Why Delhi HC junked Vedanta’s challenge to ONGC taking over oil block contract in Gujarat’s Suvali

HC said private companies cannot act as ‘judge, jury, and executioner’ by unilaterally withholding govt’s share of petroleum profits to offset own tax liabilities.

A man walks past the logo of Vedanta outside its headquarters in Mumbai | Reuters/Danish Siddiqui

New Delhi: Reinforcing the State’s role as supreme custodian of natural resources, the Delhi High Court Wednesday dismissed mining and metals company Vedanta Limited’s challenge against the Centre’s refusal to extend its contract for an offshore oil and gas block in Gujarat.

Justice Purushaindra Kumar Kaurav ruled that private corporations cannot act as “judge, jury, and executioner” by unilaterally withholding the government’s share of petroleum profits to offset their own tax liabilities. The legal battle centered on the CB/OS-2 Block, an offshore tract in Suvali, which contains the significant Lakshmi and Gauri gas fields.

Originally awarded to Vedanta in 1998 for a 25-year term, the Production Sharing Contract (PSC) was set to expire in June 2023. Vedanta, acting as the operator, applied for a 10-year extension under the government’s 2017 Extension Policy. However, the Ministry of Petroleum and Natural Gas (MoPNG) rejected the application in September 2025, ordering the Oil and Natural Gas Corporation (ONGC) to take over the assets immediately.

The government’s rejection was prompted by what the court termed an “offending action” regarding the Special Additional Excise Duty (SAED). In 2022, the government imposed SAED on domestic crude production to curb windfall gains from high international prices.

Vedanta argued that under Article 16.7 of the PSC, it was entitled to protection from “material changes” in Indian law that impacted its economic benefits.

Without waiting for a judicial or arbitral determination, Vedanta “unilaterally deducted approximately $9.33 million (Rs 88 crore)” from the government’s share of ‘Profit Petroleum’ to compensate for its SAED payments.

The court noted that the government repeatedly warned Vedanta that this deduction was a “serious breach” of contract and caused “huge financial losses to the Central Exchequer”.

Vedanta eventually remitted the deducted amount just seven days before the government issued its final rejection letter, but the court found what it described as a “dry-cleaning” act insufficient to cure the prior misconduct.

Arguments before the court

Justice Kaurav reserved his judgment on 18 May and pronounced it Wednesday, detailing how both sides argued before the court on the contours of policy vs trust.

Vedanta argued that the rejection was arbitrary and ignored the fact that the company had eventually paid the disputed dues. It contended that the 2017 Extension Policy created a “legitimate expectation” of renewal, especially after the government granted five interim extensions while the application was pending.

The Attorney General for India, R. Venkataramani, representing the Centre, countered that Vedanta had no “indefeasible or vested right” to an extension. He argued that the government’s decision was rooted in ‘Public Trust Doctrine’, which mandates that the State protect natural resources for the collective benefit of the people rather than private gain.

Justice Purushaindra Kumar Kaurav focused on the unique nature of petroleum contracts. He held that PSCs are not “ordinary commercial engagements” because they involve assets that constitutionally “vest” in the Union for the people of India. Plus, the court ruled that the 2017 Extension Policy must be interpreted through the lens of the ‘Public Trust Doctrine’.

The judgment clarified that while the government must follow a “transparent and defined framework”, it retains a “reservoir of inherent powers” under Clause 9(b) of the policy to reject an application without being limited to technical or efficiency parameters.

The court’s final verdict

The court found that Vedanta’s actions were “not bona fide” and warned that allowing such high-handed conduct would hold the government “ransom to the whims of a private company”. The judgment concluded that Vedanta’s eleventh-hour payment was insufficient to “dry-clean” its prior misconduct.

The court noted that the government is legally permitted to consider an applicant’s conduct that occurs after the initial application is filed. Unilaterally reducing the government’s share of natural resource wealth is a valid and “justifiable” ground for denying a contract extension.

The petition was dismissed in its entirety, solidifying the government’s order for ONGC to take control of the Lakshmi and Gauri gas fields.

(Edited by Sugita Katyal)