3. Due to the various agreements/decisions taken
by the Union of India and ONGC, the arbitration against G
Union of India and ONGC in relation to the cess was
withdrawn since the Government of India and ONGC had
accorded their consent for the deal with Cairn and
Vedanta. Further, CEIL and its affiliates had also agreed
to treat royalty paid as cost recoverable by ONGC as
H
512
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A contract costs. ONGC had already derived financial
benefit to the tune of US $970,881,838 towards royalty
paid by it till June 2012 and would continue to derive
similar benefits during the currency of the contract i.e.
upto 2020. [para 35] [534-F-G]
B
2.4. The decision taken by the ONGC not to exercise
its RoFR was taken after an elaborate and due
deliberations. The report of SBI Caps, after making a
detailed financial analysis also supported the decision
taken by the ONGC. The decision to grant no objection
C to the transfer of shares of CEIL from Cairn to Vedanta
was also on the basis that the proposed share price of
share at Rs.355 per share, was well in excess of its
intrinsic value as was evaluated by SBI Caps. SBI Caps
report evaluated each share of CEIL at Rs.291 with the
D highest production profile under normal circumstances.
It was concluded that even considering various other
scenario makes possible value at Rs.331 per share. [para
36] [534-H; 535-A-C]
E
2.5. The Union of India also endorsed the decision
taken by the ONGC after due deliberations. The matter
was finally placed before the Cabinet Committee of
Economic Affairs, which placed the matter before the
Group of Ministers and the latter, on 27 .5.2011 granted its
F approval, based on certain conditions. The same was
conveyed to the parties and the Vedanta Resources
conveyed its acceptance to the conditions imposed by
CCEA. Cairn also indicated to ONGC that CEIL Board
had also accepted the conditions imposed upon it and
G that the cess arbitration, which had been initiated by
Cairn against ONGC was also withdrawn. [para 37] [535C-E]
2.6. The ONGC and the Government of India have
considered various commercial and technical aspects
H flowing from the PSC and also its advantages that ONGC
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
513
OTHERS
would derive if the Cairn and Vedanta deal was
A
approved. This Court sitting in the jurisdiction cannot sit
in judgment over the commercial or business decision
taken by parties to the agreement after evaluating and
assessing its monetary and financial implications, unless
the decision is in clear violation of any statutory
B
provisions or perverse or for extraneous considerations
or improper motives. [para 38] [535-E-G]
2.7. Consequent to the agreement dated 30.11.2011,
ONGC received. Rs.5000 crores approximately towards C
CEIL and CEHL's share of royalty for the period from
·29.8.2009 to 30.7.2012 besides CAIRN and Vedanta
agreeing to pay their share of royalty and cess in future
involving huge financial implications. [para 41] [539-F-G]
2.8. ONGC in its wisdom decided not to acquire any
Dshares of CEIL at a high premium of Rs.335 per share
plus Rs.SO per share as not to compete fee, which would
have come to ONGC at a hefty cost of 4.44 billion US $
about Rs.6,20,600 crores rupees, i.e. even if ONGC had
exercised its RoFR it would be a 30% share holder of E
CEIL and the control of CEIL would have, in any event,
remained with Cairn and Vedanta which would have then
altogether 50% in CEIL, thus, with the acquisition of 30%
shares in CEIL, Rajasthan Block would remain
unchanged and, as such, ONGC could not have got any
F
increase in shares in the profits much-less any increase
in profits by 40%. [para 42] [539-G-H; 540-A-B]
2.9. This Court is of the view that on facts, as well
as on law, ONGC and the Government of India have taken
a prudent commercial and economic decision in public G
interest. It cannot be said that the decision is mala fide
or actuated by any extraneous or irrelevant
considerations or improper motive. [para 43] [540-C]
H
514
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A
3.1. The CAG's report is always subject to
parliamentary debates and it is possible that PAC can
accept the ministry's objection to the CAG report or reject
the report of the CAG. The CAG, indisputably is an
independent constitutional functionary, however, it is for
B Parliament to decide whether after receiving the report i.e.
PAC to make its comments on the CAG's report.
