100,000 crores loss to India exchequer by cairn- vedanta Deal
A WRIT PETITION IN PUBLIC INTEREST UNDER ARTICLE 32 OF THE
CONSTITUTION OF INDIA HIGHLIGHTING HOW THE GOVERNMENT OF INDIA
ALLOWED TRANSFER OF OIL RESOURCES OF THE COUNTRY WORTH LAKHS OF
CRORES OF RUPEES TO A PRIVATE COMPANY BY GIVING UP ITS OWN LEGAL
RIGHTS IN COMPLETE VIOLATION OF THE PUBLIC TRUST DOCTRINE, ARTICLE 14
AND 21 OF THE CONSTITUTION OF INDIA.
To,
THE HON’BLE CHIEF JUSTICE OF INDIA AND HIS COMPANION
JUDGES OF THE HON’BLE SUPREME COURT OF INDIA
The Humble Petition of the
Petitioner above-named
MOST RESPECTFULLY SHOWETH: -
1) The petitioner is filing the instant writ petition in public interest
highlighting how the Government of India has allowed transfer of oil
resources of the country worth lakhs of crores of rupees to a private
company by giving up its own legal rights in complete violation of the
public trust doctrine, Article 14 and 21 of the Constitution of India. The
said doctrine that has been recognized as part of the law of the land
mandates that State is the trustee of its natural resources and it is the
duty of the State to protect them. The premise of the doctrine is that
certain resources are of such great public importance that they should
not be subjected to private ownership or private commercial exploitation,
and must be used in a manner so as to serve common good. This
Hon’ble Court in its recent decision in CPIL vs UoI (WPC 423/2010)
while quashing 2G telecom licenses has held that economic actions and
policies of the state can be set aside if the same are shown to be
contrary to public interest or are detrimental to the public exchequer.
The petitioner had written thrice to all appropriate authorities. Petitioner
had written to Prime Minister, Minister of Petroleum, Finance Minister,
CVC, CBI on 05.03.2011 and had followed up this letter with a reminder
to the above authorities on 25.05.2011. Petitioner had also written to the
Home Minister on 04.10.2011. The said letters are all annexed with this
petition (Annexures 11, 12 and 15). None of the above letters were
responded to by any of the authorities. Petitioners also filed an RTI
application with ONGC but the request for information was denied. A
copy of the application and its response is also annexed to this petition.
(Annexure P14 colly).
THE PETITIONER
2) The petitioner is a financial expert and a lawyer. He has filed
several notable public interest petitions that have unearthed corruption
and financial irregularities. His PIL against Cogentrix prevented a loss
worth approximately rupees 30,000 crores to the exchequer, and one
against Prasar Bharti benefited the organization by about Rs. 20 crores.
It was the complaint of the petitioner in the 2G spectrum scam that
eventually led to the registration of the FIR by the CBI, as has been
noted by this Hon’ble Court in the 2G case.
THE RESPONDENTS
3) Respondent No. 1 is the Union of India that have allowed the above
scam to take place and have now officially given final clearance to the
Cairn-Vedanta deal in violation of the public trust doctrine. Respondent
No. 1 has also given irregular and arbitrary extensions of time period
beyond that provided in the PSC to private firms for the exploration of oil
in various oilfields. These extensions have resulted in a loss worth
billions of dollars because of discoveries made during the extended
period in areas that had a very high probability of oil discovery.
4) Respondent No. 2 is the Oil and Natural Gas Corporation of India
(hereinafter the ‘ONGC’). ONGC is an oil and gas company owned and
controlled by Government of India. It has given up its legal rights to
facilitate the handing over of substantial ownership of a huge chunk of
the country’s oil reserves to M/s Vedanta Resources.
5) Respondent No. 3 is Cairns Energy, which is a United Kingdom
(UK) based company. It operates in India through its subsidiary Cairn
India Ltd. It entered into an agreement with Vedanta group on 16/6/2010
to sell 51% to 60% of its shares in Cairn India, for a consideration of
around USD 8.5 billion to USD 9.6 billion, without offering the shares to
its partner in the joint venture i.e. ONGC under an agreement of right of
first refusal. M/s Cairn is the beneficiary of illegal extensions being given
by the Government in the lucrative Rajasthan block.
6) Respondent No. 4 is Vedanta Resources, a global mining company
with its headquarters in United Kingdom (UK). It is the beneficiary of the
scam that is the subject matter of this petition. It has no experience in
the exploitation of oil fields. The company has been accused by the
Serious Fraud Investigative office of under invoicing of exports of iron
ore by one thousand crores and has been associated with human rights
abuses and environmental destruction.
THE CASE IN BRIEF
7) The RJ-ON-90/1 oil block (mainly in Rajasthan, with a small portion
in Gujarat, hereinafter called the ‘Rajasthan block’) was one of the pre-
NELP (pre-New Energy Licensing Policy) exploration blocks awarded in
Round IV in May 1995 to M/s Shell India. The Production Sharing
Contract (hereinafter the ‘PSC’) was signed between the Government of
India, Shell India and ONGC on 15 May 1995. Subsequently, Shell
India's participating interest was transferred in three phases between
September 1998 and June 2003 to Cairn Energy. ONGC is the
government nominee for the block and is entitled to 30% of the
participative interest in the Rajasthan block according to the PSC
between the ONGC and Cairn Energy.
8) The Rajasthan block has 6.5 billion barrels of oil in place capable of
producing over 1.4 billion barrels of oil, according to the latest balance
sheet of Cairns India. The operating cost of extraction is a mere
$3.5/barrel while the sale price realized is over $100/barrel. This vast oil
reserve would represent 30% of the total crude oil production of the
country. Similar quantity of crude oil purchased by the oil marketing
companies in the international market would cost 24 crore dollars or
Rupees 120 crores per day or Rupees 44,000 crores per annum with
additional transport costs. A copy of the relevant portions of the balance
sheet for the years (2010-11) of Cairn India to this effect is annexed as
Annexure P1 (page _______) and a copy of the press release issued by
Cairn India dated 23.03.2010 is annexed as Annexure P2. (page
_______)
Cairn-Vedanta deal
9) According to the balance sheet of Cairns India the operational cost
of production of one barrel of oil in the Rajasthan block is US 3.5 dollars
while the sale price is 10 to 15 % less than the oil price of ‘brent crude’
which works out to be over 100 US dollars per barrel. Hence, the profit
margins in selling-off this natural resource (that belongs to the people of
the country) are abnormally high. The present production is 125,000
barrels per day which is to be increased to 2,40,000 barrels per day.
Thus, this would constitute 30% of the total crude oil production of the
country.
