Holding

The decision of ONGC and the Government, taken after due deliberation and in good faith, is not liable to be set aside; courts will not interfere in commercial decisions absent a clear violation of law.

Summary

Arun Kumar Agrawal filed a public‑interest writ petition under Article 32 challenging the Government of India's approval for the sale of a majority stake in Cairn India Limited (CIL) to Vedanta and seeking a direction that ONGC exercise its right of first refusal (RoFR). The petition also sought a CBI investigation and reliance on a CAG report alleging loss to the exchequer. The Court held that ONGC’s decision not to exercise its RoFR was taken after detailed deliberations, was bona‑fide, and in the public interest; it was not perverse, mala‑fide or based on extraneous considerations. The Court emphasized that courts cannot interfere with complex commercial decisions of the State unless there is a clear statutory violation. The CAG report was held to be subject to parliamentary scrutiny and not a basis for judicial relief. Consequently, the writ petition was dismissed.

Issues considered

The Court may interfere with the Government/ONGC decision not to exercise RoFR and approve the Cairn‑Vedanta transaction under Article 32.
Whether the decision violates any statutory provision, is mala‑fide, or based on extraneous considerations.
Whether the CAG report can be the foundation for granting relief.
Whether the extension of the exploration period under the Production Sharing Contract is lawful.
The petitioner's claim of loss to the exchequer and the request for CBI investigation.

Legislation cited

Subjects

public interest litigationright of first refusalONGCCairn IndiaVedantacommercial decisionjudicial reviewCAG reportProduction Sharing ContractroyaltycessArticle 32constitutional law

Judgment

{2013] 3 S.C.R. 508

A ARUN KUMAR AGRAWAL
v.
UNION OF INDIA & OTHERS
(Writ Petition (Civil) No. 69 of 2012)
MAY 09, 2013
B
[K.S. RADHAKRISHNAN AND DIPAK MISRA, JJ.]

CONSTITUTION OF /NOIA, 1950:

c Art. 32 - Writ petition challenging approval granted by
Government of India for acquisition of majority stake in GIL
and for a direction to ONGC to exercise its right of pre-
emption over sale of shares of GIL - Held: The decision taken
by ONGC not to exercise its RoFR was taken after elaborate
and due deliberations - ONGC and Government of India have
0
considered various commercial and technical aspects flowing
from PSC and also its advantages that ONGC would derive
if the Cairn and Vedanta deal was approved - Court cannot
sit in judgment over the commercial or business decision
taken by parties to the agreement after evaluating and
E assessing its monetary and financial implications, unless the
decision is in clear violation of any statutory provisions or
perverse or for extraneous considerations or improper motives
-On facts, as well as on law, ONGC and Government of India
have taken a prudent commercial and economic decision in
F public interest - It cannot be said that the decision is ma/a fide
or actuated by any extraneous or irrelevant considerations or
improper motive - Public interest litigation.
Arts. 298 and 299 - Power of Union or States to carry on
G trade and to enter into contracts - Held: State and its
instrumentalities can enter into various contracts which may
involve complex economic factors - State or State
undertaking being a party to a contract, have to make various
decisions which they deem just and proper - There is always
H 508
ARUN KUM/\R AGRAWAL v. UNION OF INDIA & 509
OTHERS
an element of risk in such decisions - But if the decision is A
taken bona fide and in public interest, the mere fact that
decisiot.• has ultimately proved to be a wrong one, that itself
is not a ground to hold that the decision was ma/a fide or taken
with uilterior motives.
B
Art. 151 - Reporls of Comptroller and Auditor General of
India - Status of - Explained - In the instant case, it is factually
and le9ally incorrect to suggest that any exploration carried
out beyond the stated date was beyond the provision of PSC
- CAG·'s views on that aspect cannot be accepted -
Comptroller and Auditor General's (Duties, Powers and C
Conditions of Service) Act, 1971 - ss. 10, 13 and 16.

PUBLIC INTEREST LIT/GA TION:

Writ petition - Held: In the instant case, writ petition was ·o
filed without appreciating or understanding the scope of the
decision or the decision making process concerning
economic and commercial matters which gives liberly to State
and its instrumentalities to take appropriate decision after
weighin,g advantages and disadvantages of the same - E
Constitw'ion of India, 1950 - Arl.32.

In the instant petition filed in public interest, the
petitionier challenged the approval granted by the
Government of India on 24.1.2012 for acquisition of
majority st:ake in Cairn India Limited (CIL) and for a F
direction te> Oil and Natural Gas Corporation of India
(ONGC) to exercise its right of pre-emption over of shares
of CIL oni the same terms without causing any loss or
profit to Cairn Energy as also for a direction to CBI · to
investigate the reasons for ONGC in not exercising its G
rights unide.r Right of First Refusal (RoFR) and giving
clearanc·e tu CAIRN-Vedanta Deal on the basis of the
existing right to share the royalty and cess on pro-rata
basis. It was contended for the appellant that, but for the
decisio1n, the State Exchequer would have benefited to H
510 SUPREME COURT REPORTS [2013] 3 S.C.R.

A the tune of Rs.1,00,000 crores. It was also contended that
the Government has unlawfully granted extension to CIL
for carrying out exploration activities beyond the period
framed by Rajasthan Block Production Sharing Contract
(PSC), which was commented upon by the Comptroller
B and Auditor General of India (CAG).

Dismissing the writ petition, the Court

HELD: 1. State and its instrumentalities can enter into
various contracts which may involve complex economic
C factors. State or the State undertaking being a party to a
contract, have to make various decisions which they
deem just and proper. If the decision is taken bona fide
and in public interest, the mere fact that decision has
ultimately proved to be a wrong, that itself is not a ground
D to hold that the decision was mala fide or done with
ulterior motives. [Para 38] [535-G-H; 536-A-B]

State of M.P. and Others v. Nandlal Jaiswal and others
1987 (1) SCR 1 =(1986) 4 SCC 566; Life Insurance
E Corporation of India v. Escorts Ltd. and Others 1985 (3)
=
Suppl. SCR 909 (1986) 1 sec 264; Liberty Oil Mills and
Others v. Union of India and Others 1984 (3) SCR 676 =
(1984) 3 SCC 465; Villianur lyarkkai Padukappu Maiyam v.
Union of India 2009 (9) SCR 225 = (2009) 7 SCC 561; Bajaj
F Hindustan Limited v. Sir Shadi Lal Enterprises Limited And
Another 2010 (15) SCR 156 = (2011) 1 SCC 640; Bhavesh
D. Parish and Others v. Union of India and Another (2005) 5
SCC 471; and Centre for Public Interest Litigation and
Another v. Union of India and Others (2000) 8 SCC 606 -
referred to.
G
Morey vs. Dond 354 US 457; and Metropolis Theatre
Co. v. State of Chicago 57 L Ed 730 referred to.

2.1. ONGC had pre-emptive rights in relation to
H participating interest of Cairn and/or its affiliates. Under the
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 511
OTHERS
various agreements with the Government of India and ONGC A
and Cairn and/or its affiliates consent of ONGCwas required
besides other governmental approval to consummate the
proposed transaction. [para 34] [533-G-H]

2.2. The question 'JVhether the CEIL, the operator of
8
the block, has to include Royalty "as recoverable cost"
and whether it is commercially viable for the ONGC to
exercise its RoFR were elaborately considered by the
ONGC Board in its meetings held on 29.1.2011 and
27.9.2011. The Board after due deliberations and
considering the offered right at Rs.4Q5/- per share vis-a- C
vis the internal assessed value of Rs.290/- per share,
noticed that acquisition stake offered by Vedanta Cairn
for the proposed transaction of sale of shares of CEIL
was much above the ONGC evaluated value of the
proposed transaction, and, therefore, it was not advisable D
for the ONGC to acquire shares. Further, there was an
ongoing issue/dispute relating to cost recovery of
Royalty being paid by ONGC for the entire crude oil
producing field - RJ-OA-90/1 block, pursuant to provisions
of accounting procedure of PSC. There was also a E
dispute between CEIL and CEHL and ONGC as to the
liability of cess under the PSC for the Rajasthan Block.
CEIL and CEHL had initiated arbitration proceedings in
respect of the same. It was noticed that a large sum,
running into several million US $ would have been F
payable by ONGC had CEIL and CEHL were successful
in the arbitration. [para 35] [534-B-F]

2.3. Due to the various agreements/decisions taken
by the Union of India and ONGC, the arbitration against G
Union of India and ONGC in relation to the cess was
withdrawn since the Government of India and ONGC had
accorded their consent for the deal with Cairn and
Vedanta. Further, CEIL and its affiliates had also agreed
to treat royalty paid as cost recoverable by ONGC as
H
512 SUPREME COURT REPORTS [2013] 3 S.C.R.

