2000 INSC 1127
Centre for Public Interest Litigation
& Anr.
Vs
Union of India and ors.
Civil Appeal No. 2485 of 1999
(S.P. Bharucha,S.S.Mohammed Quadri and N.Santosh Hegde,JJ.)
19.10.2000
JUDGMENT
N. Santosh Hegde, J.:- Being aggrieved by the judgment of the High Court of Delhi dated 25th
January, 1999 made in C.W.P. No. 3020/97, the writ petitioners therein have preferred this appeal by
lease of this Court.
Respondent No.1, Government of India (GOI), took a policy decision in the year 1992 to offer some
of its discovered oil fields for development on a joint venture basis. Its decision in this regard was
that medium sized oil fields will be offered for development under the joint venture with the
participation of the Oil and Natural Gas Commission (ONGC) / the Oil India Limited (OIL) while
the small sized oil-fields will be offered for development without the participation of the
ONGC/OIL. This policy decision was taken on the ground that the country was facing foreign
exchange crisis and there was lack of resources to fully develop these oil-fields. The GOI was also
of the opinion that the domestic crude production was declining and there was a need to augment its
production. With the said policy in mind, the GOI invited bids for 12 medium sized oil fields and 31
small sized oil fields. In response to the invitation of the GOI in regard to the medium sized oil-
fields, namely, Panna and Mukta, as many as 8 consortia offered their bids and after preliminary
technical evaluation of those bids, discussions were held with the bidders and based on such
discussions, the GOI shortlisted respondent Nos. 4 and 5 and another consortium of Hyundai Heavy
Industries, Essar Oil Limited, Dan Offshore and Albion International. Sometime in October 1993,
these two consortia were called for further negotiations by the Negotiating Committee to finalise the
contract and after such negotiations and evaluation of the bids on the recommendations of the said
Committee, the bid of respondent Nos. 4 and 5 was accepted in February 1994 and a Letter of
Award (LOA) was issued to the said consortium. As per this award, the oil-fields - Panna and Mukta
- were agreed to be given to the said consortium with a participating interest of 30% each to
respondent Nos. 4 and 5 in association with the ONGC which was given a share of 40%. The said
contract provided that the GOI had the first option to purchase up to 100% of the production of oil
from these fields at an international market price to be determined in accordance with the provisions
of the contract. It further provided that the international price shall be determined with refrence to
one or more freely traded international mrket prices which bear resemblance to the produce crude in
terms of standard parameters such as gravity, sulphur content, yield etc. which are critical to the
market value of the crude. The contract price to be paid to the contractor had to be the price of
Brent (DTD) crude with a discount of $0.10 cents per barrel. Brent is said to be a similar sweet
crude which is freely traded in the international market. The actual contract termed as `Profit
Sharing Contract' (PSC) was signed by the GOI and the consortium of respondent Nos. 3, 4 and 5
in regard to Panna and Mukta oil-fields on 22.12.1994.
The appellants herein challenged the awarding of this contract before the High Court of Delhi on
26th July, 1997 seeking the following reliefs:-
(a) direct a thorough investigation into this deal by an appropriate agency to be supervised by a
senior independent person such as a retired judge of a High Court or the Supreme Court; and
(b) direct the Respondents No.1 and 2 to take further follow up action by way of criminal
prosecution and departmental proceeding against officials who have played a corrupt or improper
role in the award of the contract for the Panna - Mukta oil fields; and
(c) order the cancellation of the contract for the Panna - Mukta oil fields to the joint venture led by
RIL - Enron.
The main ground of attack before the High Court was that the contract in question was awarded
arbitrarily for collateral consideration and is actuated by malafides. It was contended before the
High Court that the oil fields which were developed by a public sector company, namely, the ONGC
at an expenditure Rs. 800 crores and which had the reserve oil capacity worth more than 20,000/-
crores was given on a 25 years lease to a private joint venture for a paltry sum of Rs. 12 crores. It
was also alleged that the quantum of oil and gas reserves which was originally estimated at 54.25
MMT was subsequently brought down to 14 MMT in order to justify the award of this contract. It
was also contended before the High Court that the GOI agreed for a fixed royalty and cess payment
from the consortium which would mean that the GOI has tied its income from the royalty and cess
from these oil-fields to a fixed rate for a period of 25 years which was opposed to all known
standards of business prudence. They also contended that the price at which the GOI agreed to
purchase the oil from the JV was far in excess of the market price and over and above that excess
market price, the GOI also agreed to pay a further sum of $5 per barrel of oil as a premium on an
ostensible ground of the quality and locational advantage of the oil so purchased.
The appellants who were the petitioners before the High Court strongly relied on the observations
made by the Comptroller and Auditor General of India (CAG) who in its report submitted to the
Parliament, had raised many objections in regard to this contract. They also relied upon a
recommendation made by the Superintendent of Police, Anti Corruption Unit of CBI. Bombay, who
had recommended the filing of a First Information Report pointing out various irregularities
committed in the awarding of this contract. According to the appellants, this recommendation of the
Superintendent of Police, CBI, Bombay, was scuttled by some higher officers of the CBI with a
view to favour the persons involved in awarding of this contract. It was also alleged in the said
petition that some of the senior officers of the ONGC who actively participated in the negotiations
which culminated in awarding of this contract in favour of respondent Nos. 4 and 5 had joined the
services of respondent No.4 or 5 which fact, according to the petitioners, clearly indicated that these
officers during their tenure with ONGC had colluded with respondent Nos. 4 and 5. It was further
alleged that the contract in question lacked transparency in the invitation of the bids as well as in the
evaluation of bids which has led to the grant of a very valuable contract on unconscionable terms
leading to plundering of national resources. The appellants also relied on a statement purported to
have been made by the Private Secretary to the then Minister of Petroleum, who had averred in the
said statement to the investigating agency, to the effect that large sums of monies were paid to the
said Minister.