However, it may be pointed out that since the report is
from a constitutional functionary, it commands respect
and cannot be brushed aside as such, but it is equally
c important to examine the comments what respective
ministries have to offer on the CAG's report. The ministry
can always point out, if there is any mistake in the CAG's
report or the CAG has inappropriately appreciated the
various issues. [para 55-56) [545-G-H; 546-A-B]
D
3.2. In the instant case, Article 2.6 of PSC permits
extension of the exploration period for three years from
the end of the seven year period prescribed in Article 2.2.
The period extended in pursuance to Article 2.6 expired
on 14.5.2005. The CAG has assumed that any exploration
E carried out beyond the period was beyond the provision
of PSC. Article 2.6 specifically contemplates extension
of the exploration phase pursuant to the terms of the PSC.
The last part of Article 2.6 to Article 2.9, however, permits
further extension of the exploration period for a period
F of 30 months, therefore, it is factually and legally incorrect
to suggest that any exploration carried out beyond
14.5.2005 was beyond the provision of PSC. CAG's views
on that aspect cannot be accepted. [para 57] [546-C-E]
G
Commentary on the Constitution of India (8th Edn. 2009
p. 6058) by Durga Das Basu; and Practice of Public
Accounts Committee (in the website of Lok Sabaha -
referred to.
4. The writ petition was filed without appreciating or
H understanding the scope of the decision or the decision
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
515
OTHERS
making process concerning economic and commercial
A
matters which gives liberty to States and its
instrumentalities to take appropriate decision after
weighing advantages and disadvantages of the same and
this Court sitting in this jurisdiction, is not justified in
interfering with those decisions, especially when there is
B
nothing to show that those decisions are contrary to law
or actuated by mala fide or irrelevant considerations.
[para 58] [546-E-G]
M.C. Mehta v . .Kamal Nath & Others 1996 (10) Suppl.
SCR 12 = (1997) 1 SCC 388; Meerut Development Authority C
v. Association of Management Studies and Another 2009 (6)
SCR 663 = (2009) 6 SCC 171; Centre for Public Interest
Litigation and Othe1s v. Union of India and Others 2012 (3)
SCR 147= (2012) 3 SCC 1; Ba/co Employers' Union (Regd.)
v. Union of India and Others 2001 (5) Suppl. SCR 511 =
D
(2002) 2 SCC 333; Bajaj Hindustan Limited v. Sir Shadi Lal
Enterprises Ltd. and Another 2010 (15) SCR 156 = (2011) 1
SCC 640 and Life Insurance Corporation of India v. Escorts
Limited and Others 1985 (~)Suppl. SCR 909 = (1986) 1 SCC
264; Vodafone International Holdings v. Union of India 2012
E
(1) SCR 573 = (2012) 6 sec 613 - cited.
Case Law Reference:
1996 (10) Suppl. SCR 12
cited
para 23
F
2009 (6) SCR 663
cited
para 23
2012 (3) SCR 147
cited
para 23
2001 (5) Suppl. SCR 511
cited
para 26
2010 (15) SCR 156
cited
para 26
G
1985 (3) Suppl. SCR 909
cited
para 26
2012 (1) SCR 573
cited
para 29
1987 (1) SCR 1
referred to
para 39
H
516
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A
354 us 457
referred to
para 39
57 L Ed 730
referred to
para 39
1985 (3) Suppl. SCR 909
referred to
para 39
B
1984 (3) SCR 676
referred to
para 39
2009 (9) SCR 225
referred to
para 39
2010 (15) SCR 156
referred to
para 39
(2005) 5 sec 471
referred to
para 39
c
2000 (8) sec 606
referred to
para 39
CIVIL ORIGINAL JURISDICTION : Writ Petition (Civil) No.
69 of 2012.
D
Under Article 32 of the Constitution of India.
Prashant Bhushan, Pranav Sachdeva for the Petitioner.
Siddharth Luthra, ASG, Harish Salve, Mukul Rohatgi, B.K.