10) ONGC, in its Joint Operation Agreement with Cairns group had a
clause that in case the Cairns Group wanted to sell its shares in Cairn
India it would first offer the same to the ONGC and if the ONGC refused
to buy the stake then only sell it to another party. Hence, ONGC had
Right of First Refusal (ROFR). However, Cairns Energy signed a deal
with Vedanta group on 16/6/2010 to sell 51% to 60% of its shares in
Cairns India, for a consideration of around USD 8.5 billion to USD 9.6
billion, without making an offer to the ONGC. In fact it denied that there
was any such ROFR with the ONGC.
11) The Rajasthan block has 6.5 billion barrels of oil in place capable
of producing over 1.4 billion barrels of oil. 41% of the recoverable 1.4
billion barrels translates into 574 million barrels of oil, which is worth
57.40 billion dollars at current rate of realization of 100 dollars per barrel
(10-15% discount to Brent crude). If the government share of profit
petroleum is taken at 35% (the government share rises from 20% to
50% after all costs are fully recovered in multiples) the amount involved
is around 37 billion dollars which translates into profits of around 23.5
billion dollars (operating cost of extraction is 3.5 dollars per barrels
royalty of 20%) even after Cairns paying royalty and cess on it. There is
additional profit from the 45,000 per day barrels of oil produced from the
two offshore oil fields in production which have not been accounted for.
These oil fields are also a part of Cairns India in addition to the
Rajasthan oil field. The loss is around one lac crores, (after deducting
the cost of acquiring the stake) in not acquiring the 41% additional stake
in the Rajasthan oilfield at current price of crude oil and much higher as
the price of oil increases in the next eight years.
12) ONGC had by a letter dated 30 August 2010 to the Cairn Energy
Group, claimed that by entering into Purchase Agreement with Vedanta
triggers a pre-emptive right of ONGC to acquire from Cairn India
participating interests held by Cairn India. However, according to the
Cairn Energy Group, the ONGC had no such right. The relevant portion
from the Vedenta’s own document addressed to its shareholders is
annexed as Annexure P3. (page _______)
13) Cairns India wrote to the Ministry of Petroleum, Government of
India on 26/8/10, for approval of the deal. Despite the ONGC’s objection,
the government did not take up the issue of the right of first refusal for
reasons best known to them and proceeded to give the deal its
clearance. Vedanta and Cairns India too proceeded to implement the
deal as if they have been assured that the government would approve
the deal and presumed that the ONGC’s objection would be brushed
aside. The government too gave its approval with the condition that
royalty would be paid pro rata by both the parties, and not be borne by
ONGC alone. A copy of the news report on Government’s decision
dated 26/7/11 in respect of royalty and cess while approving the deal is
annexed as Annexure P4. (page _______)
14) Even before the government went about completing the
formalities to approve the deal, Vedanta made an announcement of
open offer to the shareholders of Cairns India in terms of the Take over
code of SEBI (SAST Regulation) on 16/8/10, and after obtaining
approval of SEBI, it offered to buy the shares of Cairns India from the
public shareholders by an offer letter dated 1/4/11 which closed on
30/4/11.
15) Neither the government nor ONGC thought it fit to contest with
SEBI or in a court of law that there was a right of first refusal and the
offer should/could not be allowed to go through till the ONGC refuses to
exercise its right. It is significant to note that the companies who were
making the offer on behalf of the Vedanta group deliberately did not
disclose the fact that ONGC had written a letter dated 30/8/10 objecting
to the deal. A copy of the relevant newspaper report dated 28.02.2011 is
annexed as Annexure P5. (page _______) The conclusion from the
action of the parties is that the deal was fixed between the Vedanta
group, the government and the ONGC, who were merely going through
the motions of handing the precious oil resources to Vedanta. The
approval of the government being given on the basis of royalty
consideration was a fig leaf to justify the unwarranted largesse of billions
of dollars of oil because had ONGC acquired the 41 % shares it would
have been holding 71% of the shares and Cairns less than 10% and the
royalty issue could either be resolved on its majority holding, or impact
reduced because the cross subsidy would be 29% as against the 70%
earlier. It is usual practice that when ROFRs are not exercised then a
price has to be paid to party for giving up its preemption rights. For
example, in the Hutch Vodafone deal, Rs. 1700 crores was paid to
Essar for not exercising the ROFR. Therefore, it needs to be
investigated if ever Cairn/Vedanta paid any money to the ONGC or the
Government for not exercising the ROFR.
16) The public offer by Vedanta went through successfully as ONGC
did not assert its ROFR and it acquired 18.5% of the shares of Cairn
India. The offer was financed by SESA Goa Ltd and SESA Resources,
group companies of Vedanta, which in turn was leveraging on the
mining lease rights to iron ore worth over rupees one lac crores. The
iron ore resources belonging to the people were being used to raise
loans to buy the oil resources of the country.
17) The government approval given on the condition of the sharing of
royalty and cess on a pro rata basis in proportion to the ratio of share in
the oil fields (70% with Cairn India and 30% with ONGC), was a fig leaf
to justify the unwarranted largesse of billions of dollars of crude oil
because had ONGC acquired the 58.5% the issue of royalty could be
resolved on account of its majority holding. The Minister of State of
Petroleum in answer to a question in Rajya Sabha on 15/3/2011 had
stated that the ONGC had the liability to bear 100% royalty but could
recover the royalty as cost as per the provisions of the PSC. The
Solicitor General too in two different opinions had stated that under the
existing contract the royalty was cost recoverable and was to be paid on
pro rata basis in accordance with the share in the oil field and was not to
be borne by ONGC exclusively. The answer of the Minister is annexed
as Annexure P6. (page _______) Newspaper reports regarding the
opinion given by the Solicitor General are annexed as Annexure P7
(Colly). (page _______) News reports regarding the issue of royalty and
ROFR are annexed as Annexure P8 (Colly). (page _______)
18) If ONGC had acquired the shares under ROFR and was forced in
a worst case scenario to bear the entire royalty burden as earlier, then
the subsidy on royalty would be 29% on a holding of 71% of the
ownership interest as against the existing subsidy of 70% on the current
holding of 30%. The fact that Vedanta agreed to the revised deal and in
the process was willing to pay 70% of royalty and cess which was not
contemplated earlier shows how lucrative the deal of stake sale was
earlier when the entire royalty and cess was to be borne by ONGC. It
cannot be disputed that the share purchase deal was more profitable to
ONGC while paying 29% extra royalty than Vedanta agreeing to pay
70% extra royalty and therefore the ROFR ought to have been
exercised.