The petition was opposed by all the respondents on almost similar grounds contending that the
contract in question was awarded after a careful consideration of all the commercial/technical
aspects of the contract bearing in mind the policy of the GOI in this regard and the contract in
question was to the best advantage of the GOI and the ONGC. The respondents have asserted that
there has been no collateral consideration or mala fides involved in awarding of the contract; and
that each of the terms of the contract was carefully considered keeping in mind the interest of the
GOI and the ONGC. It was further argued that the figures mentioned in the writ petition are wholly
imaginary and exaggerated both in regard to the oil reserves as also in regard to potential returns
from the oil fields and as a matter of fact the estimated take of the GOI and the ONGC in this
contract is to an extent of 80 to 82 per cent of the total net revenue or technical profits from the
contract. The respondents also denied the fact that under the contract the GOI had greed to purchase
the crude oil from the joint venture consortium at a highly inflated price of $ 24 per barrel which
included a premium of $4 per barrel. According to the respondents, this figure was deliberately
inflated by the petitioners, and there was no such agreement to pay $4 per barrel as premium. On the
contrary, the price fixed under the contract for purchase of the crude oil by the GOI was the
international market price prevailing on the date of such purchase minus a rebate of $ 0.10 cents per
barrel on such price which meant that the price paid by the GOI was less than the international price
prevailing. The respondents also questioned the correctness of the petitioner's claim that the
quantity of oil reserves in these wells were to an extent of 54.4 MMT and also contended that at no
point of time the reserve oil figure was deflated, as alleged in the petition. They also contended that
re-employment of the officials named in the petition had no effect on the contract. In regard to the
statement of Mr. Safaya, they contended that the alleged statement of the Private Secretary to the
Minister was false and, at any rate, the same was subsequently withdrawn before the court and the
said bribery case is the subject-matter of a pending criminal trial. The CBI has also denied the
allegation made against it.
The High Court a per its judgment dated 25th January, 1999 rejected the preliminary objection of
the respondents in regard to the maintainability of the petition and proceeded to deal with the
petition on its merits. It came to the conclusion that the questions raised by the appellants petitioners
in their petition involved matters of economic policy in respect of which the GOI had greater
latitude and flexibility and the courts would be slow to interfere in such matters. Dealing with the
allegation pertaining to abnormality in fixing of royalty and cess amounts payable by the joint
venture, the High Court came to the conclusion that the liability to pay royalty is upon the oil
produced and sold, irrespective of the price payable by the GOI which could vary, irrespective of
the price payable by the GOI which could vary depending on the international market. On this
foundation, it came to the conclusion that there was no basic fallacy in the methodology adopted by
the GOI as to the payment of royalty and cess. It also held that in regard to the evaluation of bids,
more than one view was possible, hence it could not come to the conclusion that the view taken by
the GOI was actuated by mala fides. In regard to the price payable by the GOI for the crrude oil to
be purchased from the joint venture, the High Court came to the conclusion that the price payable
was actually less than the international price for oil of similar proof and the High Court concluded
that the Government's take in the contract would not be less than 80% of the total value of the
contract. In regard to the complaint made against the CBI, the High Court refrained from expressing
any opinion. On this basis. The High Court came to the conclusion that the allegations of the
petitioners before it that the contract in question was unconscionable as to call for an independent
probe, were not established and, accordingly, dismissed the petition.
Lengthy arguments have been advanced before us by Mr. Shanti Bhushan, learned counsel
appearing for the appellants, and learned Additional Solicitor General Mr. Kirit Rawal, Mr. Ashok
Desai, Mr. Atul Setalvad, Mr. B. Sen and Mr. K.N. Bhat, learned senior advocates on behalf of the
respondents. To avoid repetition, we will refer to the gist of their arguments during the course of our
judgment.
Mr. Shanti Bhushan initiated his attack on the impugned contract by contending that the GOI had
earlier instructed the Ministry of Petroleum to make a study of comparative economics of operating
the oil wells on a stand alone basis by the ONGC or the OIL vis-a-vis offering these wells on a joint
venture basis. He contended that the Ministry of Petroleum, however, without any such comparative
economis, in August, 1992, invited bids for development of the discovered oil/gas fields including
the oil fields of Panna and Mukta on a joint venture basis without first considering the feasibility of
operating them on stand alone basis by the ONGC/OIL. The appellants contend that these oil fields
which were with the ONGC on a long term lease and on which the ONGC had already spent more
than Rs. 800 crores from 1976 to 1993; and from which the ONGC had been producing oil and
selling it to the Government of India at an administered price of $ 8 per barrel need not have been
given on joint venture basis; and if a comparative study were to be made, it would have been crystal
clear that the development of these wells on a stand alone basis would have been much more
profitable to the GOI than by giving these wells on a joint venture.