Prasad, Rohit Sharma, Supriya Juneja, Pranay Agarwala,
Anuradha Dutt, Ekta Kapil, Anish Kapur, Mehak Khanna,
E Vijayalakshmi Menon, R.R. Sasiprabhu, Rajat Nair, Somiran
Sharma, Pradeep Mishra, Ritin Rai, Niti Dixit, Samiksha
Godiyal, E.C. Agrawala for the Respondents.
The Judgment of the Court was delivered by
F
K.S. RADHAKRISHNAN, J. 1. Petitioner, through this
Public Interest Litigation, has challenged the approval granted
by the Government of India dated 24.1.2012 for the acquisition
of majority stake in Cairn India Limited (CIL) for US $8.48
billion and also for a direction to the Oil and Natural Gas
G Corporation of India (ONGC) to exercise its right of pre-emption
over sale of shares of CIL on the same terms without causing
any loss or profit to the Cairn Energy, and also for a direction
to CBI to investigate the reasons for ONGC, a Government of
India Undertaking, in not exercising their legal rights under the
H Right of First Refusal (RoFR) and giving clearance to the CAIRN
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
517
OTHERS [K.S. RADHAKRISHNAN, J.]
- Vedanta Deal on the basis of the existing right to share the
A
royalty and cess on pro-rata basis and also for the
consequential reliefs.
FACTS
2. Government of India had, earlier, retained the exclusive
B
privilege for mining of hydrocarbons, which was carried out on
nomination basis through the statutory corporations like ONGC.
The need for maximising domestic exploration of production of
oil led to the Government of India encouraging private sector
participation in the exploration of oil and natural gas from the
C
year 1980. Rajasthan Block (RJ-ON-90/1) was one of the PreNew Energy Licensing Policy (Pre-NELP) exploration block
offered by a Competitive Building Mechanism. The said block
was offered in the 4th round of Pre-NELP regime to M/s. Shell
India in execution of a Production Sharing Contract (PSC) on
D
15.5.1995. Since the exploration licence for Rajasthan Block
was held by ONGC, the PSC had three parties, (a) Government
of India, (b) the bidder, M/s. Shell India Production Development
BV (Shell) and (c) the licensee ONGC. PSC was entered into
for the exploration and exploitation of crude oil and natural gas.
E
As per the PSC, ONGC is holding 30% of the participating
interest (Pl) in the development or Within the contract area since
13.1.2005.
3. Shell failed to make any commercial discovery even after
investing US$ 9 million and was contemplating to part with its
F
interest in the PSC. Consequently, Cairn Energy India Pvt. Ltd.
(CEIL) acquired 27.5% of Shell's interest under the contract
with effect from 27 .1.1999 and a further 22.5% with effect from
20.12.1999. Cairn Energy Hydrocarbons Ltd. (CEHL) acquired
Shell's remaining 50% interest under the contract with effect
G
from 23.6.2003. CEIL and CEHL, subsidiary companies of
CAIRN, have accordingly succeeded Shell as parties to the
aforementioned contract and together became the holder of the
70% of the Pl.
H
518
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A
4. CIL is a company incorporated under the laws of India
and listed on the Bombay Stock Exchange and the National
Stock Exchange. CAIRN Energy PLC UK (CAIRN) is
incorporated under the laws of UK, listed on London Stock
Exchange and is a majority shareholder in CIL having 62.4%
B equity stake in it through its wholly owned subsidiary, CAIRN
UK Holdings Limited. Upon its acquisition of 50%, Shell's
interest under the contract, CEIL became the operator under
the operating agreement with effect from 1.1.2000.
C
5. CIL and its subsidiary have interests in the seven
exploratory blocks (out of which Block VN-ONN-2003/1 has
already been relinquished) and three producing fields in India
and another exploration block in Sri Lanka as per the following
details:
D
E
F
70% Participating Interest (Pl) & operatorship in
producing Development Areas of RJ-ON-90/1
(ONGC 30%),
22.50% Pl in producing Ravva Field &
Operatorship (ONGC 40%),
40% IP & Operatorship in producing fields of CBOS/2 Block & (ONGC 50%); and
Pl in eight other Blocks in India and Sri Lanka
where there is currently no production; out of these
ONGC has Pl in 5 Blocks.
