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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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)