On behalf of the first respondent in regard to this contention of the appellants, it is stated that even
though in the notes submitted to the GOI, no comparative economics was indicated, as a matter of
fact such a comparative study was taken up and it is only based on the result of such studies that the
two oil fields i.e. Panna and Mukta were recommended to the GOI to be offered for development on
a joint venture basis. They also contended that as per this study it was noticed that the two oil fields
Panna and Mukta were not fully developed and the ONGC inspite of spending huge sums of money
on development of these wells, was not able to exploit these oil wells to the maximum possible
extent and in the wake of the then prevailing financial crunch and the foreign exchange crisis and
the imminent need of the country for extra oil production, it was considered that offering these wells
on a joint venture basis was more beneficial and less burdensome inthe interest of the country. It
was also pointed out that at that point of time the World Bank had offered financial assistance
provided a time-bound programme was chalked out by the GOI for development of these wells. For
all these reasons the GOI contended that it was thought economically prudent to go for joint venture
development of the oil fields. They also contended that though, as a matter of fact the particulars of
the result of the comparative economics prepared by the Ministry and the ONGC were not
submitted to the GOL, these materials were considered by the concerned Ministry along with the
Cabinet Sub-Committee on Economic Affairs and on their approval was taken to give the oil wells
for development on a joint venture basis. The High Court after considering the material available on
record came to the conclusion that non-placing of the report on comparative economics before the
GOI is only an irregularity and in the absence of any prejudice to public interest being pointed out,
the prayer of the appellants before it for directing a probe was not justified.
We have carefully considered the arguments and the material that was placed before us, and we note
that so far as the allegation of failure to make a comparative economic study is concerned, from the
material on record we find that the said allegation is not factually correct because it is seen that, as a
matter of fact, such a comparative study was made by the Ministry and when the particulars thereof
were sought for by the CAG, the same were also placed before the CAG, and the CAG has also
accepted this fact but commented in its report that the study conducted by the Ministry has not taken
into consideration the ONGC's current cost of development of the well platforms vis-a-vis the cost
of similar facilities to be provided by the joint venture contractors. Be that as it may, the fact
remains that a comparative study was conducted; but the same was not placed before the GOI when
the latter accepted the proposal of the Ministry to give these wells on a joint venture basis. The
question, therefore, for our consideration is: does the non-placing of the materials pertaining to the
comparative economics vitiate the contract impugned in this appeal. As noted above, the GOI in its
counter has stated that though the result of the comparative economics conducted was not submitted
to the Cabinet, the same was discussed with the Cabinet Sub-Committee on Economic Affairs and
on their approval and with knowledge and consent of the Cabinet, a decision was taken to give the
oil wells for development on a joint venture basis. The submission when taken in the background of
the fact that at the relevant point of time the ONGC was not in a position to exploit the oil wells in
question to the best advantage of the oil needs of the country and there was overall financial crunch
and foreign exchange crisis, and there was also a possibility of the GOI losing the financial
assistance from the World Bank, the GOI's decision to accept the suggestion of the Ministry to offer
these oil wells on a joint venture basis cannot be faulted. The material available on record and the
circumstances prevailing at the time of the decision of the GOI show that though the materials of the
comparative study were not placed before the GOI, the recommending authority had based its
recommendations on such study which was accepted by the GOI. Therefore, by the mere absence of
placing the materials constituting the comparative economic study, while in effect it was actually
taken note of, we are unable to accept the argument of the appellant that there has been non-
application of mind by the GOI while awarding the contract. That apart, whether the oil wells
should be developed on a stand alone basis by the ONGC or not, is a matter of policy with which we
are not inclined to interfere solely on the ground that there is no reference to such study in the
decision of the GOI. Therefore, the allegation of non-application of mind must fail.
It was next contended by the appellants that the GOI has bartered away the two oil wells already
developed by the ONGC containing large deposits of oil to the joint venture for a meagre sum of Rs.
12 crores paid to the GOI as `signature bonus'. According to the appellants, the oil reserve in the
said two oil wells was in the range of 54.4 MMT which, on the basis of the then prevailing market
price, would be of the value of Rs. 17,000 crores. The appellant also contends that with a view to
benefit respondent Nos. 4 and 5, the oil reserves were under-estimated at 14 MMT with the
connivance of Mr. RB Mehrotra, Member (Exploration) and Mr. Khosla, Chairman & Managing
Director, ONGC at the relevant time. In support of this contention, the appellants also rely on the
observations of the CAG who, in his report at para 2.11 has, observed that "the reserve estimates on
the basis of which the Government should have proceeded in the matter, kept varying at different
stages.. In the absence of a reasonable assessment of reserves, it would be difficult for the
Government to anchor negotiations properly for obtaining higher Government take in the form of
past cost compensation, signature and production bonuses to ONGC and increased share in profit-
petroleum". The GOI and the ONGC in their statements as well as in their submissions had given
their own explanation in regard to the varying figures found in the records. They contended that the
figure of 51.4 MMT originally noted was not an estimate of oil reserve only but was the total
estimate of reserve of oil and gas found in these wells out of which the ONGC had estimated oil
reserve at 34.4 MMT only; the balance being gas reserve. It is also contended that in the year 1990
the ONGC undertook a 3D seismic survey which revealed that the actual oil available for
commercially viable extraction from these wells was to the extent of 14 MMT only. They contend
that this figure, as obtained from the 3D seismic survey, was not conveyed to any of the bidders. On
the contrary , the intending bidders were asked to conduct their own survey for the purpose of
offering their bids. They also contend that 34.4 MMT of reserve oil was not actually the quantity of
economically recoverable oil but was the estimate of a possible reserve of oil in these wells. Even
according to the ONGC, before the 3rd seismic survey, the planned recovery estimate was only
24.9. MMT out of 34.4. MMT estimated reserve.
From the material on record, it is seen that the bidders made their own survey of these wells and so
far as respondent Nos. 4 and 5 are concerned, they estimated the economically recoverable oil from
these wells at 20 MMT while the other joint venture consortium which was short-listed along with
the consortium of respondent Nos. 3 to 5, had estimated it at 12 MMT, and the respective bids of the
parties were evaluated on the basis of their self-evaluation of the reserve oil in the wells concerned.