A contract costs. ONGC had already derived financial
benefit to the tune of US $970,881,838 towards royalty
paid by it till June 2012 and would continue to derive
similar benefits during the currency of the contract i.e.
upto 2020. [para 35] [534-F-G]
B
2.4. The decision taken by the ONGC not to exercise
its RoFR was taken after an elaborate and due
deliberations. The report of SBI Caps, after making a
detailed financial analysis also supported the decision
taken by the ONGC. The decision to grant no objection
C to the transfer of shares of CEIL from Cairn to Vedanta
was also on the basis that the proposed share price of
share at Rs.355 per share, was well in excess of its
intrinsic value as was evaluated by SBI Caps. SBI Caps
report evaluated each share of CEIL at Rs.291 with the
D highest production profile under normal circumstances.
It was concluded that even considering various other
scenario makes possible value at Rs.331 per share. [para
36] [534-H; 535-A-C]

E 2.5. The Union of India also endorsed the decision
taken by the ONGC after due deliberations. The matter
was finally placed before the Cabinet Committee of
Economic Affairs, which placed the matter before the
Group of Ministers and the latter, on 27 .5.2011 granted its
F approval, based on certain conditions. The same was
conveyed to the parties and the Vedanta Resources
conveyed its acceptance to the conditions imposed by
CCEA. Cairn also indicated to ONGC that CEIL Board
had also accepted the conditions imposed upon it and
G that the cess arbitration, which had been initiated by
Cairn against ONGC was also withdrawn. [para 37] [535-
C-E]

2.6. The ONGC and the Government of India have
considered various commercial and technical aspects
H flowing from the PSC and also its advantages that ONGC
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 513
OTHERS
would derive if the Cairn and Vedanta deal was A
approved. This Court sitting in the jurisdiction cannot sit
in judgment over the commercial or business decision
taken by parties to the agreement after evaluating and
assessing its monetary and financial implications, unless
the decision is in clear violation of any statutory B
provisions or perverse or for extraneous considerations
or improper motives. [para 38] [535-E-G]

2.7. Consequent to the agreement dated 30.11.2011,
ONGC received. Rs.5000 crores approximately towards C
CEIL and CEHL's share of royalty for the period from
·29.8.2009 to 30.7.2012 besides CAIRN and Vedanta
agreeing to pay their share of royalty and cess in future
involving huge financial implications. [para 41] [539-F-G]

2.8. ONGC in its wisdom decided not to acquire any D-
shares of CEIL at a high premium of Rs.335 per share
plus Rs.SO per share as not to compete fee, which would
have come to ONGC at a hefty cost of 4.44 billion US $
about Rs.6,20,600 crores rupees, i.e. even if ONGC had
exercised its RoFR it would be a 30% share holder of E
CEIL and the control of CEIL would have, in any event,
remained with Cairn and Vedanta which would have then
altogether 50% in CEIL, thus, with the acquisition of 30%
shares in CEIL, Rajasthan Block would remain
unchanged and, as such, ONGC could not have got any F
increase in shares in the profits much-less any increase
in profits by 40%. [para 42] [539-G-H; 540-A-B]

2.9. This Court is of the view that on facts, as well
as on law, ONGC and the Government of India have taken
a prudent commercial and economic decision in public G
interest. It cannot be said that the decision is mala fide
or actuated by any extraneous or irrelevant
considerations or improper motive. [para 43] [540-C]

H
514 SUPREME COURT REPORTS [2013] 3 S.C.R.

A 3.1. The CAG's report is always subject to
parliamentary debates and it is possible that PAC can
accept the ministry's objection to the CAG report or reject
the report of the CAG. The CAG, indisputably is an
independent constitutional functionary, however, it is for
B Parliament to decide whether after receiving the report i.e.
PAC to make its comments on the CAG's report.
However, it may be pointed out that since the report is
from a constitutional functionary, it commands respect
and cannot be brushed aside as such, but it is equally
c important to examine the comments what respective
ministries have to offer on the CAG's report. The ministry
can always point out, if there is any mistake in the CAG's
report or the CAG has inappropriately appreciated the
various issues. [para 55-56) [545-G-H; 546-A-B]
D 3.2. In the instant case, Article 2.6 of PSC permits
extension of the exploration period for three years from
the end of the seven year period prescribed in Article 2.2.
The period extended in pursuance to Article 2.6 expired
on 14.5.2005. The CAG has assumed that any exploration
E carried out beyond the period was beyond the provision
of PSC. Article 2.6 specifically contemplates extension
of the exploration phase pursuant to the terms of the PSC.
The last part of Article 2.6 to Article 2.9, however, permits
further extension of the exploration period for a period
F of 30 months, therefore, it is factually and legally incorrect
to suggest that any exploration carried out beyond
14.5.2005 was beyond the provision of PSC. CAG's views
on that aspect cannot be accepted. [para 57] [546-C-E]

G Commentary on the Constitution of India (8th Edn. 2009
p. 6058) by Durga Das Basu; and Practice of Public
Accounts Committee (in the website of Lok Sabaha -
referred to.

4. The writ petition was filed without appreciating or
H understanding the scope of the decision or the decision
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 515
OTHERS
making process concerning economic and commercial A
matters which gives liberty to States and its
instrumentalities to take appropriate decision after
weighing advantages and disadvantages of the same and
this Court sitting in this jurisdiction, is not justified in
interfering with those decisions, especially when there is B
nothing to show that those decisions are contrary to law
or actuated by mala fide or irrelevant considerations.
[para 58] [546-E-G]

M.C. Mehta v. .Kamal Nath & Others 1996 (10) Suppl.
SCR 12 = (1997) 1 SCC 388; Meerut Development Authority C
v. Association of Management Studies and Another 2009 (6)
SCR 663 = (2009) 6 SCC 171; Centre for Public Interest
Litigation and Othe1s v. Union of India and Others 2012 (3)
SCR 147= (2012) 3 SCC 1; Ba/co Employers' Union (Regd.)
v. Union of India and Others 2001 (5) Suppl. SCR 511 = D
(2002) 2 SCC 333; Bajaj Hindustan Limited v. Sir Shadi Lal
Enterprises Ltd. and Another 2010 (15) SCR 156 = (2011) 1
SCC 640 and Life Insurance Corporation of India v. Escorts
Limited and Others 1985 (~)Suppl. SCR 909 = (1986) 1 SCC
264; Vodafone International Holdings v. Union of India 2012 E
(1) SCR 573 = (2012) 6 sec 613 - cited.
Case Law Reference:
1996 (10) Suppl. SCR 12 cited para 23
F
2009 (6) SCR 663 cited para 23
2012 (3) SCR 147 cited para 23
2001 (5) Suppl. SCR 511 cited para 26
2010 (15) SCR 156 cited para 26 G

1985 (3) Suppl. SCR 909 cited para 26
2012 (1) SCR 573 cited para 29
1987 (1) SCR 1 referred to para 39 H
516 SUPREME COURT REPORTS [2013] 3 S.C.R.

A 354 us 457 referred to para 39
57 L Ed 730 referred to para 39
1985 (3) Suppl. SCR 909 referred to para 39

1984 (3) SCR 676 referred to para 39
B
2009 (9) SCR 225 referred to para 39

2010 (15) SCR 156 referred to para 39

(2005) 5 sec 471 referred to para 39
c 2000 (8) sec 606 referred to para 39
CIVIL ORIGINAL JURISDICTION : Writ Petition (Civil) No.
69 of 2012.
Under Article 32 of the Constitution of India.
D
Prashant Bhushan, Pranav Sachdeva for the Petitioner.
Siddharth Luthra, ASG, Harish Salve, Mukul Rohatgi, B.K.
Prasad, Rohit Sharma, Supriya Juneja, Pranay Agarwala,
Anuradha Dutt, Ekta Kapil, Anish Kapur, Mehak Khanna,
E Vijayalakshmi Menon, R.R. Sasiprabhu, Rajat Nair, Somiran
Sharma, Pradeep Mishra, Ritin Rai, Niti Dixit, Samiksha
Godiyal, E.C. Agrawala for the Respondents.
The Judgment of the Court was delivered by
F K.S. RADHAKRISHNAN, J. 1. Petitioner, through this
Public Interest Litigation, has challenged the approval granted
by the Government of India dated 24.1.2012 for the acquisition
of majority stake in Cairn India Limited (CIL) for US $8.48
billion and also for a direction to the Oil and Natural Gas
G Corporation of India (ONGC) to exercise its right of pre-emption
over sale of shares of CIL on the same terms without causing
any loss or profit to the Cairn Energy, and also for a direction
to CBI to investigate the reasons for ONGC, a Government of
India Undertaking, in not exercising their legal rights under the
H Right of First Refusal (RoFR) and giving clearance to the CAIRN
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 517
OTHERS [K.S. RADHAKRISHNAN, J.]