6. CAIRN, vide its letter dated 16.8.2010, informed ONGC
that it had announced disposal of its substantial shareholding
in CIL to Vedanta. ONGC had a Pl in number of blocks/fields
G where CAIRN is operating through CIL (and/or its affiliates) and
it was felt that the proposed transaction might have implications
on operations of these blocks/fields. ONGC was of the view
that its, inter alia, pre-emptive rights in relation to Pl of CAIRN
and/or its affiliates under the various agreements with the
H
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
519
OTHERS [K.S. RADHAKRISHNAN, J.]
' Government of India and ONGC, and that CAIRN and/or its
A
affiliates required consent of ONGC besides other
governmental approvals, to consummate the proposed
transaction. ONGC, later, by its letter dated 30.8.2010,
requested CAIRN to provide full details of the proposed
transaction along with copies of the agreements and otlier
B
arrangements entered into between CAIRN and/or its affiliates
and the proposed buyer and/or its affiliates. CAIRN on
10.9.201 O provided the details of the proposed transaction to
ONGC, the operative portion of which reads as follows:
" .. the Transaction is a sale of shares in Cairn India
C
Limited, rather than an assignment of any Participating
Interest under the various Production Sharing Contracts
(PSCs) and Joint Operating Agreements ·(JOAs). We
believe that the various pre-emption rights under each of
the JOAs only apply when there is an assignment, by a party
D
to that PSC, of part or all of that party's Participating
Interest.
However, in this case, as the contract with Vedanta
Resources Pie is at shareholder level of Cairn India
E
involving sale of shares - there is no change to the
Participating Interest in any of the PSCs to which the Cairn
India Group is party. Consequently, under the terms of the
relevant PSCs and JOAs, no pre-emptive right or
requirement for ONGC consent, as claimed in the Letter,
F
is triggered by the Transaction".
Consequently, CAIRN took up the stand that various preemption rights under each of JOA will apply only when there is
an assignment, by a party to a PSC, of its Pl in part or full.
According to CAIRN, under the proposed tra'lsaction, there will
G
be no change to the Pl in any of the PSCs to which CIL groups
is party and, consequently, under the terms of the relevant PSCs
and JOAs, no pre-emptive right or requirement for ONGC's
consent would be triggered by the transaction, as claimed by
ONGC.
H
520
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A
7. ONGC again wrote a letter dated 21.10.2010 requesting
CAIRN to provide copies of all agreements and other
arrangements entered into between CAIRN and Vedanta in
relation to the proposed transaction, including, without limitation,
the value assigned to Pl in each PSC, to enable ONGC to
B decide on its future course of action.
c
8. CAIRN vide its letter dated 29.10.2010 provided a copy
of the share purchase deed for the proposed transaction and
reiterated its position that the provisions of the JOA do not apply
in respect of the proposed sale of shares in CIL.
9. ONGC's, later, sought the opinion of the Solicitor
General of India, who. vide his letter dated 5.10.201 O opined
that the Government of India's consent would be required as
the acquisition of majority stake and consequent change in
D control of CIL would amount to an indirect transfer of the Pl.
10. The Government of India, it may be noticed, had signed
28 PSCs in respect of pre-NELP exploratory blocks prior to
the implementation of NELP. Under the terms of such PSCs,
E depending on the bargain amongst the parties, statutory levies
(royalty and/or cess) on the entire production of oil and gas,
including on the share of other partners, are to be borne by
National Oil Companies, who are sole licenses in respect of
the PEUML under those contracts.
In view of the above
contractual provisions, ONGC has been paying royalty and/or
F cess on the share of other partners in respect of above blocks
awarded under the regime for pre-NELP exploratory blocks.
Under the provisions of PSC of RJ-ON-90/1 Block, the cost
incurred for petroleum operation is recovered as per the
mechanism laid down in Article 14 of the PSC. Section 3.1.9
G of the Accounting Procedure stipulates that the royalty
payments shall be allowable as 'Cost Oil' without further
approval of the Government. ONGC, then, vide its letter dated
14.7.2010 proposed to CEIL, the Operator of the Block, to
include 'Royalty' as 'Recoverable Cost' in the calculations of
H entitlement interest submitted by the Operator to the Operating
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
521
OTHERS [K.S. RADHAKRISHNAN, J.]