Therefore, we think it is possible that out of 34.4 MMT of the oil estimated originally as being the
reserve, as a matter of fact, the recoverable oil could be only 20 MMT or near about that quantity, as
evaluated by respondent Nos. 4 and 5 because we could reasonably draw an inference that it may
not be possible to economically exploit all the oil that may be existing in an identified oil well. At
any rate, it would be hazardous for the courts to venture on a guesswork as compared to the
technical assessment that is made, correctness of which is not disproved by cogent materials.
Therefore, we are unable to accept the contention of the appellants that, as a matter of fact, the
recoverable oil reserve in Panna-Mukta oil fields was either 54.4 MMT or even 31.4 MMT. That
apart, it is very important to note that the GOI has made provisions in the contract itself to increase
its take in the event of there being an increase in the quantity of recoverable oil by providing for
progressive fiscal regime in the contract. As a matter of fact, this aspect of the contract was also
taken note of by the CAG in Para 2.12 of the report. In view of this safeguard coupled with the fact
that the economically recoverable oil from these wells is in the region of 20 MMT, we do not think
that the contract in question is so unreasonable as to suspect the bona fides of the same on this
ground. At this stage, we will have to take note of the argument of the appellants that Mr. Mehrotra
and Mr. Khosla, who were at the relevant point of time holding important posts in the ONGC, had
subsequently joined the services of respondent Nos. 4 and 5 which, according to the appellants,
shows that that these two officers could have played an important role in reduction of the figures
mentioned by the ONGC. It is true that in the year 1992, Mr. Mehrotra was the Member
(Exploration) and Mr. Khosla was the Managing Director of the ONGC. Among these two officers.
Mr. Khosla retired as an M.D. in the month of September, 1992 and Mr. Mehrotra retired as
Member (Exploration) on 31.12.1993, while the contract in question was approved by the GOI on
23.2.1994 and a Letter of Award was a issued to the consortium on 16.3.1994 by which time these
two officers had left the services of the ONGC, and it is to be noted that they had no part to play in
the approval of the award of contract to the consortium which was done by the GOI on the
recommendations of a Committee of Secretaries. Therefore, it is difficult to accept the argument
that these two officials connived to reduce the oil reserves so as to help their future employers.
We will now consider the argument of the appellants that the GOI had deliberately agreed to peg
down its income from the royalty cess payable to it to a fixed rate for a period of 25 years which,
according to the appellant, is opposed to all known standards of business prudence. They contend
that by such freezing of royalty and cess, the GOI has denied itself the benefit it would have
obtained if the royalties were to be fixed at an ad valorem rate, correlated with the increase in future
international oil prices. The appellants contend that by freezing of royalty and cess, the take of the
GOI in the contract would increasingly become a small portion of the total earnings when
international oil prices increase in future. By this, according to the appellants, the GOI has conceded
a large benefit in favour of the contractors in the long run. The CAG has also taken note of this
freezing of royalty and cess in its final report wherein it has observed that the Ministry had not
informed the GOI before agreeing to freeze the rate of royalty and cess in the contract. It had also
observed that the royalty ought and cess in the contract. It had also observed that the royalty ought
to have been at an ad valorem basis. The GOI has contended that the freezing of royalty and cess is
not a concession given to the joint venture and the same was to provide for fiscal stability so that the
economics of the project is not adversely affected. It was contended that the decision to freeze the
royalty and cess during the period of contract was taken to enable the investors to work out their
economics of the project without undue uncertainty arising from the future behaviour of the
Government with regard to such levies. The other respondents have sought to rely on similar
international practice in regard to the fixed levy of royalty and cess in similar contracts. They
argued that if royalty and cess were not to be on an assured basis during the period of contract, it
was most likely that the bidding parties would not have come forward with attractive bids, as has
been done in the present case under other heads. The also contend that there is always a possibility
that if an open-ended royalty and cess were to be insisted upon, the bidding parties might not have
accepted the figures which are now agreed to be paid as royalty and cess. As could be seen from the
arguments addressed on behalf of the appellant, neither the appellant nor the CAG has taken any
exception in regard to the quantum of royalty and cess as fixed in praesenti. But the argument seems
to be that it should not have been a fixed figure for the entire period of the contract rather it should
have been at an ad vlorem rate. This argument proceeds on the footing that if international prices of
oil were to be increased in future, there would be no corresponding increase in royalty and cess,
hence, the GOI would stand to lose, but then this argument does not take within its sweep the
repercussions consequent to a reduction in the international oil prices, however rare it might be, if it
were to happen, the corresponding share of the GOI under this head would also get reduced. Then
again, one should not be oblivious of the fact that the Profit Sharing Contract in the present case is
not anchored on the basis of a single head of payment as we could see it is an offer of a basket
containing payments under various heads. The offering party and the accepting party in such cases,
will assess the total value of the basket and decide on the acceptance or otherwise of the offer. In
such a case, it is not possible to evaluate the profit from a contract by assessing the value under each
head of receipt individually. That can be done only by taking into account all the heads of receipt
comulatively. Therefore, it is difficult to accept the argument of the appellants that by pegging the
rate of royalty and cess to a fixed sum, the GOI has arbitrarily bartered away a major portion of its
take in the contract. At any rate, when two options were available before the GOI to have a fixed
royalty and cess or a varying rate based on an ad valorem rate of oil, and if after taking into
consideration the entire value of the contract, the GOI has opted to go in for a fixed royalty rate, we
cannot conclude that such a decision was arrived at either arbitrarily or unreasonably. We think it as
not safe to come to the conclusion that freezing of royalty and cess during the period of contract was
done in the instant case with the sole intention of granting undue benefits to the joint venture. In
regard to the observations of the CAG that the Ministry did not inform the Government in advance
as to the decision to fix the royalty and cess on a frozen basis, it was pointed out to us by
respondents that in January, 194 itself the Government was informed of the decision of the
Committee of Secretaries that the bidders will be asked to pay the royalty and cess at the current
rate because of the prevailing international practice. For these reasons, we are of the opinion that the
appellant's objection as to the fixed royalty and cess payable to the GOI under the contract cannot
be sustained.