19) The quarterly result of Cairn India for the period April 2011 to June
2011 made provisions for the 70% of royalty which was being paid by
ONGC earlier. The result is annexed as Annexure P9. (page _______)
According to para 8 a provision of around 1163 crores has been made
for the liability of 70% royalty in one quarter. The royalty is on a
production capacity of 125,000 barrels per day as against the full
capacity of 240,000 barrels per day. The royalty foregone by
Vedanta/Cairn in a year at full production capacity would be 8331 crores
(1163 X 4 X 240,000 / 125,000) which represents the 70% of the excess
royalty that ONGC would pay. This royalty was cost recoverable but for
reasons best known was not disputed in a legal forum by ONGC. If
ONGC had exercised the ROFR to acquire 41% shares and continued
to pay 100% royalty it would would forgo only Rs 2415 crores each year
– to the government- as against the Rs 8331 crores that Vedanta agreed
to forego. This difference in the royalty would alone amount to Rupees
48,688 crores over eight years (8331-2415= 5916 for eight years is
47688 crores) and therefore on the royalty issue alone the deal was
more profitable to ONGC by the above amount compared to Cairns
Vedanta combine. The difference is also in excess of the amount being
paid by Vedanta for 41% stake in the oilfield through its 58% stake in
Cairn India.
20) The Home Ministry had also raised serious concerns over
acquisition of the oil field by Vedanta group, but still granted security
clearance. The Office Memorandum (OM) issued by the Home Ministry
on 25/11/2011, which was communicated to the Ministry of Petroleum,
states: “Independent of the above security clearances, this
company/group has come to notice of involvement in some cases of
default of payment, human rights violations, environmental damage in
mining and metal projects in India and abroad.” The OM lists out series
of instances that cause serious concern, but grants security clearance
nonetheless by claiming that they do “not have a direct bearing of
security NOC”. A copy of news report published in The Hindu dated
18.01.2012 that quotes extensively from the said OM is annexed as
Annexure P10. (page _______) Petitioner had written a detailed letter to
the Home Minister requesting him to not grant clearance to the Vedanta
group’s acquisition, but the same was ignored. A copy of the said letter
dated 04.10.2011 is annexed as Annexure P11. (page _______)
21)The petitioner wrote letters to all the authorities including the Prime
Minister and the CVC on 5/3/11 requesting transparency in the deal,
exercise of right of first refusal, the calculation and the valuation in not
exercising the deal etc. A copy of the letter is annexed as Annexure
P12. (page _______) This was followed by a RTI application to ONGC
relating to disclosure of the terms of right of first refusal, whether the
same was offered to ONGC by Cairns, whether the right was
considered, the valuation report, opinion of the Solicitor General and the
correspondence with the government. The ONGC turned down the
request for information. A copy of the RTI application dated 10.03.2011
is annexed as Annexure P13 (page _______) and the response of the
ONGC received under RTI dated 15.04.2011 and 26.05.2011 are
annexed as Annexure P14 (Colly). (page _______)
22)The petitioner wrote another letter dated 25/5/11 to all the authorities
relating to the Vedanta group being charged with under invoicing of
export of iron ore by the Serious Fraud Office and the possibility of the
group purchasing the consent for the deal through the stealing of
national assets could not be ruled out and that the owner of Vedanta
was not a fit person to acquire the valuable oil assets of the country. A
copy of the said letter is annexed as Annexure P15. (page _______)
23)But despite the above facts, the deal has been given final clearance
by the Government of India on 24.01.2012. A copy of news report on the
same is annexed as Annexure P16. (page _______) Since this deal has
been made in such an irregular and arbitrary manner, without any
transparency and without complying with the mandate of the public trust
doctrine, the same is liable to be set aside. Had the ONGC been offered
ROFR and had it exercised its right, the exchequer would have
benefitted by over Rs 1 lakh crore. Since the true value of the oil
resources has not been reflected in the deal, it is reasonable to presume
that a lot of unaccounted money has changed hands between the two
companies and the Government. Hence clearly the decision has been
made on extraneous considerations, and without taking into account
relevant considerations.
Issue of Royalty
24) The PSC had an inexplicable and baffling clause by which the
ONGC was made responsible for payment of the entire royalty and cess
for the production of oil as opposed to just 30% (which was its
participative interest under the PSC). This clause has in fact resulted in
the ONGC actually losing money despite owning 30% in the highly
profitable oil field, with corresponding gains to Cairn India. The loss in
one quarter, on this account of excess royalty and cess paid by ONGC,
was approximately INR 1163 crores. In fact, though the Solicitor General
opinion and Minister’s assurance that royalty was cost recoverable and
therefore to be paid on a pro rata basis according to the share in the oil
field, the approval for the transfer of stake took place on the basis of
Cairn India bearing its share of royalty and not on the basis of
embedded profit of over a lac crores in the transfer of stake through
ROFR. This needs a comprehensive inquiry to fix responsibility and the
losses caused must be recovered from the beneficiaries.
Delayed relinquishment of area
24) According to the CAG Report, the PSC stipulated an exploration
period of seven years, and permitting an extension of upto three years.
This extended exploration period expired on 14 May 2005. At this stage,
the operator was required to relinquish the entire area, except for
discovery and development areas. However, out of the original contract
area of 11,108 sq.km., a total area of 6678.10 sq.km. (including
extended area of 1708.20 sq. km.) was retained, comprising of 1859 sq.
km. of development area in DA-1 field; appraisal area of 2884 sq. km.
(Northern Appraisal Area); and an additional1935.10 sq. km. of area in
the southern part, which was not designated as a discovery or
development area. This area was irregularly retained till 7 November
2007 (due to non-submission of maps by the operator in time), when it
was finally relinquished. Out of the appraisal area of 2884 sq. km, in the
Northern Appraisal Area, an area of 430.17 sq. km. was converted into
Mining Lease (DA-2 development area) on 15 November 2006.The oil in
the mining lease is worth billions of dollars and Cairns India will be
benefited to the extent of 70% of that amount. Further, in the footnote
the report mentions that although the initial term of the PSC is only for
25 years (from May 1995 to May 2020, subject to extension by mutual
agreement pursuant to PSC provisions), the Mining Lease granted by
the Government of Rajasthan for DA-2 (430.17 sq.km) is for 20 years
from November 2006 to November 2026 (which is beyond the initial term
of the PSC). The PSC term is, however, subject to extension by mutual
agreement as per PSC provision and in case that too is extended then
Cairns India will get six more years to exploit the reserves and will result
in loss of billions of dollars to the nation.
25) The CAG report further states that out of the remaining area of
2453.83 sq. km of the 2884 sq km of the appraisal area, the contractor
sought retention of the entire area for six months (from 15 November
2006), but was allowed by Government of India to retain an area of
879.50 sq. km. under PEL from 8 May 2007 till 7 November 2007.
822.00 sq. km. of the area of 879.50 sq. km. was converted into Mining
Lease (DA-3 development area) on 6 November 2007; however, the
balance area of 57.5 sq. km. was deemed relinquished. It is indeed
strange that while the extension period granted by the Government was
one year longer than requested without the earlier irregularity being
condoned.
