Posted On by &filed under Supreme Court of India.


Supreme Court of India
Centre For Public Interest … vs Union Of India & Ors on 19 October, 2000
Bench: S.N.Hegde, S.S.M.Quadri, S.P.Bharucha
           CASE NO.:
Appeal (civil) 2485  of  1999



PETITIONER:
CENTRE FOR PUBLIC INTEREST LITIGATION & ANR.

	Vs.

RESPONDENT:
UNION OF INDIA & ORS.

DATE OF JUDGMENT:	19/10/2000

BENCH:
S.N.Hegde, S.S.M.Quadri, S.P.Bharucha




JUDGMENT:

S.N.Hegde

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 leave
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 two 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
reference to one or more freely traded international market
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 criminal 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 proceedings 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 of Rs.800 crores and which had the
reserve oil capacity worth more than Rs.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 $
4 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 agreed
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 petitioners 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 as 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 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 crude 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 Governments 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 senior
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 in the 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 GOI, these
materials were considered by the concerned Ministry along
with the Cabinet Sub-Committee on Economic Affairs and on
their approval and with the knowledge and consent of the
Cabinet, a decision 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 ONGCs current cost of development of the
well platforms vis-à-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. This 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
GOIs 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 3D 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 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 and 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 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. They 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 valorem 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 cumulatively. 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 the respondents that in
January, 1994 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 appellants
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 $ 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 Panna 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
alone would cause a loss to the GOI to the tune of Rs.3,000
crores. They contend 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 is purely a figment of imagination. The
GOI specifically denies the 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 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 in the 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 that 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
General 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
unreasonable 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 nations interest in entering into the
impugned contract. The appellants also rely 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 intentiion 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 v. 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 v. 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 favouritism. 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 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 courts
ability to quash an administrative decision on its 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
itself. 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 subect 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 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 considered 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
the conclusion that awarding of the contract to respondents
4 and 5 was influenced 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; none 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 Branch 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
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 respond 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 unauthorisedly 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 very often relied on this
Organisation for assistance by conducting special
investigations. This reliance of the courts on the CBI is
based on the confidence that 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 for
in the appeal, cannot be granted.

For the reasons stated above, the appeal fails and the
same is hereby dismissed.

J. (S P Bharucha)


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