- Vedanta Deal on the basis of the existing right to share the A
royalty and cess on pro-rata basis and also for the
consequential reliefs.

FACTS

2. Government of India had, earlier, retained the exclusive B
privilege for mining of hydrocarbons, which was carried out on
nomination basis through the statutory corporations like ONGC.
The need for maximising domestic exploration of production of
oil led to the Government of India encouraging private sector
participation in the exploration of oil and natural gas from the C
year 1980. Rajasthan Block (RJ-ON-90/1) was one of the Pre-
New Energy Licensing Policy (Pre-NELP) exploration block
offered by a Competitive Building Mechanism. The said block
was offered in the 4th round of Pre-NELP regime to M/s. Shell
India in execution of a Production Sharing Contract (PSC) on D
15.5.1995. Since the exploration licence for Rajasthan Block
was held by ONGC, the PSC had three parties, (a) Government
of India, (b) the bidder, M/s. Shell India Production Development
BV (Shell) and (c) the licensee ONGC. PSC was entered into
for the exploration and exploitation of crude oil and natural gas. E
As per the PSC, ONGC is holding 30% of the participating
interest (Pl) in the development or Within the contract area since
13.1.2005.

3. Shell failed to make any commercial discovery even after
investing US$ 9 million and was contemplating to part with its F
interest in the PSC. Consequently, Cairn Energy India Pvt. Ltd.
(CEIL) acquired 27.5% of Shell's interest under the contract
with effect from 27 .1.1999 and a further 22.5% with effect from
20.12.1999. Cairn Energy Hydrocarbons Ltd. (CEHL) acquired
Shell's remaining 50% interest under the contract with effect G
from 23.6.2003. CEIL and CEHL, subsidiary companies of
CAIRN, have accordingly succeeded Shell as parties to the
aforementioned contract and together became the holder of the
70% of the Pl.
H
518 SUPREME COURT REPORTS [2013] 3 S.C.R.

A 4. CIL is a company incorporated under the laws of India
and listed on the Bombay Stock Exchange and the National
Stock Exchange. CAIRN Energy PLC UK (CAIRN) is
incorporated under the laws of UK, listed on London Stock
Exchange and is a majority shareholder in CIL having 62.4%
B equity stake in it through its wholly owned subsidiary, CAIRN
UK Holdings Limited. Upon its acquisition of 50%, Shell's
interest under the contract, CEIL became the operator under
the operating agreement with effect from 1.1.2000.

C 5. CIL and its subsidiary have interests in the seven
exploratory blocks (out of which Block VN-ONN-2003/1 has
already been relinquished) and three producing fields in India
and another exploration block in Sri Lanka as per the following
details:

D 70% Participating Interest (Pl) & operatorship in
producing Development Areas of RJ-ON-90/1
(ONGC 30%),

22.50% Pl in producing Ravva Field &
Operatorship (ONGC 40%),
E
40% IP & Operatorship in producing fields of CB-
OS/2 Block & (ONGC 50%); and

Pl in eight other Blocks in India and Sri Lanka
F where there is currently no production; out of these
ONGC has Pl in 5 Blocks.

6. CAIRN, vide its letter dated 16.8.2010, informed ONGC
that it had announced disposal of its substantial shareholding
in CIL to Vedanta. ONGC had a Pl in number of blocks/fields
G where CAIRN is operating through CIL (and/or its affiliates) and
it was felt that the proposed transaction might have implications
on operations of these blocks/fields. ONGC was of the view
that its, inter alia, pre-emptive rights in relation to Pl of CAIRN
and/or its affiliates under the various agreements with the
H
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 519
OTHERS [K.S. RADHAKRISHNAN, J.]
' Government of India and ONGC, and that CAIRN and/or its A
affiliates required consent of ONGC besides other
governmental approvals, to consummate the proposed
transaction. ONGC, later, by its letter dated 30.8.2010,
requested CAIRN to provide full details of the proposed
transaction along with copies of the agreements and otlier B
arrangements entered into between CAIRN and/or its affiliates
and the proposed buyer and/or its affiliates. CAIRN on
10.9.201 O provided the details of the proposed transaction to
ONGC, the operative portion of which reads as follows:

" .. the Transaction is a sale of shares in Cairn India C
Limited, rather than an assignment of any Participating
Interest under the various Production Sharing Contracts
(PSCs) and Joint Operating Agreements ·(JOAs). We
believe that the various pre-emption rights under each of
the JOAs only apply when there is an assignment, by a party D
to that PSC, of part or all of that party's Participating
Interest.

However, in this case, as the contract with Vedanta
Resources Pie is at shareholder level of Cairn India E
involving sale of shares - there is no change to the
Participating Interest in any of the PSCs to which the Cairn
India Group is party. Consequently, under the terms of the
relevant PSCs and JOAs, no pre-emptive right or
requirement for ONGC consent, as claimed in the Letter, F
is triggered by the Transaction".

Consequently, CAIRN took up the stand that various pre-
emption rights under each of JOA will apply only when there is
an assignment, by a party to a PSC, of its Pl in part or full.
According to CAIRN, under the proposed tra'lsaction, there will G
be no change to the Pl in any of the PSCs to which CIL groups
is party and, consequently, under the terms of the relevant PSCs
and JOAs, no pre-emptive right or requirement for ONGC's
consent would be triggered by the transaction, as claimed by
ONGC. H
520 SUPREME COURT REPORTS [2013] 3 S.C.R.

A 7. ONGC again wrote a letter dated 21.10.2010 requesting
CAIRN to provide copies of all agreements and other
arrangements entered into between CAIRN and Vedanta in
relation to the proposed transaction, including, without limitation,
the value assigned to Pl in each PSC, to enable ONGC to
B decide on its future course of action.

8. CAIRN vide its letter dated 29.10.2010 provided a copy
of the share purchase deed for the proposed transaction and
reiterated its position that the provisions of the JOA do not apply
in respect of the proposed sale of shares in CIL.
c
9. ONGC's, later, sought the opinion of the Solicitor
General of India, who. vide his letter dated 5.10.201 O opined
that the Government of India's consent would be required as
the acquisition of majority stake and consequent change in
D control of CIL would amount to an indirect transfer of the Pl.

10. The Government of India, it may be noticed, had signed
28 PSCs in respect of pre-NELP exploratory blocks prior to
the implementation of NELP. Under the terms of such PSCs,
E depending on the bargain amongst the parties, statutory levies
(royalty and/or cess) on the entire production of oil and gas,
including on the share of other partners, are to be borne by
National Oil Companies, who are sole licenses in respect of
the PEUML under those contracts. In view of the above
contractual provisions, ONGC has been paying royalty and/or
F cess on the share of other partners in respect of above blocks
awarded under the regime for pre-NELP exploratory blocks.
Under the provisions of PSC of RJ-ON-90/1 Block, the cost
incurred for petroleum operation is recovered as per the
mechanism laid down in Article 14 of the PSC. Section 3.1.9
G of the Accounting Procedure stipulates that the royalty
payments shall be allowable as 'Cost Oil' without further
approval of the Government. ONGC, then, vide its letter dated
14.7.2010 proposed to CEIL, the Operator of the Block, to
include 'Royalty' as 'Recoverable Cost' in the calculations of
H entitlement interest submitted by the Operator to the Operating
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 521
OTHERS [K.S. RADHAKRISHNAN, J.]
Committee vide letter dated 1. 7.2010. CEIL, however, took up A
the stand that the same was not cost recoverable.

11. ONGC Board in its 215th meeting held on 29.1.2011
considered the issue regarding treating royalty as cost
recoverable and the option of ONGC going for acquisition of B
the stake in CIL. Board, after taking into account the offered
rate of Rs.405/- per share (including non-compete fee of Rs.50/
- per share), vis-a-vis internal assessed value of Rs.290/- per
share, decided that the following recommendation be forwarded
to the Ministry of Petroleum and Natural Gas (MoPNG) for their C
consideration:

i. Acquisition cost offered by Vedanta to CAIRN for
the proposed transaction of sale of the shares of
CIL is much above the ONGC evaluated value of
the proposed transaction. Therefore, ONGC does D
not find merit in the acquisi~ion on commercial
considerations.

ii. To request MoPNG for allowing the recovery of
royalty being paid by ONGC for entire crude oil E
produced from RJ-ON-90/1 block as "Cost Oil" from
the total revenue accrued from the block. ONGC
may further request MOPNG to decide on the
CAIRN Vedanta deal, only after reaching an
agreement in this regard between the parties and
F
iii. ONGC, being the licensee and also a participant
in the Block, has the right to ensure that the
operator has the necessary credentials in carrying
out E&P activities.
G
12. Apart from the above issue, there was a dispute
between CEIL and CEHL, parties to the Rajasthan Block and
Union of India and ONGC as. to the liability of Cess under the
PSC for the Rajasthan Block, and CEIL and CEHL had initiated
arbitration proceedings in respect of the same. Consequently, H
522 SUPREME COURT REPORTS [2013] 3 S.C.R.

