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TMI Blog2016 (10) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... dertakings (for short "PSUs"). 2. Mr. C.S. Sundaram, learned senior counsel for the petitioners stated that exploration, development and production of crude oil is a highly capital extensive operation. He stated that petitioner nos. 1 and 3 have invested more than rupees thirty thousand crores in the Rajasthan Block and have brought world class technology to India. 3. He stated that today, at the current level of production, approximately sixty to seventy per cent of the price realized from the Rajasthan Block Crude Oil production flows back to the public exchequer in the form of profit petroleum, inter alia through share of Government's nominee, royalty (paid to the State Government) and cess. He pointed out that every additional US$ 1 per barrel of Rajasthan Block Crude Oil realized would fetch the public exchequer an additional US$ 41 million / Rs. 258 crores (Rs. 63/US$) on account of the Government's share of profit petroleum, share of its nominee, royalty and cess. 4. Mr. Sundaram contended that the Foreign Trade Policy of Government of India permits canalized export of crude oil through respondent no. 3 or direct export with the approval of respondent no.1. He sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India as it deals with natural resources of the country. He submitted that this Court should not interpret the contract in exercise of writ jurisdiction. 10. He also submitted that the grievance raised by the petitioners in the present case qualifies as a dispute under the PSC which is arbitrable and hence, the present writ petition is not maintainable. 11. Mr. Mehta submitted that under Article 18 of PSC, a right is conferred upon the petitioner to seek permission to export the oil produced from the subject block only when self-sufficiency is attained by the country; meaning thereby that the total consumption of oil within India is either at par or less than the total production of oil and gas within India. According to him, Article 18.4 provides for deemed election in case of failure by Government to exercise this option for a particular year and it makes it obligatory for the Government to take and pay for the Crude Oil and Condensate in respect of which it has or is deemed to have elected to exercise its option to purchase. He stated that in the present case even if the petitioners' version is believed, then also the petitioners can only claim compensation. 12. In any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffected in light of the following facts:- (i) The domestic oil exported overseas would have to be replaced by more-expensive imported lighter crude oil, which would be detrimental to consumer interest. Allowing crude oil exports would lower the domestic supply available to meet demand. It would also reduce India's energy security by increasing its dependence on foreign oil, which is still vulnerable to frequent supply disruptions which may occur for a variety of reasons, including conflicts, natural disasters as well as technical difficulties. Hence, only Government should be allowed to make exemptions to the crude oil export ban if it is in the national interest. (ii) Declining trends have been reported in domestic oil and gas production which would further be accentuated if the export of very scarce petroleum mineral viz. crude oil is permitted and would be deterimental to Indian economy as an additional cost burden on account of two-side shipping tariff without any explicit monetary advantage to Indian economy in the immediate run. (iii) Permitting export of domestic crude would certainly compel the Indian refineries to operate by importing additional equivalent quantity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from domestic private refineries as compared to the international market. He stated that operator is getting international price for its crude oil from both PSU and PVT buyer which is agreed amongst them at arm's length. 22. Mr. Tushar Mehta stated that the foreign trade policy is a policy document containing broad policy outlines of the Central Government to give effect to the Foreign Trade (Development and Regulation) Act, 1992 [for short "Act, 1992"]. He submitted that Section 3(2) of the Act, 1992 empowers the Central Government to make provisions for either prohibiting, restricting or otherwise regulating particular export/import. According to him, in exercise of the powers conferred upon the Central Government, the export of "crude oil" is provided in category of State Trading Enterprises (for short "STE"), and thus, is not freely exportable. 23. According to him, Chapter 27 merely means that if the Union Government permits export of crude oil, it can only be through "STE". 24. He stated that in the present case the application of the petitioners to permit export of crude oil was considered by the DGFT after taking assistance and advice of EXIM Facilitation Committee u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant rules, regulations and policies. He also submitted that respondent nos. 1 and 3 cannot shirk their statutory functions and are bound to permit the petitioners to export the Rajasthan Block Crude Oil not lifted by the Government or its nominee PSUs. He also stated that the purpose of looking into the PSC is only to satisfy that equities are not violated or do not come in the way of granting legal reliefs to the petitioners. 