The next challenge of the appellants is to the agreed price under the contract at which the GOI has
agreed to purchase the oil exploited by the JVs under the contract. The appellants contend that
before awarding the contract, the ONGC was selling oil from Panna Mukta to the GOI at the rate of
Rs. 1,741- per ton ($8 per barrel). They contend that after the signing of the contract the GOI is
buying the oil from the JVs at the cost of $24 per barrel (i.e.$ 20 being the international price plus $
24 per barrel (i.e. $20 being the international price plus $ 4 as premium). It was also contended that
the share of the GOI in the crude oil produced was fixed on a fraudulent formula beneficial to
respondents 4 and 5. They also contend that as per the calculations of the appellants, the share of the
GOI in the crude oil produced under the contract will be merely 5 to 10 per cent; whereas normally
in similar contracts, the take of the Government should have been 80% to 90%. The appellants also
assail the alleged additional cost of $4 as premium per barrel which, according to them, is being
paid to the JVs because of the fact that the oil produced from Punna and Mukta costs less by way of
transportation charges and the crude is of superior quality. This agreement to pay a premium of $4
on the above count, according to the appellants, is an atrocious deal which lone would cause a loss
to the GOI to the tune of Rs. 3,000 crores. They contended that there is no logic of paying $4 per
barrel for the oil produced from Panna and Mukta oil fields on the ground of superior quality of oil
or on the ground of locational advantage. In reply, on behalf of the GOI, it was contended that
sharing of the profit petroleum between the Government and the contractor was a biddable item and
the same was fixed with reference to the take of the GOI in the entire contract. They contend that
this was the best offer that the GOI got from amongst the final bidders. They further contend that
the bid for profit petroleum was invited by two alternatives, namely, on slabs of investment multiple
(IM) or on the post tax rate of return achieved by the companies. According to this, the profit
petroleum share of the GOI ranges from 5 to 50 per cent depending on the level of IM reached. It
also contends that this share of profit petroleum with the Government is over and above the
payment of statutory duties and other takes like royalty, signature and production bonuses, tax etc. It
was also contended that this element of sharing profit petroleum is a new element and there was no
such earlier arrangement with the ONGC to have a profit petroleum sharing. They also deny that the
Government is committed to pay a cost of $ 24 per barrel for the crude produced from these oil-
fields, and, according to it, the said allegation of the appellants that the GOI is paying a premium of
$4 per barrel over and over the international price of crude either on the ground that the quality of
crude is superior or on the ground of its locational advantage. It reiterates and contends that it has
the first option to purchase the crude produced from these oil-fields at an international market price
to be paid to the contractor on the basis of an internationally accepted standard called `price of Brent
crude' with a discount to the advantage of the GOI of 10 cents per barrel. Therefore, it is argued that
as a matter of fact, instead of paying $4 per barrel as premium over and above the international
price, the GOI is actually paying $ 0.10 cent less than the international price, the GOI is actually
paying $0.10 cent less than the international price of crude of similar quality. They also deny that
the purchase of crude from the contractors would be costlier than the price the GOI would have paid
for purchase of similar crude from the ONGC as contended by the appellants. According to this
respondent, for the month of June, 1997, as per the price fixation formula inthe contract, the
purchase price that the GOI paid to the contractors came to US $ 18.969 per barrel only and this
payment was inclusive of cess and royalty which itself would amount to about $ 5 per barrel as the
calculation based on the conversion factors and exchange rate of the day. They also contend tht the
price paid by the GOI to the ONGC cannot be compared with the price that the GOI has agreed to
pay under the contract because the price payable by ONGC was an administered price. They further
contend that the take of the GOI as a whole in the contract is over 80% of the project surplus and
not as contended by the appellants. Respondent Nos. 4 and 5 in the statements filed before the court
and also during the course of their arguments, denied the allegation of undue advantage shown to
them in fixation of price of crude oil. They have also specifically denied that under the contract the
GOI is obliged to pay $ 4 per barrel extra as premium over and above the international market price
for the purchase of crude oil from them. They also contend that, on the contrary, the agreement
provides for a concession of $ 0.10 per barrel from the international price fixed under the contract.
The price fixation in a contract of the nature with which we are concerned, is a highly technical and
complex procedure. It will be extremely difficult for a court to decide whether a particular price
agreed to be paid under the contract is fair and reasonable or not in a contract of this nature. More
so, because the fixation of price for crude to be purchased by the GOI depends upon various
variable factors. We are not satisfied with the argument of the appellants that the nation has suffered
a huge financial loss by virtue of this arbitrary fixation of crude price. As a matter of fact, the figure
mentioned by the appellants of Rs. 3,000 crores as a loss under this head of pricing is based on
incorrect fact that the consortium is charging $ 4 per barrel as premium. It is because of this factual
error that the appellants came to the conclusion that under the contract the GOI had agreed to
purchase the crude from the consortium at an inflated price. We also take note of the fact that under
the agreement the respondents are bound to give a discount of $ 0.10 per barrel on the price of the
crude fixed on the basis of the international market rate which, prima facie shows that the fixation
of price is reasonable since under all given circumstances the said price will be less than the
international market price for Brent crude.