Committee vide letter dated 1. 7.2010. CEIL, however, took up
A
the stand that the same was not cost recoverable.
11. ONGC Board in its 215th meeting held on 29.1.2011
considered the issue regarding treating royalty as cost
recoverable and the option of ONGC going for acquisition of
B
the stake in CIL.
Board, after taking into account the offered
rate of Rs.405/- per share (including non-compete fee of Rs.50/
- per share), vis-a-vis internal assessed value of Rs.290/- per
share, decided that the following recommendation be forwarded
to the Ministry of Petroleum and Natural Gas (MoPNG) for their
C
consideration:
i.
Acquisition cost offered by Vedanta to CAIRN for
the proposed transaction of sale of the shares of
CIL is much above the ONGC evaluated value of
the proposed transaction. Therefore, ONGC does
D
not find merit in the acquisi~ion on commercial
considerations.
ii.
To request MoPNG for allowing the recovery of
royalty being paid by ONGC for entire crude oil
produced from RJ-ON-90/1 block as "Cost Oil" from
the total revenue accrued from the block. ONGC
may further request MOPNG to decide on the
CAIRN Vedanta deal, only after reaching an
agreement in this regard between the parties and
iii.
ONGC, being the licensee and also a participant
in the Block, has the right to ensure that the
operator has the necessary credentials in carrying
out E&P activities.
E
F
G
12. Apart from the above issue, there was a dispute
between CEIL and CEHL, parties to the Rajasthan Block and
Union of India and ONGC as. to the liability of Cess under the
PSC for the Rajasthan Block, and CEIL and CEHL had initiated
arbitration proceedings in respect of the same. Consequently,
H
522
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A CEIL and CEHL were paying their part of the Cess under
protest.
13. ONGC received a letter dated 16.8.2011 from CEIL
in which it was stated that the Government of India vide its letter
8
dated 26.7.2011 had granted a conditional consent for the
proposed sale of shareholding to the extent of 51 % to 60% in
CAIRN India Ltd. by CAIRN Energy Pie to Vedanta Resources
Pie in respect of the NELP and pre-NELP blocks.
The
Government of India, however, insisted that CIL and its affiliates
C shall provide No Objection Certificate (NOC) obtained from their
consortium partners. MoPNG granted the approval for the
proposed transaction on the following conditions:
D
E
F
G
(a)
Parent financial and Performance Guarantees
furnished by CAIRN Energy Pie in pursuance of
relevant applicable Article(s) of abovementioned
7 NELP PSCs and 3 pre-NELP PSCs, shall be
substituted by Parent Financial and Performance
Guarantees to be furnished by Vedanta Resources
Pie.
which needs to be acceptable to the
Government and should be in a form and substance
set out in the PSC.
(b)
Vedanta Resources Pie to guarantee that the
technical capability of CAIRN India is and shall be
kept undisturbed and ensure continued production
of oil and
gas as per
approved Field
Development Plan (FDP) from time to time. In
case Vedanta Resources Pie. fails to perform as
guaranteed then GOI shall be entitled to stipulate
additional conditions, as deemed fit, including
change in operatorship of blocks.
(c)
Vedanta Resources Pie. Also shall give an
undertaking that they shall ensure adherence to the
approved field development plans and work
H
programs.
ARUN KUMAR AGRAWAL v. UNION OF !NOIA &
523
OTHERS [K.S. RADHAKRISHNAN, J.]
(d)
Cairn India and its affiliates shall provide the
A
No objection certificate (NOC) obtained from their
consortium partner(s) for each abovementioned
blocks (except for Ravva (PKMG-1) and CB-OS/2
blocks) for the proposed transaction under the
respective PSCs.
B
(e)
Necessary approval from other regulatory bodies
such as SEBI, on the proposed transaction to be
obtained and submitted by Vedanta Resources Pie.