29. He reiterated that in terms of Articles 18.1 of the PSC, petitioner nos. 1 and 3 are required to sell to the Government or its nominees their total share of the Rajasthan Block Crude Oil. According to him, on the Government failing to directly or through its nominees lift its share of the Rajasthan Block Crude Oil, Article 18.7 provides that Petitioner Nos. 1 and 3 shall be entitled to freely lift, sell and export any Crude Oil and Condensate which the Government has elected not to purchase. 30. Learned senior counsel for the petitioners contended that export of crude oil is neither prohibited nor restricted. He stated that in terms of the Foreign Trade Policy read with the ITC (HS), there is no other regulation on the export of crude oil excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012, (2012) 10 SCC 1. 35. Mr. Sundaram contended that there is no other way to discover the international price of the Rajasthan Block Crude Oil other than to export it. He stated that the private refineries which are permitted to export the refined products should not be permitted to purchase the Rajasthan Block Crude Oil at 20-25% discount from Brent Crude price inasmuch as Government also loses revenue. 36. Having heard the parties at length and having perused the paper book this Court is of the view that the present writ petition is maintainable as a writ court is empowered to entertain a writ petition even in contractual matters when the contract has been executed in pursuance to a constitutional provision and the issues involved are alleged to have a public law character. Also relief has been sought against respondents no.2 and 3, who are not parties to the PSC. 37. This Court is of the view that it is essential to analyse paragraph 2.20 and Chapter 27 of the Foreign Trade Policy 2015-2020. The said paragraph and Chapter are reproduced hereinbelow:- "Import/Export Through State Trading Enterprise: 2.20 State Trading Enterprises (STEs) (a) State Trading Enterprise (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign Trade Policy is a broad policy document providing for regime of import/export of items and cannot be read as a statute for seeking a mandamus solely based upon it, if otherwise the decision of the STE Union of India is not arbitrary. 40. The other option to a party wanting to export crude oil is to apply under para 2.20(c) for an authorisation from DGFT and if so authorised, then to export it directly. 41. In the present case, the DGFT when approached by the petitioners in view of Clause 18 of PSC, sought a 'No Objection' from the Government of India, who in turn took a considered decision in the meeting of Empowered Committee of Secretaries dated 27th January, 2016 to reject the petitioners' request for export of crude oil. The said Committee consisting of the Law Secretary, Secretary, Petroleum and National Gas and Joint Secretary, Ministry of Finance opined as under:- "1. As per the directions of Delhi High Court dated 19th January, 2016, the request of Cairn India Limited for export of crude oil from block RJ-ON-90/1 along with the orders of the Court dated 14th December, 2015 and 19th January, 2016 was placed before the Empowered Committee of Secretaries. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipeline for transporting the crude oil from the Contract Area to Salaya at Gujarat coast. The proposal of the Operator was approved by the Government. The Operator laid the pipeline and recovered the cost of the pipeline as part of the Contract Costs. 7. The Operator again approached the Government to permit it to sell the oil to private refineries in India, as the PSU refineries with their technical constraints could not lift the entire crude oil. Government has also allowed sale of crude oil to private refineries in India of the quantity not lifted by the sale of crude oil to private refineries in India of the quantity not lifted by the PSU refineries. Accordingly, the Operator has been selling the entire crude oil produced from the Contract Area to either the PSUs or the private refineries. 8. As per Article 18.7 of PSC, read with Article 18.1 the Contractor is to sell the crude oil produced from the Contract Area awarded to them under the PSC, within the country when the country is not self sufficient and may export the crude oil only when the country becomes self sufficient. Article permits the Operator to freely sell (within the country) or export as the case may be, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that Sub-clause (c) to Clause 2.20 is an exception to sub-clause (a) and grants respondent no. 1 the power to authorize any person other than the designated STE to import or export any of the goods notified for exclusive trading through such STE, then also the issue that arises is whether STE is bound to export crude oil at any third party's request dehors the embargo contained in the contract executed between the third party and the government. 