Government Can’t Be Held Ransom To Whims Of A Private Company: Delhi High Court Upholds Rejection Of Vedanta's PSC Extension
The Court held that unilateral deduction of government's profit petroleum share to offset excise duty liability is a valid ground to deny extension, dismissed Vedanta's challenge to takeover by ONGC.
Justice Purushaindra Kumar Kaurav, Delhi High Court
The Delhi High Court has upheld the Ministry of Petroleum and Natural Gas's rejection of Vedanta Limited's application to extend its Production Sharing Contract for the CB/OS-2 offshore block, holding that the Government cannot be held ransom to the whims of a private company which, through its own fanciful interpretations, tramples upon the Union's share of profit petroleum.
The Court held that Vedanta's unilateral deduction of amounts from the Government's share of Profit Petroleum, to offset its own liability under the Special Additional Excise Duty, constituted a valid and independent ground for rejecting its extension application, and accordingly dismissed the company's challenge to both the rejection order and the consequential direction handing over the block's operations to ONGC.
A Bench of Justice Purushaindra Kumar Kaurav observed, “Ex facie the said unilateral deduction was not bona fide. The petitioner is handling public resources of the people of India. The scheme of the PSC is such as would require the private company to give the share of the Government. This arrangement does, to a certain extent, put the private company in a dominant position as the reigns of the Government share lie in its hands. It must, however, be extra-cautious while treading this course. The Government cannot be held ransom to the whims of a private company, which as per its fancies, interpretations, wishful dreamy adjudications tramples upon the Union‘s share”.
“By unilaterally assuming there to be a material change, and the change/revision in the PSC, which would maintain the economic benefit of the parties including the Government of India, to be a deduction from the Government of India‘s share of Profit Petroleum, the petitioner has acted as a judge, jury, and executioner in its own case…”, the Bench had further observed.
Senior Advocate Jayant K. Mehta appeared for the petitioner and R. Venkatramani, Attorney General for India appeared for the respondent.
In the matter, Vedanta, along with joint venture partners Invenire Petrodyne (formerly Tata Petrodyne) and ONGC, had operated the CB/OS-2 block off the coast of Gujarat under a Production Sharing Contract signed in 1998, set to expire in June 2023. Under the Extension Policy notified by the Ministry in 2017, Vedanta applied in June 2021 for a ten-year extension.
While the application remained pending well beyond the timelines prescribed under the Policy, the Central Government imposed a Special Additional Excise Duty on domestic crude production in 2022. Vedanta, relying on a clause in the PSC permitting adjustments where a change in law materially affected expected economic benefits, unilaterally began deducting its excise duty liability from the Government's share of profit petroleum, despite the Ministry expressly rejecting this proposal in writing and warning that such conduct would breach the PSC.
Vedanta continued the deductions for roughly two years, amounting to approximately Rs. 88 crore, before repaying the amount just seven days before its extension application was ultimately rejected in September 2025.
Before the High Court, it argued that it held no vested right to an extension but was entitled to have its application considered strictly under the Extension Policy as it stood on the date of application, that the grounds for rejection were confined to the technical and financial criteria listed in the Policy, and that the dispute over the excise duty adjustment was a legitimate difference of opinion that had, in any event, been resolved by repayment.
The Government contended that the Policy vested it with residuary discretion to reject applications, and that Vedanta's conduct in unilaterally helping itself to the Union's share of a national natural resource was a serious breach going to the root of its eligibility.
The Court held that Production Sharing Contracts, concerning resources that vest in the Union as trustee for the people of India under Article 297 of the Constitution of India, must be interpreted in light of the Public Trust Doctrine, and that this doctrine informs even the reading of policy clauses governing such contracts.
Examining the Extension Policy, the Court held that its residuary clause was not confined to the specific technical grounds listed elsewhere in the Policy, and that events occurring after the filing of an application could be taken into account by the Government in assessing an applicant's continued eligibility.
On the central issue, the Court found that Vedanta had acted as judge, jury and executioner in its own cause, unilaterally assuming an entitlement under the PSC's change-in-law clause without any adjudication establishing that a "material change" had in fact occurred, and effectively deciding for itself how much of the Government's share it was entitled to withhold.
The Court held that such conduct, in handling a resource held in public trust, could not be cured merely by belated repayment made days before the rejection order was issued.
The Court accordingly dismissed the writ petition, upholding both the rejection of Vedanta's extension application and the direction to ONGC to take over operations at the block.
Cause Title: Vedanta Limited (Division: Cairn Oil & Gas) v. Union of India & Ors. (Neutral Citation: 2026:DHC:5803)
Appearances:
Petitioner: Jayant K. Mehta, Senior Advocate, Anuradha Dutt, Anish Kapur, Nikhita K Suri, Suman Yadav, Gurudas Khurana & Raghav Dutt, Advocates.
Respondents: R. Venkatramani, Attorney General for India, Ashish K. Dixit, CGSC, Ajoy Roy, Advocate, Chetan Sharma, ASG, Nakul Sachdeva, Shreyansh Rathi, Sagar Arora, Shrinkhla Tiwari, Abhinandan Sharma, Kartikay Aggarwal, Yamika Khanna & Karan Sharma, Advocates.