(f) Necessary Security Clearance from Ministry of Home
Affairs in favour of the assignee i.e. Vedanta
Resources Pie. to acquire the shareholding shall be
obtained and submitted by the said assignee.
c
D
(g) In respect to RJ-ON-90/1 block, the parties, CAIRN
India Ltd., CAIRN Energy Pty Limited (CEIL),
CAIRN Energy Hydrocarbon Ltd. (CEHL) and any
other affiliate company of CIL and Vedanta
Resources Pie. and any other affiliate company of
E
Vedanta Resources Pie. shall agree and give an
undertaking that Royalty paid by ONGC is cost
recoverable by ONGC as contract costs, as per the
provisions of PSC.
(h)
In respect to RJ-ON-90/1 block, CAIRN Energy Pty
Limited and CAIRN Energy Hydrocarbon Ltd. shall
withdraw the arbitration case relating to dispute
raised by them on payment of Cess under the
F
PSC."
G
14. CIL, later, by its letter 15.9.2011 informed ONGC that
based on the result of postal ballot by their shareholders, the
Board of Directors of CIL has passed a Resolution for
H
524
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A acceptance of the conditions (g) to (h) mentioned earlier with
regard to cost recovery of royalty and dropping of arbitration
proceedings on Cess.
15. ONGC had, earlier, forwarded the entire details to SBI
s Caps vide their letter dated 1.6.2011 for a detailed financial
valuation/analysis of the viability of ONGC entering into the said
transaction and SB! Caps validated the financial valuation
carried out by ONGC. SBI Caps valued Cairn India's offer
under various scenarios.
Considering Gil's valuation under
C the MC approved production profile of 175 kbopd, its valuation
worked out to be US$ 6948 million and the share price if
Rs.165.
Details of production capex, apex, crude oil reads
as follows:
D
E
F
Case-I
As per Approved JV case for Brent Crude Price of
US$100/bbl and WACC o 12%, Cess Rs.2626.50/MT
MC
PSC
RecoCapex
Op ex
NPV
CAIRN
Approved
Term
verable
US$
US$
US$
India
JV caseReseves
Million
Million
Million
Share
Peak
(MMBBLS)
Price -
ProduRs. I
ction
Share
175
2020
372
4625
2467
6414
153
kbopd
2025
458
4625
3434
6768
161
.
2040
579
4625
6027
6948
165
16. SBI Caps also worked out valuation of GIL based on
futuristic estimated production profile keeping other
G assumptions i.e. price, royalty rate, cess, WACC same as
above.
It was opined, under the most likely case, i.e.
production profile of 228 kbopd whjch includes EOR also, the
NPV of CIL valuation till 2040 works out to be $10695 MM and
the share price is Rs.254. The details of Production, CAPEX,
H
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
525
OTHERS [K.S. RADHAKRISHNAN, J.]
OPEX, Crude Price considered are as under:
A
CIL-Likely Case
Case-IV
As per 2P GIL Production cases for Brent Crude Price
of US$100/bbl and WAGG o 12%, Gess Rs. 2626.50/MT
GIL
PSC
RecoCapex
Opex
NPV
CAIRN
B
Profile
Term
verable
US$
US$
US$
India
- Peak
Reseves
Million
Million
Million
Share
Produ-
(MMBBLS)
Price -
ction
Rs. I
228
Share
kbopd
c
WF+EOR
2020
737
6055
5482
9820
234
2025
902
6055
7234
10483
249
2040
1037
6055
10550
10695
254
17. It was also noticed that, in the High Case, where
D
production profile of 257 kbopd was estimated considering 2P
profile with WF including EOR, Barmer Hill and estimated
production from 20 other small fields also, the economic
valuation of the CIL is $12239 MM and the share price is
Rs.291.