26) From the said CAG report it is clear that 1252 sq km (430 sq km +
822 sq km) of commercial producing oil field was given to Cairns India
after the exploration period had expired under the PSC and the
extension granted was against public interest by the decision makers
who were confident that there would be no audit of their actions. It is
strange that while M/s Cairns was ruthless in enforcing terms on royalty
and cess which were hotly disputed, the Government was being
extraordinary generous in giving away billions of dollars of crude oil
which was not warranted by the terms of the contract.
27) The CAG report concludes: “Consequently, in our opinion, 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. This also indicates that the
discovery/development areas were not strictly delineated, and included
excess area.” Relevant chapter of the CAG report is annexed as
Annexure P17. (page _______)
28) The unwarranted extension granted beyond the contract period
led to billions of dollars of oil reserves being handed over to private
profiteers. As oil had already been discovered in the area, there was
need to enforce the terms of the contract so that the country would
benefit and not give unwarranted extensions that would only profit the
operator. The Government cannot claim to have discretion to grant
largesse worth billions of dollars. The possibility of extraneous
considerations and gratification cannot be ruled out.
29) In addition, according to the CAG report, 13 discoveries of oil were
made by the private operator on account of irregular extension of the
exploration phase granted by the Ministry of Petroleum. These
irregularities resulted in gains worth billions of dollars of oil to the private
operator Cairns and therefore needs to be investigated and unjust
enrichment of the operator must be recovered.
30) The petitioner, through newspaper reports, understands that
earlier an application was filed in this Hon’ble Court challenging the said
Cairn-Vedanta deal but the same was dismissed as withdrawn on
27.08.2010. The said IA was apparently numbered 13/2010 in Civil
Appeal 4110/2008. Petitioner submits that the said application was
different from the present petition in as much as the fact that the said
application was filed by a shareholder on company law and other such
grounds. The same was not filed on the ground of public trust doctrine
and was not in the nature of public interest litigation. It was filed much
before the deal was finalized and cleared by the Government. Since the
said application was dismissed as withdrawn, it neither makes the issue
res judicata, nor does it set any precedent. A copy of the order of this
Hon’ble Court dated 27.08.2010 is annexed as Annexure P18 (page
_______) and a news report of the same day is annexed as Annexure
P19. (page _______)
31) This Hon’ble Court in its recent decision in CPIL vs UoI (WPC
423/2010) while quashing 2G telecom licenses has held that economic
actions and policies of the state can be set aside if the same are shown
to be contrary to public interest or are detrimental to the public
exchequer. The same is the case here. Copy of the relevant pages of
the above judgment dated 02.02.2012 is annexed as Annexure P20.
(page _______)
32) The petitioner has not filed any other writ, complaint, suit or claim
in any manner regarding the matter of dispute in this Hon’ble court or
any other court or tribunal throughout the territory of India. The petitioner
has no better remedy available.
GROUNDS
A. That the public trust doctrine that has been recognized as part of
the law of the land mandates that State is the trustee of its natural
resources and it is the duty of the State to protect them. The
premise of the doctrine is that certain resources are of such great
public importance that they should not be subjected to private
ownership or private commercial exploitation, and must be used in
a manner so as to serve common good. The above doctrine was
explained and was held to be part of the law of the land by this
Hon’ble Court in M C Mehta vs Kamal Nath (1997 1 SCC 388).
Thus people of the country through their representatives have
sovereign control over all natural resources like water, rivers, land,
spectrum, oil and natural gas.
B. That the action of the Government in giving clearance to a Cairn-
Vedanta deal —ignoring the need for public welfare, ignoring the
fact that ONGC was never offered its right of first refusal and that
had the ROFR being offered and exercised the exchequer would
have been richer by over 1 lakh crores— amounts to a complete
violation of the above doctrine and hence is unconstitutional. The
actions are also clearly illegal, arbitrary and against public interest,
and therefore violative of Article 14 of the Constitution of India.
C. That the people of the entire country have a stake in natural
resources such as petroleum and natural gas and its benefit has to
be shared by the whole country. Petroleum and natural gas, held
by the government in public trust, cannot be given away without
due exercise of power and discretion guided by clear and cogent
policy an in violation of the principles enshrined in Art.14 and 39(b)
of the Constitution of India.
D. That the difference in the payment of the royalty by Vedanta and
ONGC amounted to around Rs 47,000 crores which alone should
have been sufficient reason to force the third respondent to offer
the shares to ONGC. The amount is more than the amount at
which the deal was struck between third and fourth respondent.
On the other hand, Cairn Energy UK would not have been
prejudiced and had got the same amount if it offered the shares to
ONGC under ROFR and yet mysteriously did not do so. This
raises a strong presumption that the entire deal is based on
extraneous considerations.
E. That not exercising of the preemption rights by the ONGC to the
detriment of the national exchequer and the benefit of a private
firm was not on the basis of any policy. It was therefore not open
to the ONGC to simply sign away the rights to a natural resource
that belongs to the people of the country. Hence giving up of its
rights by ONGC under ROFR is an unreasonable, arbitrary and
mala fide exercise of power which falls foul of Article 14 of the of
Constitution of India.
F. That at the current fallen price of brent crude of more than 110
dollars per barrel, projected production level of 240,000 barrels per
day, 41% of the share of the oil field represents over 20 billion
dollars of profits for the remaining period of the lease (presuming
that the same may not be extended) even after payment of pro
rata royalty and cess. The entire shareholding is available for less
than 8 billion dollars. There is absolutely no reason for the
Government to hand over valuable natural resources to private
profiteers when it has the first right to purchase the shares. Thus
the Government’s decision is made without proper application of
mind and without taking into account relevant considerations.
G. That petroleum and natural gas being a national asset belonging
to the people of India, the state could not have extended the time
for private corporations to explore beyond the time limit provided in
the PSC especially in areas where the existence of oil has become
known without framing clear policy in this regard. The extension of
time to exploit India’s oil fields, by the ministry of petroleum and
natural gas was an unreasonable and mala fide exercise of power
abhorrent to the doctrine of public trust.
H. That the state is accountable to its people for the exploitation of
natural resources and must show clear and cogent reasons before
vesting the right to exploit a natural resource to private
corporations, especially when the state itself had the opportunity to
exploit such resources, the profits of which would ultimately be a
part of the national exchequer. The government/ONGC while
dealing with natural resources worth billions of dollars, owned by
the people of the country, are bound to put every detail in the
public domain and to be completely transparent on the details of
the deal so that the people are convinced that they are not being
shortchanged and that these deals are not based on extraneous
considerations. Neither the government nor the ONGC has been
forthcoming on the details of the deal and have proceeded without
even minimum level of transparency.
I. That this Hon’ble Court in its recent decision in CPIL vs UoI (WPC
423/2010) while quashing 2G telecom licenses has held that
economic actions and policies of the state can be set aside if the
same are shown to be contrary to public interest or are detrimental
to the public exchequer.