A CEIL and CEHL were paying their part of the Cess under
protest.

13. ONGC received a letter dated 16.8.2011 from CEIL
in which it was stated that the Government of India vide its letter
dated 26.7.2011 had granted a conditional consent for the
8
proposed sale of shareholding to the extent of 51 % to 60% in
CAIRN India Ltd. by CAIRN Energy Pie to Vedanta Resources
Pie in respect of the NELP and pre-NELP blocks. The
Government of India, however, insisted that CIL and its affiliates
C shall provide No Objection Certificate (NOC) obtained from their
consortium partners. MoPNG granted the approval for the
proposed transaction on the following conditions:

(a) Parent financial and Performance Guarantees
furnished by CAIRN Energy Pie in pursuance of
D relevant applicable Article(s) of abovementioned
7 NELP PSCs and 3 pre-NELP PSCs, shall be
substituted by Parent Financial and Performance
Guarantees to be furnished by Vedanta Resources
Pie. which needs to be acceptable to the
E Government and should be in a form and substance
set out in the PSC.

(b) Vedanta Resources Pie to guarantee that the
technical capability of CAIRN India is and shall be
kept undisturbed and ensure continued production
F of oil and gas as per approved Field
Development Plan (FDP) from time to time. In
case Vedanta Resources Pie. fails to perform as
guaranteed then GOI shall be entitled to stipulate
additional conditions, as deemed fit, including
G change in operatorship of blocks.

(c) Vedanta Resources Pie. Also shall give an
undertaking that they shall ensure adherence to the
approved field development plans and work
H programs.
ARUN KUMAR AGRAWAL v. UNION OF !NOIA & 523
OTHERS [K.S. RADHAKRISHNAN, J.]
(d) Cairn India and its affiliates shall provide the A
No objection certificate (NOC) obtained from their
consortium partner(s) for each abovementioned
blocks (except for Ravva (PKMG-1) and CB-OS/2
blocks) for the proposed transaction under the
respective PSCs. B

(e) Necessary approval from other regulatory bodies
such as SEBI, on the proposed transaction to be
obtained and submitted by Vedanta Resources Pie.
c
(f) Necessary Security Clearance from Ministry of Home
Affairs in favour of the assignee i.e. Vedanta
Resources Pie. to acquire the shareholding shall be
obtained and submitted by the said assignee.
D
(g) In respect to RJ-ON-90/1 block, the parties, CAIRN
India Ltd., CAIRN Energy Pty Limited (CEIL),
CAIRN Energy Hydrocarbon Ltd. (CEHL) and any
other affiliate company of CIL and Vedanta
Resources Pie. and any other affiliate company of E
Vedanta Resources Pie. shall agree and give an
undertaking that Royalty paid by ONGC is cost
recoverable by ONGC as contract costs, as per the
provisions of PSC.
F
(h) In respect to RJ-ON-90/1 block, CAIRN Energy Pty
Limited and CAIRN Energy Hydrocarbon Ltd. shall
withdraw the arbitration case relating to dispute
raised by them on payment of Cess under the
PSC." G

14. CIL, later, by its letter 15.9.2011 informed ONGC that
based on the result of postal ballot by their shareholders, the
Board of Directors of CIL has passed a Resolution for
H
524 SUPREME COURT REPORTS [2013] 3 S.C.R.

A acceptance of the conditions (g) to (h) mentioned earlier with
regard to cost recovery of royalty and dropping of arbitration
proceedings on Cess.

15. ONGC had, earlier, forwarded the entire details to SBI
s Caps vide their letter dated 1.6.2011 for a detailed financial
valuation/analysis of the viability of ONGC entering into the said
transaction and SB! Caps validated the financial valuation
carried out by ONGC. SBI Caps valued Cairn India's offer
under various scenarios. Considering Gil's valuation under
C the MC approved production profile of 175 kbopd, its valuation
worked out to be US$ 6948 million and the share price if
Rs.165. Details of production capex, apex, crude oil reads
as follows:

D
Case-I As per Approved JV case for Brent Crude Price of
US$100/bbl and WACC o 12%, Cess Rs.2626.50/MT

MC PSC Reco- Capex Op ex NPV CAIRN
Approved Term verable US$ US$ US$ India
E JV case- Reseves Million Million Million Share
Peak (MMBBLS) Price -
Produ- Rs. I
ction Share
175 2020 372 4625 2467 6414 153

F
kbopd
. 2040
2025 458
579
4625
4625
3434
6027
6768
6948
161
165

16. SBI Caps also worked out valuation of GIL based on
futuristic estimated production profile keeping other
G assumptions i.e. price, royalty rate, cess, WACC same as
above. It was opined, under the most likely case, i.e.
production profile of 228 kbopd whjch includes EOR also, the
NPV of CIL valuation till 2040 works out to be $10695 MM and
the share price is Rs.254. The details of Production, CAPEX,
H
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 525
OTHERS [K.S. RADHAKRISHNAN, J.]

OPEX, Crude Price considered are as under: A
CIL-Likely Case

Case-IV As per 2P GIL Production cases for Brent Crude Price
of US$100/bbl and WAGG o 12%, Gess Rs. 2626.50/MT
B
GIL PSC Reco- Capex Opex NPV CAIRN
Profile Term verable US$ US$ US$ India
- Peak Reseves Million Million Million Share
Produ- (MMBBLS) Price -
ction Rs. I
228 Share
kbopd
c
WF+EOR 2020 737 6055 5482 9820 234

2025 902 6055 7234 10483 249
2040 1037 6055 10550 10695 254
17. It was also noticed that, in the High Case, where D
production profile of 257 kbopd was estimated considering 2P
profile with WF including EOR, Barmer Hill and estimated
production from 20 other small fields also, the economic
valuation of the CIL is $12239 MM and the share price is
Rs.291. The details of Production, CAPEX, OPEX, Crude E
Price etc. considered are as under:
CIL-High Case

Case-IV As per 2P CIL Productiop cases for Breni Crude Price of
US$100/bbl and WACC o 12%, Cess Rs. 2626.50/MT
F
CIL · PSC Reco- Cap ex Opex NPV CAIRN
Profile Term verable US$ US$ US$ India
- Peak Reseves Million Million Million Share
Production (MMBBLS) Price -
228 kbopd Rs.I
WF+ Share
EOR+ G
Bh-20 2020' 811 7618 6664 11272 268
Small 2025 998 7698 8818 11985 285
Fields 2040 1167 7698 12922 122239 291
18. The Royalty paid on behalf of CEIL & GEHL which has
been recovered for the period since inception till September, · H
526 SUPREME COURT REPORTS [2013] 3 S.C.R.

A 2011 and from 1.10.2011 to 30.6.2012 is as under:

RJ-ON-OP-1 100% 70%

Royalty since inception 784,833,924 549,383,747
till Sep'11
8
Royalty from Oct' 602, 140, 130 421,498,091
11 to June'12