The details of Production, CAPEX, OPEX, Crude
E
Price etc. considered are as under:
CIL-High Case
Case-IV
As per 2P CIL Productiop cases for Breni Crude Price of
US$100/bbl and WACC o 12%, Cess Rs. 2626.50/MT
F
CIL ·
PSC
RecoCap ex
Opex
NPV
CAIRN
Profile
Term
verable
US$
US$
US$
India
- Peak
Reseves
Million
Million
Million
Share
Production
(MMBBLS)
Price -
228 kbopd
Rs.I
WF+
Share
EOR+
G
Bh-20
2020'
811
7618
6664
11272
268
Small
2025
998
7698
8818
11985
285
Fields
2040
1167
7698
12922
122239 291
18. The Royalty paid on behalf of CEIL & GEHL which has
been recovered for the period since inception till September, · H
526
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A 2011 and from 1.10.2011 to 30.6.2012 is as under:
RJ-ON-OP-1
100%
70%
Royalty since inception
784,833,924
549,383,747
8
till Sep'11
Royalty from Oct'
602, 140, 130
421,498,091
11 to June'12
Total
1,386,974,054
970,881,838
C
19. SBI Caps, therefore, on the basis of the above given
statistics, opined that under the highest profile case with base
assumptions, the value of these shares works out to Rs.291/-
and even considering higher CAPEX (130% incremental) and
lower OPEX (-30% total) and increase in crude price from US$
100/bbl to US$ 11 O/bbl, the value of share increases to Rs.328.
D Amongst the various scenarios, it was opined that the value of
shares is maximum at Rs.331, considering CAPEX at 100%
and OPEX at 70%, with crude price at $110 per bbl.
In both
the scenarios, the value of share remained below the offered
rate of Rs.355.
E
20. We notice that the above report of the SBI Caps was
placed before the 109th Project Appraisal Committee meeting
held on 27 .9.2011, wherein after detailed deliberations, the
PAC resolved for consideration and approval of the ONGC
F
Board that ONGC might not exercise its pre-emptive rights with
reference to the offer made by CAIRN and its associates to
Vedanta and its associates, for the proposed transaction of
sale of shares of CIL at the rate of Rs.355/- per share as the
same was more than the value estimated by SBI Caps. It further
resolved that the NOC to the proposed transaction be granted
G to CAIRN with a condition that CAIRN, Vedanta and their
associates should enter into an agreement with ONGC to
protect ONGC's interest so that royalty and cess in respect of
block RJ-ON-90/1 would be binding on Cairn, Vedanta and their
future assignees etc. in alignment with MoPNG direction dated
H 26.7.2011.
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
527
OTHERS [K.S. RADHAKRISHNAN, J.]
21. ONGC Board then met on 27.9.2011 and, after due
A
consideration of the Agenda item, the recommendations of the
PAC as well as presentation made by M/s SBI Caps, approved
the proposal and passed the following resolutions:
"RESOLVED that ONC~C may not exercise its pre-emptive
rights with reference to the offer made by CAIRN and its
associates to Vedanta and its associates, for the
Proposed Transaction of sale of shares of CIL at the rates
of Rs.355/- per share as the same is more than the value
evaluated by SBI CAPs.
B
RESOLVED FURTHER that NOC to the Proposed
C
Transaction be granted to CAIRN and its associates for
the five blocks as mentioned in Para 5 above with a
condition that CAIRN, Vedanta and their associates should
enter into an agreement with ONGC to protect Ol\IGC's
interest so that royalty and Cess are binding on CAIRN,
D
Vedanta and their future assignee etc.
RESOLVED FURTHER that CMD, ONGC be and is
hereby authorized to finalize the draft agreemenUletter and
Company Secretary, ONGC be and is hereby authorized
to sign the agreemenUletter on behalf of ONGC."
22. The Cabinet Committee of Economic Affairs (CCEA),
E
as already indicated, had on 30.6.2011 given its approval to
CEIL for selling its Indian unit to Vedanta subject to the new
owner agreeing to share royalty and pay oil cess on mainstay
F
Rajasthan oilfields. Union Cabinet also, on 24.1.2012, gave
its final approval to London-based mining group Vedanta
Resources Plc'.s acquisition of a majority stake in Cairn India
for $8.48 billion. It was noticed that Cairn and Vedanta had
complied with all the pre-conditions stipulated by the
G
Government of India and ONGC and the transaction between
them stood concluded.