It was next contended that under the contract no ceiling is put on the operating expenditure (OPEX)
and no disincentives have been built into the contract for exceeding OPEX, absence of which might
lead to the escalation of OPEX, thereby reducing the take of the Government in the PSC. In support
of this contention, the appellants have relied on the observations of the CAG who in his report has
noted "moreover in absence of a clear enunciation of principles of computing cost escalation and
control in the respective contract, the `Management Committee' cannot exercise cost control to any
meaningful extent as such Government take and the ultimate benefit of the PSC is unduly flexible
and uncertain". Based on this observation, the appellants contend that by leaving open the OPEX
without a ceiling, the GOI has permitted the JV to charge practically any amount as they would like
under this head thereby making the profit of the GOI only an illusion. As an example they point out
that while ONGC incurred the OPEX of $2 per barrel, the OPEX incurred by the JV at the time of
the filing of the petition was more than $6 per barrel. On behalf of the respondents, it is contended
that it is practically impossible to put a ceiling cap on the OPEX because of the market conditions
and other unforeseen factors, they deny that it is open to the JV to increase the OPEX unreasonably
because the contract provides for a budgetary control by the Operating Committee (Management
Committee) to which budgetary estimates of production cost or operating cost have to be submitted.
According to the terms of the contract, this Committee has the power of review or revise any such
work programs, costs and budgets. They point out that this Committee among others consist of the
representatives of the GOI and ONGC and the Director of Hydrocarbons is the monitoring authority
of this Committee. They also point out that the decision of this Committee has to be unanimous and
because of the very nature of the constitution of the Committee, any arbitrary or unreasonably
increase effecting the take of the Government in the PSC is impossible. Respondents 4 and 5 have
also submitted that though it is a fact that in the initial stage of the working of the contract the
operating expenses was in the range of $6 per barrel which was as expected because of the heavy
expenditure they had to incur at the initial stage to make improvements on the wining of the oil,
they point out that over the years the said expenditure has come down to $2.49 per barrel which
almost equals to what was promised in the bid offer. From the arguments referred to herein above, it
is clear that though under the contract no ceiling limit as such has been imposed on the OPEX, in
our opinion, the apprehension of the appellants cannot be accepted as a likely happening because of
the in built safety of budgetary control by the Committee constituted under the said contract wherein
the representatives of the GOI and the ONGC have an unassailable role in accepting in the proposal
for increase in the OPEX or not. Therefore, there can be no apprehension that Respondents 4 & 5
can bulldoze their way into increasing the OPEX to the detriment of the interest of the GOI. We also
accept the explanation given by the respondents that in a contract like the one under our
consideration which is for a period of 25 years and taking into consideration the nature of the
contract, it would be well nigh impossible to prefix or put a ceiling on the operational expenses. The
argument of the appellant that respondent Nos. 4 and 5 have already increased the OPEX from $2 to
$6 is also satisfactorily rebutted by the respondents who have established that the increase in the
operating expenses during the initial stage of the contract has since been reversed and as at present
the operational cost is only $2.49. We are satisfied that even though there is no ceiling on the
operational expenses to be incurred by the JV and no undue advantage of such absence of ceiling
can be taken by the JV because of the in built budgetary control in the contract. Therefore, we are of
the opinion, that there is no substance in this allegation of the appellant.
The next ground of attack by the appellant is that large sums of money spent by the ONGC in
development of oil wells, which have accrued to its value, were not given credit in the contract
while the sums of money spent by respondent Nos. 4 and 5 just prior to the signing of the contract
were taken note of and a provision was made in the contract for reimbursement of these expenses to
respondent Nos. 4 and 5. The appellants contend that this type of concession given to the said
respondents exposes the extent to which the GOI has sacrificed the nation's interest in entering into
the impugned contract. The appellants also reply on the observations of the CAG in this regard in its
report. The respondents have denied these allegations. They contend that while the amount spent by
the ONGC was during the period when the ONGC was still exploiting and extracting oil from the
wells and, consequently, it was deriving monetary benefits from such investment made by it.
Respondent Nos. 4 and 5 have specifically stated that during the negotiations this question of
reimbursing the ONGC for its past expenses on development of the wells was discussed and when
such repayment of the past costs was insisted upon, they made a counter offer to the GOI that if the
said expenses of the ONGC are to be reimbursed then they are willing to agree for the same with
reduction in the royalty and cess and other amounts payable by it. This modified offer was not
acceptable to the GOI, hence the same was not further pursued. In regard to the costs incurred by
respondent Nos. 4 and 5 as to which the contract provided for reimbursement, it was pointed out
that this investment by respondent Nos. 4 and 5 had gone into the development of the oil wells when
it was still being exploited by the ONGC. Consequently, the ONGC derived financial benefits from
this investment while respondent Nos. 4 and 5, who actually invested this amount, had no benefit
whatsoever. This fact was also discussed at the time of the negotiations and the GOI considered it
prudent to agree to the present terms in the PSC. It was averred that the amount spent on the wells
by the ONGC for its development and the possibility of repayment of the amount spent by
respondent Nos. 4 and 5 was taken into account by the said respondents while offering their bids.
We have considered the arguments of the parties in this regard and we agree with the respondents
that from the investments made by the ONGC as also by respondent Nos. 4 and 5 on these oil wells,
the production of oil in these wells had increased and the benefit of this increase had gone
exclusively to the ONGC and the GOI; and respondent Nos. 4 and 5 had no share of benefit from
such developmental activities; be it the investment by the ONGC or their own investment on these
wells. Furthermore, these are matters of commercial prudence and in the background of the fact that
the ONGC and the GOI both together had the benefit of these investments in the form of increased
oil production and consequential benefit of receiving their take from such exploitation of oil, we do
not think we can accept the argument of the appellants that these terms were agreed to by the GOI
with a mala fide intention of granting undue advantage to respondent Nos. 4 and 5.