Total 1,386,974,054 970,881,838

C 19. SBI Caps, therefore, on the basis of the above given
statistics, opined that under the highest profile case with base
assumptions, the value of these shares works out to Rs.291/-
and even considering higher CAPEX (130% incremental) and
lower OPEX (-30% total) and increase in crude price from US$
100/bbl to US$ 11 O/bbl, the value of share increases to Rs.328.
D Amongst the various scenarios, it was opined that the value of
shares is maximum at Rs.331, considering CAPEX at 100%
and OPEX at 70%, with crude price at $110 per bbl. In both
the scenarios, the value of share remained below the offered
rate of Rs.355.
E
20. We notice that the above report of the SBI Caps was
placed before the 109th Project Appraisal Committee meeting
held on 27 .9.2011, wherein after detailed deliberations, the
PAC resolved for consideration and approval of the ONGC
F Board that ONGC might not exercise its pre-emptive rights with
reference to the offer made by CAIRN and its associates to
Vedanta and its associates, for the proposed transaction of
sale of shares of CIL at the rate of Rs.355/- per share as the
same was more than the value estimated by SBI Caps. It further
resolved that the NOC to the proposed transaction be granted
G to CAIRN with a condition that CAIRN, Vedanta and their
associates should enter into an agreement with ONGC to
protect ONGC's interest so that royalty and cess in respect of
block RJ-ON-90/1 would be binding on Cairn, Vedanta and their
future assignees etc. in alignment with MoPNG direction dated
H 26.7.2011.
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 527
OTHERS [K.S. RADHAKRISHNAN, J.]
21. ONGC Board then met on 27.9.2011 and, after due A
consideration of the Agenda item, the recommendations of the
PAC as well as presentation made by M/s SBI Caps, approved
the proposal and passed the following resolutions:
"RESOLVED that ONC~C may not exercise its pre-emptive
rights with reference to the offer made by CAIRN and its B
associates to Vedanta and its associates, for the
Proposed Transaction of sale of shares of CIL at the rates
of Rs.355/- per share as the same is more than the value
evaluated by SBI CAPs.
RESOLVED FURTHER that NOC to the Proposed C
Transaction be granted to CAIRN and its associates for
the five blocks as mentioned in Para 5 above with a
condition that CAIRN, Vedanta and their associates should
enter into an agreement with ONGC to protect Ol\IGC's
interest so that royalty and Cess are binding on CAIRN, D
Vedanta and their future assignee etc.
RESOLVED FURTHER that CMD, ONGC be and is
hereby authorized to finalize the draft agreemenUletter and
Company Secretary, ONGC be and is hereby authorized
E
to sign the agreemenUletter on behalf of ONGC."
22. The Cabinet Committee of Economic Affairs (CCEA),
as already indicated, had on 30.6.2011 given its approval to
CEIL for selling its Indian unit to Vedanta subject to the new
owner agreeing to share royalty and pay oil cess on mainstay F
Rajasthan oilfields. Union Cabinet also, on 24.1.2012, gave
its final approval to London-based mining group Vedanta
Resources Plc'.s acquisition of a majority stake in Cairn India
for $8.48 billion. It was noticed that Cairn and Vedanta had
complied with all the pre-conditions stipulated by the G
Government of India and ONGC and the transaction between
them stood concluded.
ARGUMENTS
23. Shri Prashant Bhushan, learned counsel appearing for
the petitioner, questioned the decision of the Government of H
528 SUPREME COURT REPORTS [2013] 3 S.C.R.

A India in giving clearance to CAIRN-Vedanta deal, without ONGC
exercising the RoFR, but for which it was submitted that the
State Exchequer would have benefited to the tune of
Rs.1,00,000/- crore rupees. Learned counsel submitted that
petrol and natural gas is held by the State in public interest and
B cannot be given away without due exercise of power and
discretion guided by clear and cogent policy, because the
natural resources should not be subject to private ownership
or private commercial exploitation. Reliance was placed on the
judgments of this Court in M. C. Mehta v. Kamal Nath &
C Others (1997) 1 SCC 388, Meerut Development Authority v.
Association of Management Studies and Another (2009) 6
SCC 171 and Centre for Public Interest Litigation and Others
v. Union of India s.1d Others (2012) 3 SCC 1.
24. Shri Bhushan submitted that the Government has
0 unlawfully granted extension to Cairn India Limited for carrying
out exploration activities beyond the period framed by the
Rajasthan Block PSC, which has been commented upon by the
Comptroller and Auditor General (CAG).
25. Shri Mukul Rohatgi, learned senior counsel appearing
E for the respondent, assisted by Shri R. R. Sasiprabhu explained
to the Court in detail the main features of PSC dated 15.5.1995
as well as the transaction entered into between Cairn and
Vedanta. Learned senior counsel pointed out that ONGC has,
inter alia, pre-emptive rights in relation to Cairn-UK's Pl under
F various agreements with the Government of India and ONGC,
and that Cairn UK and/or its affiliates required consent of
ONGC, besides other governmental approval to consummate
the proposed transaction. Cairn UK took up the stand that the
transaction W3S only a sale of shares of CIL rather than
G assignment of any Pl under various PSCs and JOAs and that
there would be no change to Pl in any of the PSCs in which
Cairn India group was a party. ONGC had two disputes in RJ-
ON-90-1 block, between ONGC and CEIL/CEHL which had
huge financial implications for ONGC with regard to royalty and
cess. Further, there was another dispute under the PSC on
H the issue of liability of cess. CEIL and CEHL took the stand
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 529
OTHERS [K.S. RADHAKRISHNAN, J.]

that they were not liable for payment of cess and hence had A
initiated arbitration proceedings in London against Union of
India and ONGC. All these issues were placed before the
ONGC Board on 29.1.2011 and also on 27.9.2011 and after
due consideration of the Agenda item and noticing the
presentation made by SBI caps, finally decided to go for the B
proposed transaction between Cairn UK and Vedanta UK.
Learned senior counsel submitted that the above decision was
taken by ONGC in public interest and taking into consideration
its financial implications and on-going disputes between ONGC
and CEIUCEHL. C

26. Learned senior counsel also submitted that the Courts
have consistently restrained from interfering with economic
decisions and that wisdom and advisabilities of economic
policies are ordinarily not amenable to Judicial Review.
Reference was made to the judgment of this Court in Ba/co D
Employers' Union (Regd.) v. Union of India and Others (2002)
2 SCC 333, Bajaj Hindustan Limited v. Sir Shadi Lal
Enterprises Ltd. and Another (2011) 1 SCC 640 and Life
Insurance Corporation of India v. Escorts Limited and Others
(1986) 1 sec 264. E

27. Shri Siddharth Luthra, learned Additional Solicitor
General appearing for the Union of India, submitted that the
ONGC Board forwarded its request to MoPNG to ensure that
royalty for Rajasthan Block be treated as cost recoverable. F
MoPNG on 26.3.2011 submitted the recommendations before
the Cabinet Committee for Economic Affairs (CCEA) for
decision of the Cabinet Commi'ttee on the issue of proposed
transaction between Cairn-Vedanta. CCEA referred the matter
to the Group of Ministers (GOM) and GOM on 25.11.2011 G
recommended grant of approval based on certain conditions.
Union of India took the stand that there was no commercial
viability for ONGC to purchase CIL share at the value being
offered by Vedanta. Shri Luthra submitted that this decision
was taken by ONGC in public interest and after taking into H
530 SUPREME COURT REPORTS (2013) 3 S.C.R.

A consideration all commercial and technical aspects of the
matter and that this Court, in exercise of its powers under
Article 32 of the Constitution of India, shall not interfere with the
economic decision taken by the Union of India and ONGC.

8
28. Shri Ritin Rai, learned counsel appearing for the third
respondent, referring to the reply affidavit filed on 3.10.2012,
explained the circumstances under which the transaction was
entered into by it with Vedanta. Learned counsel submitted that
the third respondent is not a party to any of the PSCs and, prior
to the completion of the transaction, had taken all reasonable
C steps to ensure that CEIL and its subsidiaries comply with all
applicable laws and contractual obligations in India.

29. Shri Harish Salve, learned senior counsel appearing
for the fourth respondent, submitted that it was up to the
D competitive bidding operator who was granted the right to
explore the oil and natural gas making huge investment and that
exploration costs would be recoverable only if oil was
discovered. Shri Salve pointed out, initially, Shell had 100%
IP in the PSC, but it failed to make any commercial discovery
E even after investing US$ 9 million and, then, CAIRN took up
the challenge. Learned counsel submitted that Cairn gave up
two of its rights to secure government permission, that is, it had
agreed to make royalty cost recoverable and withdrew its claim
that the burden of cess would be borne by the Government of
F India. Learned senior counsel submitted that assigning of a
Pl is a well defined concept and, referring to the judgment of
this Court in Vodafone International Holdings v. Union of India
(2012) 6 SCC 613, learned senior counsel submitted that the
transfer of a share does not result in transfer of underlying
assets. Learned senior counsel submitted that various
G decisions taken in this case either from the side of Union of
India, ONGC or by respondent nos. 3 and 4, were commercial
decisions based on which the parties have acted and this Court,
sitting in its jurisdiction, shall not interfere with such commercial
decisions. Referring to the report of CAG, learned senior
H
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 531
OTHERS [K.S. RADHAKRISHNAN, J.]
counsel submitted that this Court shall not place any reliance A
on the report of the GAG and grant any relief to the petitioner
based on the GAG report, since in case of any dispute between
the Ministry and GAG, that is to be resolved by the Parliament
and not this Court, sitting in this jurisdiction under Article 32 of
the Constitution of'lndia. B

DISCUSSION

30. The question that falls for consideration in this case is
whether this Court sitting in this jurisdiction is justified in
interfering with a complex economic decision taken by a State C
or its instrumentalities in the absence of violation of any
statutory provision or proof of mala fide or on extraneous and
irrelevant considerations.