J. That the prevailing corruption in the country in high places
seriously impairs the right of the people of this country to live in a
corruption and criminal free society. This is a violation of Article 21
of the Constitution. The right to life guaranteed to the people of this
country also includes in its fold the right to live in a society, which
is free from crime and corruption. The following decisions
conferring largesse of billions of dollars to the private operators
were without any public interest and are covered by section 13
(1)(d) (ii) and (iii) of the Prevention of Corruption Act and therefore
require criminal investigation by CBI to fix accountability:
(a) The introduction of the term in the contract between ONGC
and Cairns by which all the royalty and cess would be paid
by ONGC and not on a proportionate basis resulting in
ONGC losing money in spite of having 30% stake. The loss
in one quarter alone is over 1150 crores.
(b) The non-enforcement of the terms of PSC by the
Government and deliberately giving extension to the
exploration period resulting in loss of 13 wells which were
discovered in the extended period. The same also resulted
in loss of billions of dollars. The extension was completely
unwarranted especially in light of the fact that private
operator did not agree to pay its share of royalty and cess.
(c) The non assertion of the right to acquire 41% of the share
holding under the right to first refusal which has resulted in
a loss of over one lac crores.
PRAYERS
In view of the facts & circumstances stated above, it is most respectfully
prayed that this Hon’ble Court in public interest may be pleased to: -
a. Declare the Cairn Energy -Vedanta deal wherein Vednata
acquired shares of Cairn India, and the Government’s approval of
the said deal on 24.01.2012 as void ab initio.
b. Direct the ONGC to exercise its right of preemption over the
sale of shares of Cairns India on the same terms without causing
any loss or profit to Cairns Energy.
c. Direct the CBI to investigate the reasons for ONGC and
Government in not asserting and exercise their legal rights under
the ROFR and giving clearance of the Cairn-Vedanta deal on the
basis of the existing right to share the royalty and cess on pro rata
basis.
d. Direct the CBI to investigate the abuse of authority by
Ministry of Petroleum and ONGC by which ONGC (instead of
Cairns) was made liable to pay the entire royalty at the rate of 20%
and cess on the entire production instead of only on its 30% share
of production on oil resources in the Rajasthan block.
e. Direct the CBI to investigate the considerations involved
in the illegal extension of time for exploration given by the Ministry
of Petroleum and Gas to Cairns when it was fully aware that the
area had billions of dollars of oil as highlighted in the report of the
CAG.
f. Direct the CAG/Government to calculate the losses from the
payment of 100% of royalty & cess by ONGC before the Cairn -
Vedanta deal and direct the ONGC/Government to recover the
excess royalty paid by ONGC from Cairn India.
g. Issue or pass any writ, direction or order, which this Hon’ble
court may deem fit and proper in the facts and circumstances of
the case.
Petitioner
Through
PRASHANT BHUSHAN
Counsel for the Petitioner
Drawn By: Pranav Sachdeva, adv.
Drawn On: February 2012
Filed On: February 2012
New Delhi
CONSTITUTION OF INDIA HIGHLIGHTING HOW THE GOVERNMENT OF INDIA
ALLOWED TRANSFER OF OIL RESOURCES OF THE COUNTRY WORTH LAKHS OF
CRORES OF RUPEES TO A PRIVATE COMPANY BY GIVING UP ITS OWN LEGAL
RIGHTS IN COMPLETE VIOLATION OF THE PUBLIC TRUST DOCTRINE, ARTICLE 14
AND 21 OF THE CONSTITUTION OF INDIA.
To,
THE HON’BLE CHIEF JUSTICE OF INDIA AND HIS COMPANION
JUDGES OF THE HON’BLE SUPREME COURT OF INDIA
The Humble Petition of the
Petitioner above-named
MOST RESPECTFULLY SHOWETH: -
1) The petitioner is filing the instant writ petition in public interest
highlighting how the Government of India has allowed transfer of oil
resources of the country worth lakhs of crores of rupees to a private
company by giving up its own legal rights in complete violation of the
public trust doctrine, Article 14 and 21 of the Constitution of India. The
said doctrine that has been recognized as part of the law of the land
mandates that State is the trustee of its natural resources and it is the
duty of the State to protect them. The premise of the doctrine is that
certain resources are of such great public importance that they should
not be subjected to private ownership or private commercial exploitation,
and must be used in a manner so as to serve common good. This
Hon’ble Court in its recent decision in CPIL vs UoI (WPC 423/2010)
while quashing 2G telecom licenses has held that economic actions and
policies of the state can be set aside if the same are shown to be
contrary to public interest or are detrimental to the public exchequer.
The petitioner had written thrice to all appropriate authorities. Petitioner
had written to Prime Minister, Minister of Petroleum, Finance Minister,
CVC, CBI on 05.03.2011 and had followed up this letter with a reminder
to the above authorities on 25.05.2011. Petitioner had also written to the
Home Minister on 04.10.2011. The said letters are all annexed with this
petition (Annexures 11, 12 and 15). None of the above letters were
responded to by any of the authorities. Petitioners also filed an RTI
application with ONGC but the request for information was denied. A
copy of the application and its response is also annexed to this petition.
(Annexure P14 colly).
THE PETITIONER
2) The petitioner is a financial expert and a lawyer. He has filed
several notable public interest petitions that have unearthed corruption
and financial irregularities. His PIL against Cogentrix prevented a loss
worth approximately rupees 30,000 crores to the exchequer, and one
against Prasar Bharti benefited the organization by about Rs. 20 crores.
It was the complaint of the petitioner in the 2G spectrum scam that
eventually led to the registration of the FIR by the CBI, as has been
noted by this Hon’ble Court in the 2G case.
THE RESPONDENTS
3) Respondent No. 1 is the Union of India that have allowed the above
scam to take place and have now officially given final clearance to the
Cairn-Vedanta deal in violation of the public trust doctrine. Respondent
No. 1 has also given irregular and arbitrary extensions of time period
beyond that provided in the PSC to private firms for the exploration of oil
in various oilfields. These extensions have resulted in a loss worth
billions of dollars because of discoveries made during the extended
period in areas that had a very high probability of oil discovery.
4) Respondent No. 2 is the Oil and Natural Gas Corporation of India
(hereinafter the ‘ONGC’). ONGC is an oil and gas company owned and
controlled by Government of India. It has given up its legal rights to
facilitate the handing over of substantial ownership of a huge chunk of
the country’s oil reserves to M/s Vedanta Resources.
5) Respondent No. 3 is Cairns Energy, which is a United Kingdom
(UK) based company. It operates in India through its subsidiary Cairn
India Ltd. It entered into an agreement with Vedanta group on 16/6/2010
to sell 51% to 60% of its shares in Cairn India, for a consideration of
around USD 8.5 billion to USD 9.6 billion, without offering the shares to
its partner in the joint venture i.e. ONGC under an agreement of right of
first refusal. M/s Cairn is the beneficiary of illegal extensions being given
by the Government in the lucrative Rajasthan block.