As observed earlier, we will also have to bear in mind the fact that the contract in question involves
the payment of consideration under different heads in one basket. The contents of this basket cannot
be assessed individually nor can the court say that the receipt from a particular item in the basket is
arbitrarily low, because the take of the GOI in the contract is as a whole from the total receipt from
the basket. At this juncture, we would like to notice the observations of this Court found in Kasturi
Lal Lakshmi Reddy vs. State of J. and K. (1980 3 SCR 1338 at 1357) wherein this Court had held:
"We have referred to these considerations only illustratively, for there may be an infinite variety of
considerations which may have to be taken into account by the Government in formulating its
policies and it is on a total evaluation of various considerations which have weighed with the
Government in taking a particular action, that the Court would have to decide whether the action of
the Government is reasonable and in public interest".
It is clear from the above observations of this Court that it will be very difficult for the courts to
visualise the various factors like commercial/technical aspects of the contract, prevailing market
conditions both national and international and immediate needs of the country etc. which will have
to be taken note of while accepting the bid offer. In such a case, unless the court is satisfied that the
allegations levelled are unassailable and there could be no doubt as to the unreasonableness, mala
fide, collateral considerations alleged, it will not be possible for the courts to come to the conclusion
that such a contract can be prima facie or otherwise held to be vitiated so as to call for an
independent investigation, as prayed for by the appellants. Therefore, the above contention of the
appellants also fails.
While considering the allegations levelled against the acceptance of the impugned contract, we may
usefully refer to the observations of this Court in the case of Tata Cellular vs. Union of India (1994
6 SCC 651) which are as follows:
"The principles of judicial review would apply to the exercise of contractual powers by Government
bodies in order to prevent arbitrariness or favourism. However, there are inherent limitations in
exercise of that power of judicial review. Government is the guardian of the finances of the State. It
is expected to protect the financial interest of the State. The right to refuse the lowest or any other
tender is always available to the Government. But, the principles laid down in Article 14 of the
Constitution have to be kept in view while accepting or refusing a tender. There can be no question
of infringement of Article 14 if the Government tries to get the best person or the best quotation.
The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is
exercised for any collateral purpose the exercise of that power will be struck down.
Judicial quest in administrative matters has been to find that the right balance between the
administrative discretion to decide matters whether contractual or political in nature or issues of
social policy; thus they are not essentially justiciable and the need to remedy any unfairness. Such
an unfairness is set right by judicial review.
The judicial power of review is exercised to rein in any unbridled executive functioning. The
restraint has two contemporary manifestations. One is the ambit of judicial intervention; the other
covers the scope of the court's ability to quash an administrative decision onits merits. These
restraints bear the hallmarks of judicial control over administrative action.
Judicial review is concerned with reviewing not the merits of the decision in support of which the
application for judicial review is made, but the decision-making process itelf. It is thus different
from an appeal. When hearing an appeal, the court is concerned with the merits of the decision
under appeal. Since the power of judicial review is not an appeal from the decision, the Court
cannot substitute its own decision. Apart from the fact that the Court is hardly equipped to do so, it
would not be desirable either. Where the selection or rejection is arbitrary, certainly the Court would
interfere. It is not the function of a judge to act as a superboard, or with the zeal of a pedantic
schoolmaster substituting its judgment for that of the administrator.
The duty of the court is thus to confine itself to the question of legality. Its concern should be (1)
whether a decision-making authority exceeded its powers? (2) committed an error of law; (3)
committed a breach of the rules of natural justice, (4) reached a decision which no reasonable
tribunal would have reached or, (5) abused its powers.
Therefore, it is not for the court to determine whether a particular policy or particular decision taken
in the fulfilment of that policy is fair. It is only concerned with the manner in which those decisions
have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the
grounds upon which an administrative action is subject to control by judicial review can be
classified as under:
(i) Illegality: This means the decision-maker must understand correctly the law that regulates his
decision-making power and must give effect to it.
(ii) Irrationality, namely, Wednesbury unreasonableness. It applies to a decision which is so
outrageous in its defiance of of logic or of accepted moral standards that no sensible person who had
applied his mind to the question to be decided could have arrived at. The decision is such that no
authority properly directing itself on the relevant law and acting reasonably could have reached it.
(iii) Procedural impropriety".
Applying the above principle, we find it difficult to come to the conclusion that the decision of the
GOI in accepting the bid of respondent Nos. 4 and 5 on the advice of the Committee of Secretaries
is so unreasonable as to accept the prayer of the appellants to grant the reliefs sought for in this
appeal.
Appellants rely upon another factual circumstance which is outside the terms of the PSC to establish
their contention that the contract in question was awarded to respondent Nos. 4 and 5 because of
certain collateral considerations. In this behalf, they contend that there is a clear and specific
evidence to show that respondent No.4 had paid certain sums of money to the then Minister of
Petroleum at or about the time when the offer of respondents 4 and 5 was being considereed by the
GOI. In support of this contention, the appellants rely on a statement purported to have been made
by the Private Secretary to the said Minister to the CBI while the latter was investigating a case of
bribery. As per the said statement, respondent No.4 paid to the said Minister a sum of Rs. 4 crores
between June, 1993 and December, 1993 which fact, according to the appellants, is sufficient to
come to conclusion that awarding of the contract to respondents 4 and 5 was influnced by some
collateral consideration. It is to be noted here that the said statement of the Private Secretary to the
Minister which was made to the CBI, was subsequently retracted by the said Private Secretary.
Therefore, it will not be safe to rely upon a retracted statement to come to the conclusion that the
contract in question is actuated by collateral consideration.