31. The Government had initially the exclusive privilege of 0
exploration of mineral ore resources in India. The Parliament
felt the need to provide for the regulation of oil fields and for
the development of mineral resources and enacted The Oil
Fields (Regulation and Development) Act, 1948 (Act 53 of
1948) and later The Petroleum and Natural Gas Rules, 1958 E
were framed for the regulation of petroleum operations and the
grant of licenses and leases for exploration and development
of petroleum in India. The Rules provide for the grant of
exploration licenses and mining leases in respect of lands
vested in State Government by that State Government with the
previous approval of the Central Government, and ONGC had F
been duly granted an exploration license to carry out exploration
operations in association with other companies in the
concerned area.

32. The Government of India, ONGC and Shell on G
15.5.1995 entered into a PSC in respect of the Rajasthan
Block RJ-ON-90/1 for the exploration and exploitation of .crude
oil and natural gas, details of which have already been stated
in the earlier part of the Judgment. The Rajasthan Block, which
is the subject matter of the present writ petition, was offered in . H
:::c m CJ () )>

,------- - ------- - - - - - · ---1 01
c..>
i RAJASTHAN BLOCK (PSC) I N
I -- ----'
' -

G --~~i~" en
I ONGC
I c
articipating Interest (PI)
------- - - __ _,;
r
,____________ -
)
(Back in Right}
\____ ______ - ----- J
"U
::u
m
s::
m
----- -~ l
- ------
Cairn Energy India Pvt. Limited (CEIL) lL f
·-- -----~
Cairn Energy Hydrocarbons L.,,;it~~J
()
0
50% PI ("CE_HI,:' 50% P_i____ - c
After the transfer if PI, Cairn made Commercial Discovery. Thus as per PSC the Participating Interest was
~
distributed as under: ::u
m
Cairn E-;,~~~ India Pvt. Limited [cairn Ener~y H;dro~a;b~ns Li~i~e·d (CEHLJl
{CEIL)
l __ (35% Par!icipating ~tere_s_tl j
, + L____ ___ ____ ___ _
~ (35°-Yo Participating Interest)
__ _ __J
j
+
ONGC
(30°/o Participating Interest)
{back inj
"U
0
::u
-I
ar~ W~?lly
Both companie.s --------~ en
Owned subs1diari~ Vedanta Resource Ltd.
Listed in London
r-- CAIRN India Limited (CIL) - - l Proposed to purch~s~ 50 60°'_ c~ C!L shd.l'es
Directly from CAIRN Energy PLC UK
Listed in India - Promoted by
Thereafter Vedanta purchased:
CAIRN UK Holdings Limited
10~·~ from Cairns Pk. On l l.06.2011
Listed in London & Wholly Owned
L0.4%1 from Petronas
Subsidiary of
8.1 1Yo through open offer by Sesa Goa (subsidiary)
Total 28.So/o
CAIRN Energy PLC UK (CAIRN)
Listerl in London Remaining 30% were sold after September, 2011
------ -·--------
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 533
OTHERS [K.S. RADHAKRISHNAN, J.]

the 4th round of pre NELP (New Exploration Licensing Policy) A
by competitive bidding mechanism which culminated in the
execution of PSC Contract on 15.5.1995. Shell was a party to
the agreement to the PSC dated 15.5.1995 and even after
seven years of Contract Shell could not make any commercial
discovery, though large amounts were invested between 1999 B
and 2003. Consequently, it had to transfer its Participating
Interest (Pl) to CEIL and CEHL. The following chart produced
by ONGC would give a broad picture of the share holding of
the various companies prior to transfer and after its transfer:

33. The above chart will indicate that CEIL and CEHL, C
subsidiaries of Cairn, have succeeded Shell as parties to the
PSC and together they became holder of 70% of the Pl and
later Vedanta Resource Ltd. purchased CIL's shares through
CAIRN.
D
34. CEIL is a company incorporated under the laws of India
and listed at Bombay Stock Exchange and National Stock
Exchange. Cairn Energy is incorporated under the laws of (UK)
and listed in London Stock Exchange and the majority share-
holders in CEIL having a 64.2% equity stake in it through its E
wholly owned subsidiary, Cairn UK Holdings Limited. Upon
acquisition of 50% of the Shell's interest under the contract CEIL
became the operator under the operating agreement w.e.f.
1.1.2000. Cairn later announced on 16.8.2010 a disposal of
its substantial shareholding in CEIL to Vedanta. ONGC had F
reviewed the various agreements signed by Cairn and/or its
affiliates with the Government of India and inter se with ONGC
as one of the participating companies in various oil blocks/
fields. ONGC had pre-emptive rights in relation to participating
interest of Cairn and/or its affiliates. Under the various G
agreements with the Government of India and ONGC and Cairn
and/or its affiliates required consent of ONGC besides other
governmental approval to consummate the proposed
transaction. The various decisions taken by the ONGC and the
Government of India. subsequently, as well as steps taken by H
534 SUPREME COURT REPORTS [2013] 3 S.C.R.

A the ONGC referring to SBI Caps of its financial implications has
already been noticed in the earlier part of this Judgment.

35. The question whether the CEIL, the operator of the
block has to include Royalty "as recoverable cost" and whether
B it is commercially viable for the ONGC to exercise its RoFR
were elaborately considered by the ONGC Board in its various
rr.eetings held on 29.1.2011, 27.9.2011. The Board after due
deliberations and considering the offered right at Rs.405/- per
share vis-a-vis the internal assessed value of Rs.290/- per
C share, noticed that acquisition stake offered by Vedanta Cairn
for the proposed transaction of sale of shares of CEIL was much
above the ONGC evaluated value of the proposed transaction,
and hence was not advisable for the ONGC to acquire shares.
Further there was an ongoing issue/dispute relating to cost
recovery of Royalty being paid by ONGC for the entire crude
D oil producing field - RJ-OA-90/1 block pursuant to provisions
of accounting procedure of PSC. Further there was a dispute
between CEIL and CEHL and ONGC as to the liability of cess
under the PSC for the Rajasthan Block. CEIL and CEHL had
initiated arbitration proceedings in respect of the same. It was
E noticed that a large sum, running into several million US $would
have been payable by ONGC had CEIL and CEHL were
successful in the arbitration. Now due to the various
agreements/decisions taken by the Union of India and ONGC,
the arbitration against Union of India and ONGC in relation to
F the cess was withdrawn since the Government of India and
ONGC had accorded their consent for the deal with Cairn and
Vedanta. Further CEIL and its affiliates had also agreed to
treat royalty paid as cost recoverable by ONGC as contract
costs. ONGC had already derived financial benefit to the tune
G' of US $970,'881,838 towards royalty paid by it till June 2012
and would continue to derive similar benefits during the currency
of the contract i.e. upto 2020.

36. We notice the decision taken by the ONGC not to
exercise its RoFR was taken after an elaborate and due
H
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 535
OTHERS [K.S. RADHAKRISHNAN, J.]
deliberations. The report of SBI Caps, after making a detailed A
financial analysis also supported the decision taken by the
ONGC. The decision to grant no objection to the transfer of
shares of CEIL from Cairn to Vedanta was also on the basis
that the proposed share price of share was at Rs.355 per
share, was well in excess of its intrinsic value as were evaluated B
by SBI Caps. SBI Caps report evaluated each share of CEIL
at Rs.291 with the highest production profile under normal
circumstances. It was concluded that even considering various
other scenario makes possible value at Rs.331 per share.

37. The Union of India also endorsed the decision taken C
by the ONGC after due deliberations. The matter was finally
placed before the Cabinet Committee of Economic Affairs,
which placed the matter before the Group of Ministers and
Group of Ministers on 27.5.2011 granted its approval, based
on certain conditions. The same was conveyed to the parties D
and the Vedanta Resources conveyed its acceptance to the
conditions imposed by CCEA. Cairn also indicated to ONGC
that CEIL Board had also accepted the conditions imposed
upon it and that the cess arbitration, which had been initiated
by Cairn against ONGC was also withdrawn. E

38. We notice that the ONGC and the Government of India
have considered various commercial and technical aspects
flowing from the PSC and also its advantages that ONGC
would derive if the Cairn and Vedanta deal was approved. This F
Court sitting in the jurisdiction cannot sit in judgment over the
commercial or business decision taken by parties to the
agreement, after evaluating and assessing its monetary and
financial implications, unless the decision is in clear violation
of any statutory provisions or perverse or for extraneous G
considerations or improper motives. States and its
instrumentalities can enter into various .'.:ontracts which may
involve complex economic factors. State or the State
undertaking being a party to a contract, have to make various
decisions which they deem just and proper. There is always
H
536 SUPREME COURT REPORTS [2013] 3 S.C.R.