ARGUMENTS
23. Shri Prashant Bhushan, learned counsel appearing for
the petitioner, questioned the decision of the Government of
H
528
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A India in giving clearance to CAIRN-Vedanta deal, without ONGC
exercising the RoFR, but for which it was submitted that the
State Exchequer would have benefited to the tune of
Rs.1,00,000/- crore rupees. Learned counsel submitted that
petrol and natural gas is held by the State in public interest and
B cannot be given away without due exercise of power and
discretion guided by clear and cogent policy, because the
natural resources should not be subject to private ownership
or private commercial exploitation. Reliance was placed on the
judgments of this Court in M. C. Mehta v. Kamal Nath &
C Others (1997) 1 SCC 388, Meerut Development Authority v.
Association of Management Studies and Another (2009) 6
SCC 171 and Centre for Public Interest Litigation and Others
v. Union of India s.1d Others (2012) 3 SCC 1.
24. Shri Bhushan submitted that the Government has
0 unlawfully granted extension to Cairn India Limited for carrying
out exploration activities beyond the period framed by the
Rajasthan Block PSC, which has been commented upon by the
Comptroller and Auditor General (CAG).
25. Shri Mukul Rohatgi, learned senior counsel appearing
E for the respondent, assisted by Shri R. R. Sasiprabhu explained
to the Court in detail the main features of PSC dated 15.5.1995
as well as the transaction entered into between Cairn and
Vedanta. Learned senior counsel pointed out that ONGC has,
inter alia, pre-emptive rights in relation to Cairn-UK's Pl under
F various agreements with the Government of India and ONGC,
and that Cairn UK and/or its affiliates required consent of
ONGC, besides other governmental approval to consummate
the proposed transaction. Cairn UK took up the stand that the
transaction W3S only a sale of shares of CIL rather than
G assignment of any Pl under various PSCs and JOAs and that
there would be no change to Pl in any of the PSCs in which
Cairn India group was a party. ONGC had two disputes in RJON-90-1 block, between ONGC and CEIL/CEHL which had
huge financial implications for ONGC with regard to royalty and
cess. Further, there was another dispute under the PSC on
H the issue of liability of cess. CEIL and CEHL took the stand
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
529
OTHERS [K.S. RADHAKRISHNAN, J.]
that they were not liable for payment of cess and hence had
A
initiated arbitration proceedings in London against Union of
India and ONGC.
All these issues were placed before the
ONGC Board on 29.1.2011 and also on 27.9.2011 and after
due consideration of the Agenda item and noticing the
presentation made by SBI caps, finally decided to go for the
B
proposed transaction between Cairn UK and Vedanta UK.
Learned senior counsel submitted that the above decision was
taken by ONGC in public interest and taking into consideration
its financial implications and on-going disputes between ONGC
and CEIUCEHL.
C
26. Learned senior counsel also submitted that the Courts
have consistently restrained from interfering with economic
decisions and that wisdom and advisabilities of economic
policies are ordinarily not amenable to Judicial Review.
Reference was made to the judgment of this Court in Ba/co
D
Employers' Union (Regd.) v. Union of India and Others (2002)
2 SCC 333, Bajaj Hindustan Limited v. Sir Shadi Lal
Enterprises Ltd. and Another (2011) 1 SCC 640 and Life
Insurance Corporation of India v. Escorts Limited and Others
(1986) 1 sec 264.
E
27. Shri Siddharth Luthra, learned Additional Solicitor
General appearing for the Union of India, submitted that the
ONGC Board forwarded its request to MoPNG to ensure that
royalty for Rajasthan Block be treated as cost recoverable.
F
MoPNG on 26.3.2011 submitted the recommendations before
the Cabinet Committee for Economic Affairs (CCEA) for
decision of the Cabinet Commi'ttee on the issue of proposed
transaction between Cairn-Vedanta. CCEA referred the matter
to the Group of Ministers (GOM) and GOM on 25.11.2011
G
recommended grant of approval based on certain conditions.
Union of India took the stand that there was no commercial
viability for ONGC to purchase CIL share at the value being
offered by Vedanta. Shri Luthra submitted that this decision
was taken by ONGC in public interest and after taking into
H
530
SUPREME COURT REPORTS
(2013) 3 S.C.R.
A consideration all commercial and technical aspects of the
matter and that this Court, in exercise of its powers under
Article 32 of the Constitution of India, shall not interfere with the
economic decision taken by the Union of India and ONGC.
8
28.