44. Articles 1.63, 18 and 27.1 of the PSC which deal with domestic supply, sale disposal and export of crude oil and condensate are reproduced hereinbelow:- "ARTICLE 1 - DEFINITION xxxx xxxx xxxx xxxx 1.63 "Self-sufficiency" means, in relation to any Year, that the volume of Crude Oil and Crude Oil equivalent of Petroleum products exported from India during that Year either equals or exceeds the volume of Crude Oil and Crude Oil equivalent of Petroleum products imported into India during the same Year. xxxx xxxx xxxx xxxx ARTICLE 18- DOMESTIC SUPPLY, SALE DISPOSAL AND EXPORT OF CRUDE OIL AND CONDENSATE 18.1 Until such time as India attains self-sufficiency, the Contractor shall be required to sell to the government or it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tituting the Contractor shall submit invoices on or after the first and fifteenth days of each Calendar Month (or at such other intervals as may be agreed with the Government) for deliveries made to the Government of Crude Oil or Condensate. In the case of sales by a Foreign Company, payments shall be made in United States Dollars or at the request of the Foreign Company in any other convertible currency acceptable to the Government and the Foreign Company, by wire transfer to the credit of the Foreign Company's designated account with a bank within or outside India designated by the Foreign Company. All amounts unpaid by the Government by the due date shall, from the due date, bear interest calculated on a day to day basis at LIBOR plus two (2) percentage points from the date due until paid. 18.6 If full payment is not received by a Party constituting the Contractor when due as provided in Article 18.5, such Party may at any time thereafter, notify the Government of the default and unless such default is remedied within fifteen (15) days from the date of the said notice, the Contractor shall have the right, upon giving written notice to the Government: a) to suspend the Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that it estimates will be produced from each Reservoir within that Development Area during the succeeding Year, based on a maximum efficient rate of recovery in accordance with good petroleum industry practice. No later than thirty (30) days prior to the commencement of each Quarter, the Contractor shall advise its revised estimate of production for the succeeding Quarter. 18.9 Each Party constituting the Contractor shall, throughout the term of this Contract, have the right to separately take in kind and dispose of all its share of Cost Oil and Profit Oil and shall have the obligation to lift the said Cost Oil and Profit Oil on a current basis and in such quantities so as not to cause a restriction of production or inconvenience to the other Parties, and shall compensate the other Parties for any lose or production or additional flaring or any other losses caused by failure to do so, subject to Article 31. 18.10 The Government shall, throughout the term of this Contract, take in kind its share of Profit Oil and of such portion of the company's share of crude oil and condensate as is required to be purchased by the Government pursuant to Article 18 [notwithstanding any n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not exercise its option to lift the petitioners entire Participating Interest share of Crude Oil and condensate, the petitioners have a right to seek compensation. In the present case, in absence of any notice of India attaining self-sufficiency, the petitioners can only claim compensation under Article 18.10 read with 18.11 from the respondent no.2, under the dispute resolution mechanism provided under Article 33 of the PSC. 47. It is pertinent to mention that the petitioners vide letter dated 14th August, 2013 had itself requested the Government to permit swapping of crude oil in International market as it agreed and admitted the true position of interpretation of PSC as understood by the parties in the following terms:- "With the commissioning of offshore loading terminal, we will be able to load aframax class vessels [600,000 bbls capacity] and effectively gain significant access to international market. Since export of crude oil is not in-line with the PSC, it is only feasible to swap RJ-ON-90/1 crude with other crudes in the international market, and provide them to Indian PSU refineries. This will facilitate optimal value realization of RJ-ON-90/1 crude while ensuring pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bbls/day by each of the refineries viz. Essar and Reliance. The Salaya terminal (AGI 33) on Mangala Development Pipeline is located at a distance of 4 km from refinery gate of Essar. A new Intermediate delivery station (AGI 32A) on Mangala Development Pipeline is proposed and is located about 10 Km from Reliance Tank farm. At Salaya, intermediate pigging station and heating facilities have been planned. It has been reported by the Operator that in case the Government approves sales to other than PSU Refineries, the cost estimates for creating delivery facilities would be in the range of US$ 40 MM to 80 MM." 51. After a detailed discussion in which various options were discussed, the ECS only allowed the petitioners' request to sell the quantities over and above what had been allocated to Government nominees and PSU refineries, to any domestic private refinery. The relevant portion of the decision of the Empowered Committee dated 17th August, 2009 is reproduced hereinbelow:- "6.5 After detailed deliberations, ECS recommended the following proposals for consideration and approval of Minster (P&NG): (i) To ascertain from the private sector refineries on the additional ..... X X X X Extracts X X X X X X X X Extracts X X X X
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