A an element of risk in such decisions, ultimately it may turn out
to be a correct decision or a wrong one. But if the decision is
taken bona fide and in public interest, the mere fact that decision
has ultimately proved to be a wrong, that itself is not a ground
to hold that the decision was mala fide or done with ulterior
B motives.

39. Matters relating to economic issues, have always an
element of trial and error, so long as a trial and error are bona
fide and with best intentions, such decisions cannot be
questioned as arbitrary, capricious or illegal. This Court in State
C of M.P. and Others v. Nandlal Jaiswal and Others (1986) 4
SCC 566 referring to the Judgment of Frankfurter J. in Morey
vs. Dond 354 US 457 held that "we must not forget that in
complex economic matters every decision is necessarily
empiric and it is based on experimentation or what one may
D call "trial and error method" and, therefore, its validity cannot
be tested on any rigid "a priori" considerations or on the
application of any straight jacket formula." In Metropolis
Theatre Co. v. State of Chicago 57 L Ed 730 the Supreme
Court of the United States held as follows:
E
"The problem of government are practical ones and may
justify, if they do not require, rough accommodation,
illogical, if may be, and unscientific. But even such criticism
should not be hastily expressed. What is best is not
discernible, the wisdom of any choice may be disputed or
F
condemned. Mere errors of government are not subject
to our judicial review. It is only its palpably arbitrary
exercises which can be declared void."

In Life Insurance Corporation of India v. Escorts Ltd. and
G Others (1986) 1 SCC 264 this Court held

"that the Court will not debate academic matters or
concern itself with intricacies or trade and commerce. The
Court held that when the State or its instrumentalities of
H the State ventures into corporate world and purchases the
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 537
OTHERS [K.S. RADHAKRISHNAN, J.]
shares of the company, it assumes to itself the ordinary A
role of shareholder, and dons the robes of a shareholder,
with all the rights available to such a shareholders and
there is no. reason why the State as a shareholder should
be expected to state its reasons when it seeks to change
the management by a resolution of the company, like any B
other shareholder."

In Liberty Oil Mills and Others v. Union of India and
Others (1984) 3 SCC 465, this Court held that expertise in
public and political, national and international economy is C
necessary, when one may engages in the making or in the
criticism of an import policy. Obviously, courts do not possess
the expertise and are consequently, incompetent to pass
judgments on the appropriateness or the adequacy of a
particular import policy.
D
In Villianur lyarkkai Padukappu Maiyam v. Union of India
(2009) 7 SCC 561, this Court held as follows:

"It is neither within the domain of the courts nor the scope
of judicial review to embark upon an enquiry as to whether E
a particular public policy is wise or whether better public
policy can be evolved. Nor are the courts inclined to strike
down a policy at the behest of a petitioner merely because
it has been urged that a differen.t policy would have been
fairer or wiser or more scientific or more logical. Wisdom F
and advisability of economic policy are ordinarily not
amenable to judicial review. In matters relating to economic
issues the Government has, while taking a decision, right
to "trial and error'' as long as both trial and error are bona
fide and within the limits of the authority. For testing the ·
correctness of a policy, the appropriate forum is Parliament G
and not the courts."
In Bajaj Hindustan Limited v. Sir Shadi Lal Enterprises
Limited And Another (2011) 1 SCC 640, this Court held "that
economic and fiscal regulatory measures are a field where. H
538 SUPREME COURT REPORTS [2013] 3 S.C.R.

A Judges should encroach upon very wearily as Judges are not
expert in those matters".
This Court in Bhavesh D. Parish and Others v. Union of
India and Another (2005) 5 SCC 471, took the view that, in
the context of the changed economic scenario, the expertise
B of people dealing with the subject should not be lightly interfered
with. The consequences of such interdiction can have large-
scale ramifications and can put the clock back for a number of
years. The process of rationalisation of the infirmities in the
economy can be put in serious jeopardy and, therefore, it is
C necessary that while dealing with economic legislations, this
Court, while not jettisoning its jurisdiction to curb arbitrary action
or unconstitutional legislation, should interfere only in those few
cases where the view reflected in the legislation is not possible
to be taken at all. In Centre for Public Interest Litigation and
D Another v. Union of India and Others (2000) 8 SCC 606, this
Court held as follows:
"20. 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
E 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
F no doubt as to the unreasonableness, mala fide, collateral
consideration 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
G appellants ....... "
40. The MoPNG on 26.7.2011 conveyed to Cairns UK and
its affiliates and Vedanta UK that the Government of India was
pleased to grant its consent for the Cairn -Veda.nta -- subject
to fulfilment of the certain conditions i.e. they had to give an
H undertaking that in the royalty paid in the ONGC was cost
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 539
OTHERS [K.S. RADHAKRISHNAN, J.]
recoverable by ONGC as contract cost and to withdraw the A
arbitration case relating to cess. The dispute on royalty and
cess was bothering ONGC for quite some time and ONGC was
facing a claim running into several million US Dollars in an
arbitration proceeding in London. Union of India and ONGC,
in their wisdom could make Cairn agree to those conditions, it B
gave an undertaking that in the royalty paid in the ONGC would
cost recoverable by ONGC as contract cost and to withdraw
the arbitration case relating to cess. Union of India and ONGC,
in their wisdom could make Cairn agree to those conditions
which was clearly a business commercial decision taken with c
good intention, since the fate of the arbitration proceedings
could not be predicted. ONGC also in its business prudence
decided not to go for shares in CEIL, first of all it was equated
at a very high premium, secondly it guaranteed no return either
in the way of dividend or any other profits. Further, it might lead
0
to huge liability of investment and with a minimum work
programme and the remaining PSC's help by CEIL which
involved exploitation operations with no guarantee of any
commercial discovery. The result of CEIL and its affiliates
agreeing to treat royalty paid by ONGC as cost recoverable by E
ONGC as contract cost, and ONGC has derived benefits to the
tune of US$ 970,881,838 towards royalty paid by till June 2012
and would continue to derive similar benefits till the currency
of the contract i.e. till June 2020.

41. Consequent to the agreement dated 30.11.2011, F
ONGC received Rs.5000 crores approximately towards CEIL
and CEHL's share of royalty for the period from 29.8.2009 to
30.7.2012 besides CAIRN and Vedanta agreeing to pay their
share of royalty and cess in future involving huge financial
implications. G

42. ONGC in its wisdom decided not to acquire any shares
of CEIL at a high premium of Rs.335 per share plus Rs.50 per
share as not to compete fee, which would have come to ONGC
at a hefty cost of 4.44 billion US $ about Rs.6,20,600 crores H
540 SUPREME COURT REPORTS [2013] 3 S.C.R.

A rupees, i.e. even if ONGC had exercised its ROFR it would be
a 30% share holder of CEIL and the control of CEIL would have,
in any event, remained with Cairn and Vedanta which would
have then altogether 50% in CEIL , in other words, with the
acquisition of 30% shares in CEIL, State of Rajasthan Block
B would remain unchanged and hence ONGC could not have got
any increase in shares in the profits much-less any increase in
profits by 40%.

43. We are of the view that on facts, as well as on law, the
ONGC and the Government of India have taken a prudent
C commercial and economic decision in public interest. We are
not prepared to say that the decision is mala fide or actuated
by any extraneous or irrelevant considerations or improper
motive.

D CA G Report

44. The petitioner has placed considerable reiiance on the
Comptroller and Auditor General ("CAG") Report. Some of the
comments in the CAG Report were highlighted by counsel
E appearing for the petitioner to contend that the declaration of
fresh discoveries during the appraisal/development phases
within delineated discovery/development areas amounted to
irregular extension of exploration activities, which is not in
consonance with the terms of the PSC.

F 45. The petitioner has also sought a direction to CAG/
Government of India to calculate the alleged losses from
payment of 100% royalty and cess by ONGC before the Cairn-
Vedanta deal and for a direction to ONGC/Government to
recover the excess royalty paid by ONGC from Cairn India.
G
46. CAG may be right in pointing out that public monies
are to be applied for the purposes prescribed by Parliament
and that extravagance and waste are minimized and that sound
financial practices are encouraged in estimating and
H contracting, and in administration generally.
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 541
OTHERS [K.S. RADHAKRISHNAN, J.]
47. We have come across several instances where A
considerable reliance has been placed on the CAG Report and
projecting it as gospel truth. Let us examine the role of the CAG
under our Constitutional scheme.