6) Respondent No. 4 is Vedanta Resources, a global mining company
with its headquarters in United Kingdom (UK). It is the beneficiary of the
scam that is the subject matter of this petition. It has no experience in
the exploitation of oil fields. The company has been accused by the
Serious Fraud Investigative office of under invoicing of exports of iron
ore by one thousand crores and has been associated with human rights
abuses and environmental destruction.
THE CASE IN BRIEF
7) The RJ-ON-90/1 oil block (mainly in Rajasthan, with a small portion
in Gujarat, hereinafter called the ‘Rajasthan block’) was one of the pre-
NELP (pre-New Energy Licensing Policy) exploration blocks awarded in
Round IV in May 1995 to M/s Shell India. The Production Sharing
Contract (hereinafter the ‘PSC’) was signed between the Government of
India, Shell India and ONGC on 15 May 1995. Subsequently, Shell
India's participating interest was transferred in three phases between
September 1998 and June 2003 to Cairn Energy. ONGC is the
government nominee for the block and is entitled to 30% of the
participative interest in the Rajasthan block according to the PSC
between the ONGC and Cairn Energy.
8) The Rajasthan block has 6.5 billion barrels of oil in place capable of
producing over 1.4 billion barrels of oil, according to the latest balance
sheet of Cairns India. The operating cost of extraction is a mere
$3.5/barrel while the sale price realized is over $100/barrel. This vast oil
reserve would represent 30% of the total crude oil production of the
country. Similar quantity of crude oil purchased by the oil marketing
companies in the international market would cost 24 crore dollars or
Rupees 120 crores per day or Rupees 44,000 crores per annum with
additional transport costs. A copy of the relevant portions of the balance
sheet for the years (2010-11) of Cairn India to this effect is annexed as
Annexure P1 (page _______) and a copy of the press release issued by
Cairn India dated 23.03.2010 is annexed as Annexure P2. (page
_______)
Cairn-Vedanta deal
9) According to the balance sheet of Cairns India the operational cost
of production of one barrel of oil in the Rajasthan block is US 3.5 dollars
while the sale price is 10 to 15 % less than the oil price of ‘brent crude’
which works out to be over 100 US dollars per barrel. Hence, the profit
margins in selling-off this natural resource (that belongs to the people of
the country) are abnormally high. The present production is 125,000
barrels per day which is to be increased to 2,40,000 barrels per day.
Thus, this would constitute 30% of the total crude oil production of the
country.
10) ONGC, in its Joint Operation Agreement with Cairns group had a
clause that in case the Cairns Group wanted to sell its shares in Cairn
India it would first offer the same to the ONGC and if the ONGC refused
to buy the stake then only sell it to another party. Hence, ONGC had
Right of First Refusal (ROFR). However, Cairns Energy signed a deal
with Vedanta group on 16/6/2010 to sell 51% to 60% of its shares in
Cairns India, for a consideration of around USD 8.5 billion to USD 9.6
billion, without making an offer to the ONGC. In fact it denied that there
was any such ROFR with the ONGC.
11) The Rajasthan block has 6.5 billion barrels of oil in place capable
of producing over 1.4 billion barrels of oil. 41% of the recoverable 1.4
billion barrels translates into 574 million barrels of oil, which is worth
57.40 billion dollars at current rate of realization of 100 dollars per barrel
(10-15% discount to Brent crude). If the government share of profit
petroleum is taken at 35% (the government share rises from 20% to
50% after all costs are fully recovered in multiples) the amount involved
is around 37 billion dollars which translates into profits of around 23.5
billion dollars (operating cost of extraction is 3.5 dollars per barrels
royalty of 20%) even after Cairns paying royalty and cess on it. There is
additional profit from the 45,000 per day barrels of oil produced from the
two offshore oil fields in production which have not been accounted for.
These oil fields are also a part of Cairns India in addition to the
Rajasthan oil field. The loss is around one lac crores, (after deducting
the cost of acquiring the stake) in not acquiring the 41% additional stake
in the Rajasthan oilfield at current price of crude oil and much higher as
the price of oil increases in the next eight years.
12) ONGC had by a letter dated 30 August 2010 to the Cairn Energy
Group, claimed that by entering into Purchase Agreement with Vedanta
triggers a pre-emptive right of ONGC to acquire from Cairn India
participating interests held by Cairn India. However, according to the
Cairn Energy Group, the ONGC had no such right. The relevant portion
from the Vedenta’s own document addressed to its shareholders is
annexed as Annexure P3. (page _______)
13) Cairns India wrote to the Ministry of Petroleum, Government of
India on 26/8/10, for approval of the deal. Despite the ONGC’s objection,
the government did not take up the issue of the right of first refusal for
reasons best known to them and proceeded to give the deal its
clearance. Vedanta and Cairns India too proceeded to implement the
deal as if they have been assured that the government would approve
the deal and presumed that the ONGC’s objection would be brushed
aside. The government too gave its approval with the condition that
royalty would be paid pro rata by both the parties, and not be borne by
ONGC alone. A copy of the news report on Government’s decision
dated 26/7/11 in respect of royalty and cess while approving the deal is
annexed as Annexure P4. (page _______)
14) Even before the government went about completing the
formalities to approve the deal, Vedanta made an announcement of
open offer to the shareholders of Cairns India in terms of the Take over
code of SEBI (SAST Regulation) on 16/8/10, and after obtaining
approval of SEBI, it offered to buy the shares of Cairns India from the
public shareholders by an offer letter dated 1/4/11 which closed on
30/4/11.
15) Neither the government nor ONGC thought it fit to contest with
SEBI or in a court of law that there was a right of first refusal and the
offer should/could not be allowed to go through till the ONGC refuses to
exercise its right. It is significant to note that the companies who were
making the offer on behalf of the Vedanta group deliberately did not
disclose the fact that ONGC had written a letter dated 30/8/10 objecting
to the deal. A copy of the relevant newspaper report dated 28.02.2011 is
annexed as Annexure P5. (page _______) The conclusion from the
action of the parties is that the deal was fixed between the Vedanta
group, the government and the ONGC, who were merely going through
the motions of handing the precious oil resources to Vedanta. The
approval of the government being given on the basis of royalty
consideration was a fig leaf to justify the unwarranted largesse of billions
of dollars of oil because had ONGC acquired the 41 % shares it would
have been holding 71% of the shares and Cairns less than 10% and the
royalty issue could either be resolved on its majority holding, or impact
reduced because the cross subsidy would be 29% as against the 70%
earlier. It is usual practice that when ROFRs are not exercised then a
price has to be paid to party for giving up its preemption rights. For
example, in the Hutch Vodafone deal, Rs. 1700 crores was paid to
Essar for not exercising the ROFR. Therefore, it needs to be
investigated if ever Cairn/Vedanta paid any money to the ONGC or the
Government for not exercising the ROFR.