At this stage, it may not be out of place to mention the fact that though there were a number of
parties who have offered their bids pursuant to the invitation of the GOI in regard to various oil
fields, and in regard to Panna-Mukta oil fields, there were as many as 8 other bidders; one of them
has come forward to question the validity of this contract. It is also to be noted that another similar
petition (PIL) was filed before the Bombay High Court which came to be dismissed and the
petitioners therein did not pursue the matter further, and one more writ petition filed before the
Delhi High Court also met with the same fate by the impugned common judgment, the said writ
petitioner has not chosen to assail the judgment of the Delhi High Court.
This leaves us to consider the argument of the appellants in regard to the conduct of the CBI before
the High Court as respondent No.2 in the writ petition. Though the appellants have made many
allegations against the investigation conducted by the CBI in this case, we do not think it is
necessary for us to go into all these allegations except confining our consideration to the stand taken
by the CBI before the High Court as to the existence of Part-II File No. 1/636/D/95/AC/BOM said
to have been opened by the then Superintendent of Police, CBI, Mumbai.
According to the appellants, the said file is in continuation of Part I file which was meant to be sent
to the headquarters. In the writ petition, it was specifically alleged that this Part II file was opened
in the Anti Corruption Branch-II CBI, Mumbai sometime in March, 1996 itself and the same was
segregated from the original file and withheld by some officers of the CBI with ulterior motives. In
reply to the said allegation, the CBI filed a counter affidavit before the High Court verified by one
Shri K. Surenderan Nair, Deputy Superintendent of Police, CBI Special Task Force, New Delhi,
wherein in paragraph 4 of the said affidavit it is stated thus:
"So far as Part-II of File No.1/636/D/95/AC/BOM in which Shri Y.P. Singh, the then Superintendent
of Police-II, ACB, Mumbai Bench allegedly recommended that a FIR be registered and a Regular
Case started, it was got checked up with Dy. Inspector General of Police, ACB Mumbai who has
intimated that no such file is in existence in ACB Mumbai Branch". (emphasis supplied).
It is based on the use of the words "no such file is in existence" which made the appellants contend
before the the High Court that a deliberate incorrect statement was made by the CBI in its affidavit
filed before the High Court with a view to deny the allegation made by the writ petitioners as to the
motive of the superior officers of the CBI to suppress the contents of Part-II file opened by said Mr.
Y.P. Singh, Superintendent of Police. The writ petitioners before the High Court in their rejoinder
affidavit reproduced certain portions of the said Part-II file which contained the notings of the senior
officers of the CBI including the one dated 11.4.1996 of Mr. Raghuvanshi who instructed Mr. Nair
to swear to the first affidavit of the CBI. Still when the CBI filed the first affidavit before the High
Court on 19.8.1997, Mr. Raghuvanshi instructed the deponent of the said affidavit to state before the
court that "no such file is not in existence in ACB Mumbai Branch". When the rejoinder affidavit
was filed, it seems the CBI was caught on the wrong foot and it tried to wriggle out of the situation
by filing another affidavit-this time sworn to by Mr. Raghuvanshi himself wherein an ingenuous
stand was taken that the intention of the CBI in informing the court in the first affidavit by using the
words "no such file is in existence in ACB Mumbai Branch" was to intimate the court that no such
file was available at the time of filing of the first affidavit. While examining this belated explanation
of the CBI we have to bear in mind that the first affidavit of the CBI was, among other facts, in
reply to the specific allegations of the writ petitioners as to the opening of and the contents of Part II
file which, according to the writ petitioners, was being suppressed by the CBI from the Court. As a
matter of fact, in para 18 of the writ petition, it was stated thus:-
"Part-II file containing recommendation of registering a regular case in the matter was withheld by
the then Joint Director, CBI Shri Mahendra Kumawat and was not sent to the head quarters".
While the CBI had to explain this averment made in para 18 of the writ petition, if really it wanted
to convey to the Court as to the non-availability of Part II file to comment on the above allegation,
one would have expected the CBI to come forward with a simple explanation that it is unable to
respondent to the above allegation in view of the fact that the said file was not traceable instead of
averring in the affidavit that no such file is in existence. The use of the words "no such file" clearly
indicates that what the CBI intended to convey to the Court in the first affidavit was to tell the Court
that such file never existed and it is only when the reply to the said affidavit was filed by the writ
petitioners with a view to get over the earlier statement, the second affidavit was filed by Mr.
Raghuvanshi interpreting the word "existence" to mean "not traceable". In the circumstances
mentioned hereinabove, we are unable to accept this explanation of the CBI and are constrained to
observe that the statement made in the first affidavit as to the existence of Part-II file can aptly be
described as suggestio falsi and suppressio veri. That apart, the explanation given in the second
affidavit of the CBI also discloses a sad state of affairs prevailing in the Organisation. In that
affidavit, the CBI has stated before the Court that Part II file with which the Court was concerned,
was destroyed unauthorised with an ulterior motive by none other than an official of the CBI in
collusion with a senior - officer of the same Organisation which fact, if true, reflects very poorly on
the integrity of the CBI. We note herein with concern that courts including this Court have been
often relied on this Organisation for assistance by conducting specifical investigations. This reliance
of the courts on the CBI is based on the confidencethat the courts have reposed in it and the
instances like the one with which we are now confronted with, are likely to shake our confidence in
this Organisation. Therefore, we feel it is high time that this Organisation puts its house in order
before it is too late.
Leaving apart the above observations of ours in regard to the CBI, having considered all the
materials placed before us and the arguments addressed, we are satisfied that on the facts and the
circumstances of this case, the prayer of the appellants to direct a criminal investigation into the deal
in question by an appropriate agency, as prayed or in the appeal, cannot be granted. For the reasons
stated above, the appeal fails and the same is hereby dismissed.