48. The Comptroller and Auditor General ("CAG") is B
appointed under the provisions of Chapter 5 of the Constitution
of India. Article 149 provides thus:

"Article 149. Duties and powers of the Comptroller
and Auditor General - The Comptroller and Auditor
General shall perform such duties and exercise such C
powers in relation to the accounts of the Union and of the
States and of any other authority or body as may be
prescribed by or under any law made by the Parliament
and, until provision in that behalf is so made, shall perform
such duties and exercise such powers in relation to the D
accounts of the Union and of the States as were conferred
on or excisable by the Auditor General of India immediately
before the commencement of this Constitution in relation
to the accounts of the Dominion of India and of the
Provinces respectively." E

49. The CAG earlier functioned under the Government of
India (Audit and Accounts) Order, 1936 as adopted by the India
(Provisional Constitution) Order, 1947, which was repealed by
Section 26 of the Act of 1971. The Comptroller and Auditor
General's (Duties, Powers and Conditions of Service) Act, F
1971 was enacted by the Parliament in the year 1971. Section
10 of the Act states that in relation to the Government, the CAG
shall compile the accounts of the Union and the States. The
CAG on the basis of these accounts, prepares the annual
accounts which are submitted to the President of India or the G
Governor of the State or the Administrator of the Union Territory.
The audit of the Union and the States is under Section 13 of
the Act. The scope of the audit extends to the audit of all
expenditure so as to ascertain whether the monies shown in
H
542 SUPREME COURT REPORTS [2013] 3 S.C.R.

A the accounts as having been disbursed were legally available
for such disbursement and whether the expenditure conforms
to the authority which governs it. The CAG has to satisfy himself
that the rules and procedures designed to secure an effective
check on the assessment, collection and proper allocation of
B revenue are being duly observed under Section 16. The CAG
also has to examine decisions which have financial implications
including the propriety of the decision making.

50. The Reports of the CAG are required to be submitted
to the President, who shall cause them to be laid before each
C House of Parliament, as provided under Article 151(1). In
relation to the States, reports are submitted to the Governor,
who shall cause them to be laid before the Legislature of the
State, as per Article 151 (2) of the Constitution. When reports
are received in the Parliament, they are scrutinized by the
D Public Accounts Committee ("PAC"). The PAC is established
in accordance with Rule 308 of the Rules of Procedure and
Conduct of Business in Lok Sabha. The function of the PAC
is to examine the accounts of the Union and the report of the
CAG. The PAC shall be principally concerned whether the
E policy is carried out efficiently, effectively and economically,
rather than with the merits of government policy. Its main
functions are to .see that public monies are applied for the
purposes prescribed by the Parliament, that extravagance and
waste are minimized and that sound financial practices are
F encouraged in estimating and contracting, and in administration
generally. The PAC also has the power to receive evidence,
the power to send for persons, papers and record and can
receive oral evidence on solemn affirmation. Once the report
is prepared, the report of the PAC is presented to the House.
G
51. Durga Das Basu in Commentary on the Constitution
of India 8th Edition 2009 at page 6058 says:

"that the Public Accounts Committee is to examine the
report of the Comptroller and Auditor General, in order to
H
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 543
OTHERS [K.S. RADHAKRISHNAN, J.]
satisfy itself on certain points: A

Firstly, it has to verify that the moneys shown in the
accounts as spent have actually been spent for the
purpose for which Parl:ament qranted them.

Secondly, it has to satisfy itself that the moneys granted B
by Parliament have been spent by the Government 'within
the scope of the demands'. This means that no
expenditure should exceed the amount granted without
fresh parliamentary approval, nor should the grant be
appropriated for a new service not contemplated in the C
demand. Even if there is a surplus of a grant under one
vote, it cannot be appropriated to another vote without
sanction of Parliament.

The exercise of this function gives the Committee a o
comprehensive power of survey over the entire scheme of
expenditure of the government as well as the
administration. Though the Committee has nothing to
question the policies of the government, it has to scrutinise
the implementation of the policies through its review of the E
expenditure. Both in England ............... as well as in
India, it has been acknowledged that the present function
includes a criticism of extravagant or wasteful expenditure
of public money, in general, and in this connection, it is
entitled to point out the weak points in the administration
F
of the departments concerned, and also to ensure that
proper action has been taken against delinquents guilty of
irregularity or breach of the rules, though it has no power
to enforce its comments by any direct administrative
action.
G
Thirdly, the audit of the accounts of the State corporations
is another important function entrusted to the Public
Accounts Committee. Its importance is increasing with the
ever-expanding State activity in the sphere of industry and
enterprise." H
544 SUPREME COURT REPORTS [2013) 3 S.C.R.

A 52. In this connection is useful to refer to the practice of
the PAC, as set out in a note found in the website of the Lok
Sabha which states as follows:

"Selection of Subject for Examination:
B As the work of the Committee is normally confined to the
various matters referred to in the Audit Reports, and
Appropri$ion Accounts, its work normally starts after the
Reports of the Comptroller and Auditor General on the
accounts of the Government are laid on the Table of the
c House. As soon as the Committee for a year is
constituted, it selects paragraphs from the reports of the
Comptroller and Auditor General that were presented after
the last selection of subjects by the CC'lmmittee for in-depth
examination during its term of office.
D
Assistance by Comptroller and Auditor General

The Committee is assisted by the Comptroller and Auditor
General in the examination of Accounts and Audit Reports.

E
Calling for Information from Government

The Committee calls for, in the first instance, background
note and advance information from the Ministries/
F Departments concerned in regard to subjects selected by
it for examination.

Evidence of Officials
G
The Committee later takes oral evidence of the
representatives of the Ministries/Departments concerned
with the subjects under examination.

H
ARUN KUMAR AGRAWAL v. UNION OF INDIA & 545
OTHERS [K.S. RADHAKRISHNAN, J.]
Report and Minutes A

The conclusions of the Committee on a subject are
contained in its Report which, after its adoption by the
Committee, is presented by the Chairman to the Lok
Sabha. Minutes of the sittings of the Committee form Part 8
II of the Report. A copy of the Report is also laid on the
Table of Rajya Sabha. The Reports of the Committee are
adopted by consensus among members. Accordingly,
there is no system of appending minute of dissent to the
Report."
c
53. Action Taken Reports (ATRs) are then required to be
made out by the ministries. Speaker has the power to issue
directions under the rule and procedure. Direction 102 requires
the Government to, as early as possible, furnish the PAC with
a statement showing the action taken on the recommendations D
of the PAC report. The Parliament has before it not only the
report of the CAG, the report of the PAC in the first instance
drawn up after hearing the view of the ministries, the Action
Taken Report including the replies of the Government and the
further comments of the PAC on the replies of the Government. E
54. We have referred to the report of the CAG, the role of
the PAC and the procedure followed in the House, only to
indicate that the CAG report is always subject to scrutiny by the
Parliament and the Government can always offer its views on
F
the report of the CAG.
55. The question that is germane for consideration in this
case is whether this Court can grant reliefs merely placing
reliance on the CAG's report. The CAG's report is always
subject to parliamentary debates and it is possible that PAC G
can accept the ministry's objection to the CAG report or reject
the report of the CAG. The CAG, indisputably is an
independent constitutional functionary, however, it is for the
Parliament to decide whether after receiving the report i.e. PAC
to make its comments on the CAG's report. .· H
546 SUPREME COURT REPORTS (2013] 3 S.C.R.

A 56. We may, however, point out that since the report is
from a constitutional functionary, it commands respect and
cannot be brushed aside as such, but it is equally important to
examine the comments what respective ministries have to offer
on the CAG's report. The ministry can always point out, if there
B is any mistake in the CAG's report or the CAG has
inappropriately appreciated the various issues. For instance,
we cannot as such accept the CAG report in the instance case.

57. Article 2.6 of PSC permits extension of the exploration
period for three years from the end of the seven year period
C prescribed in Article 2.2. The period extended in pursuance
to Article 2.6 expired on 14.5.2005. The CAG, it is seen, has
assumed that any exploration carried out beyond the period
was beyond the provision of PSC. Article 2.6 specifically
contemplates extension of the exploration phase pursuant to
D the terms of the PSC. The last part of Article 2.6 to Article 2.9,
however, permits further extension of the exploration period for
a period of 30 months, therefore, it is factually and legally
incorrect to suggest that any exploration carried out beyond
14.5.2005 was beyond the provision of PSC. CAG views on
E that aspect cannot be accepted.

58. In such circumstances, we find no merits in the writ
petition which was filed without appreciating or understanding
the scope of the decision or the making process concerning
F economic and commercial matters which gives liberty to States
and its instrumentalities to take appropriate decision after
weighing advantages and disadvantages of the same and this
Court sitting in this jurisdiction, as already indicated, is not
justified in interfering with those decisions, especially when
there is nothing to show that those decisions are contrary to
G law or actuated to mala fide or irrelevant considerations. The
writ petition, therefore, lacks merits. Hence, the same is
dismissed.

R.P. Writ Petition dismissed.
H