16) The public offer by Vedanta went through successfully as ONGC
did not assert its ROFR and it acquired 18.5% of the shares of Cairn
India. The offer was financed by SESA Goa Ltd and SESA Resources,
group companies of Vedanta, which in turn was leveraging on the
mining lease rights to iron ore worth over rupees one lac crores. The
iron ore resources belonging to the people were being used to raise
loans to buy the oil resources of the country.
17) The government approval given on the condition of the sharing of
royalty and cess on a pro rata basis in proportion to the ratio of share in
the oil fields (70% with Cairn India and 30% with ONGC), was a fig leaf
to justify the unwarranted largesse of billions of dollars of crude oil
because had ONGC acquired the 58.5% the issue of royalty could be
resolved on account of its majority holding. The Minister of State of
Petroleum in answer to a question in Rajya Sabha on 15/3/2011 had
stated that the ONGC had the liability to bear 100% royalty but could
recover the royalty as cost as per the provisions of the PSC. The
Solicitor General too in two different opinions had stated that under the
existing contract the royalty was cost recoverable and was to be paid on
pro rata basis in accordance with the share in the oil field and was not to
be borne by ONGC exclusively. The answer of the Minister is annexed
as Annexure P6. (page _______) Newspaper reports regarding the
opinion given by the Solicitor General are annexed as Annexure P7
(Colly). (page _______) News reports regarding the issue of royalty and
ROFR are annexed as Annexure P8 (Colly). (page _______)
18) If ONGC had acquired the shares under ROFR and was forced in
a worst case scenario to bear the entire royalty burden as earlier, then
the subsidy on royalty would be 29% on a holding of 71% of the
ownership interest as against the existing subsidy of 70% on the current
holding of 30%. The fact that Vedanta agreed to the revised deal and in
the process was willing to pay 70% of royalty and cess which was not
contemplated earlier shows how lucrative the deal of stake sale was
earlier when the entire royalty and cess was to be borne by ONGC. It
cannot be disputed that the share purchase deal was more profitable to
ONGC while paying 29% extra royalty than Vedanta agreeing to pay
70% extra royalty and therefore the ROFR ought to have been
exercised.
19) The quarterly result of Cairn India for the period April 2011 to June
2011 made provisions for the 70% of royalty which was being paid by
ONGC earlier. The result is annexed as Annexure P9. (page _______)
According to para 8 a provision of around 1163 crores has been made
for the liability of 70% royalty in one quarter. The royalty is on a
production capacity of 125,000 barrels per day as against the full
capacity of 240,000 barrels per day. The royalty foregone by
Vedanta/Cairn in a year at full production capacity would be 8331 crores
(1163 X 4 X 240,000 / 125,000) which represents the 70% of the excess
royalty that ONGC would pay. This royalty was cost recoverable but for
reasons best known was not disputed in a legal forum by ONGC. If
ONGC had exercised the ROFR to acquire 41% shares and continued
to pay 100% royalty it would would forgo only Rs 2415 crores each year
– to the government- as against the Rs 8331 crores that Vedanta agreed
to forego. This difference in the royalty would alone amount to Rupees
48,688 crores over eight years (8331-2415= 5916 for eight years is
47688 crores) and therefore on the royalty issue alone the deal was
more profitable to ONGC by the above amount compared to Cairns
Vedanta combine. The difference is also in excess of the amount being
paid by Vedanta for 41% stake in the oilfield through its 58% stake in
Cairn India.
20) The Home Ministry had also raised serious concerns over
acquisition of the oil field by Vedanta group, but still granted security
clearance. The Office Memorandum (OM) issued by the Home Ministry
on 25/11/2011, which was communicated to the Ministry of Petroleum,
states: “Independent of the above security clearances, this
company/group has come to notice of involvement in some cases of
default of payment, human rights violations, environmental damage in
mining and metal projects in India and abroad.” The OM lists out series
of instances that cause serious concern, but grants security clearance
nonetheless by claiming that they do “not have a direct bearing of
security NOC”. A copy of news report published in The Hindu dated
18.01.2012 that quotes extensively from the said OM is annexed as
Annexure P10. (page _______) Petitioner had written a detailed letter to
the Home Minister requesting him to not grant clearance to the Vedanta
group’s acquisition, but the same was ignored. A copy of the said letter
dated 04.10.2011 is annexed as Annexure P11. (page _______)
21)The petitioner wrote letters to all the authorities including the Prime
Minister and the CVC on 5/3/11 requesting transparency in the deal,
exercise of right of first refusal, the calculation and the valuation in not
exercising the deal etc. A copy of the letter is annexed as Annexure
P12. (page _______) This was followed by a RTI application to ONGC
relating to disclosure of the terms of right of first refusal, whether the
same was offered to ONGC by Cairns, whether the right was
considered, the valuation report, opinion of the Solicitor General and the
correspondence with the government. The ONGC turned down the
request for information. A copy of the RTI application dated 10.03.2011
is annexed as Annexure P13 (page _______) and the response of the
ONGC received under RTI dated 15.04.2011 and 26.05.2011 are
annexed as Annexure P14 (Colly). (page _______)
22)The petitioner wrote another letter dated 25/5/11 to all the authorities
relating to the Vedanta group being charged with under invoicing of
export of iron ore by the Serious Fraud Office and the possibility of the
group purchasing the consent for the deal through the stealing of
national assets could not be ruled out and that the owner of Vedanta
was not a fit person to acquire the valuable oil assets of the country. A
copy of the said letter is annexed as Annexure P15. (page _______)
23)But despite the above facts, the deal has been given final clearance
by the Government of India on 24.01.2012. A copy of news report on the
same is annexed as Annexure P16. (page _______) Since this deal has
been made in such an irregular and arbitrary manner, without any
transparency and without complying with the mandate of the public trust
doctrine, the same is liable to be set aside. Had the ONGC been offered
ROFR and had it exercised its right, the exchequer would have
benefitted by over Rs 1 lakh crore. Since the true value of the oil
resources has not been reflected in the deal, it is reasonable to presume
that a lot of unaccounted money has changed hands between the two
companies and the Government. Hence clearly the decision has been
made on extraneous considerations, and without taking into account
relevant considerations.
Issue of Royalty
24) The PSC had an inexplicable and baffling clause by which the
ONGC was made responsible for payment of the entire royalty and cess
for the production of oil as opposed to just 30% (which was its
participative interest under the PSC). This clause has in fact resulted in
the ONGC actually losing money despite owning 30% in the highly
profitable oil field, with corresponding gains to Cairn India. The loss in
one quarter, on this account of excess royalty and cess paid by ONGC,
was approximately INR 1163 crores. In fact, though the Solicitor General
opinion and Minister’s assurance that royalty was cost recoverable and
therefore to be paid on a pro rata basis according to the share in the oil
field, the approval for the transfer of stake took place on the basis of
Cairn India bearing its share of royalty and not on the basis of
embedded profit of over a lac crores in the transfer of stake through
ROFR. This needs a comprehensive inquiry to fix responsibility and the
losses caused must be recovered from the beneficiaries.
Delayed relinquishment of area
24) According to the CAG Report, the PSC stipulated an exploration
period of seven years, and permitting an extension of upto three years.
This extended exploration period expired on 14 May 2005. At this stage,
the operator was required to relinquish the entire area, except for
discovery and development areas. However, out of the original contract
area of 11,108 sq.km., a total area of 6678.10 sq.km. (including
extended area of 1708.20 sq. km.) was retained, comprising of 1859 sq.
km. of development area in DA-1 field; appraisal area of 2884 sq. km.
(Northern Appraisal Area); and an additional1935.10 sq. km. of area in
the southern part, which was not designated as a discovery or
development area. This area was irregularly retained till 7 November
2007 (due to non-submission of maps by the operator in time), when it
was finally relinquished. Out of the appraisal area of 2884 sq. km, in the
Northern Appraisal Area, an area of 430.17 sq. km. was converted into
Mining Lease (DA-2 development area) on 15 November 2006.The oil in
the mining lease is worth billions of dollars and Cairns India will be
benefited to the extent of 70% of that amount. Further, in the footnote
the report mentions that although the initial term of the PSC is only for
25 years (from May 1995 to May 2020, subject to extension by mutual
agreement pursuant to PSC provisions), the Mining Lease granted by
the Government of Rajasthan for DA-2 (430.17 sq.km) is for 20 years
from November 2006 to November 2026 (which is beyond the initial term
of the PSC). The PSC term is, however, subject to extension by mutual
agreement as per PSC provision and in case that too is extended then
Cairns India will get six more years to exploit the reserves and will result
in loss of billions of dollars to the nation.
25) The CAG report further states that out of the remaining area of
2453.83 sq. km of the 2884 sq km of the appraisal area, the contractor
sought retention of the entire area for six months (from 15 November
2006), but was allowed by Government of India to retain an area of
879.50 sq. km. under PEL from 8 May 2007 till 7 November 2007.
822.00 sq. km. of the area of 879.50 sq. km. was converted into Mining
Lease (DA-3 development area) on 6 November 2007; however, the
balance area of 57.5 sq. km. was deemed relinquished. It is indeed
strange that while the extension period granted by the Government was
one year longer than requested without the earlier irregularity being
condoned.
26) From the said CAG report it is clear that 1252 sq km (430 sq km +
822 sq km) of commercial producing oil field was given to Cairns India
after the exploration period had expired under the PSC and the
extension granted was against public interest by the decision makers
who were confident that there would be no audit of their actions. It is
strange that while M/s Cairns was ruthless in enforcing terms on royalty
and cess which were hotly disputed, the Government was being
extraordinary generous in giving away billions of dollars of crude oil
which was not warranted by the terms of the contract.
27) The CAG report concludes: “Consequently, in our opinion, 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. This also indicates that the
discovery/development areas were not strictly delineated, and included
excess area.” Relevant chapter of the CAG report is annexed as
Annexure P17. (page _______)
28) The unwarranted extension granted beyond the contract period
led to billions of dollars of oil reserves being handed over to private
profiteers. As oil had already been discovered in the area, there was
need to enforce the terms of the contract so that the country would
benefit and not give unwarranted extensions that would only profit the
operator. The Government cannot claim to have discretion to grant
largesse worth billions of dollars. The possibility of extraneous
considerations and gratification cannot be ruled out.
29) In addition, according to the CAG report, 13 discoveries of oil were
made by the private operator on account of irregular extension of the
exploration phase granted by the Ministry of Petroleum. These
irregularities resulted in gains worth billions of dollars of oil to the private
operator Cairns and therefore needs to be investigated and unjust
enrichment of the operator must be recovered.
30) The petitioner, through newspaper reports, understands that
earlier an application was filed in this Hon’ble Court challenging the said
Cairn-Vedanta deal but the same was dismissed as withdrawn on
27.08.2010. The said IA was apparently numbered 13/2010 in Civil
Appeal 4110/2008. Petitioner submits that the said application was
different from the present petition in as much as the fact that the said
application was filed by a shareholder on company law and other such
grounds. The same was not filed on the ground of public trust doctrine
and was not in the nature of public interest litigation. It was filed much
before the deal was finalized and cleared by the Government. Since the
said application was dismissed as withdrawn, it neither makes the issue
res judicata, nor does it set any precedent. A copy of the order of this
Hon’ble Court dated 27.08.2010 is annexed as Annexure P18 (page
_______) and a news report of the same day is annexed as Annexure
P19. (page _______)
31) This Hon’ble Court in its recent decision in CPIL vs UoI (WPC
423/2010) while quashing 2G telecom licenses has held that economic
actions and policies of the state can be set aside if the same are shown
to be contrary to public interest or are detrimental to the public
exchequer. The same is the case here. Copy of the relevant pages of
the above judgment dated 02.02.2012 is annexed as Annexure P20.
(page _______)
32) The petitioner has not filed any other writ, complaint, suit or claim
in any manner regarding the matter of dispute in this Hon’ble court or
any other court or tribunal throughout the territory of India. The petitioner
has no better remedy available.
GROUNDS
A. That the public trust doctrine that has been recognized as part of
the law of the land mandates that State is the trustee of its natural
resources and it is the duty of the State to protect them. The
premise of the doctrine is that certain resources are of such great
public importance that they should not be subjected to private
ownership or private commercial exploitation, and must be used in
a manner so as to serve common good. The above doctrine was
explained and was held to be part of the law of the land by this
Hon’ble Court in M C Mehta vs Kamal Nath (1997 1 SCC 388).
Thus people of the country through their representatives have
sovereign control over all natural resources like water, rivers, land,
spectrum, oil and natural gas.
B. That the action of the Government in giving clearance to a Cairn-
Vedanta deal —ignoring the need for public welfare, ignoring the
fact that ONGC was never offered its right of first refusal and that
had the ROFR being offered and exercised the exchequer would
have been richer by over 1 lakh crores— amounts to a complete
violation of the above doctrine and hence is unconstitutional. The
actions are also clearly illegal, arbitrary and against public interest,
and therefore violative of Article 14 of the Constitution of India.
C. That the people of the entire country have a stake in natural
resources such as petroleum and natural gas and its benefit has to
be shared by the whole country. Petroleum and natural gas, held
by the government in public trust, cannot be given away without
due exercise of power and discretion guided by clear and cogent
policy an in violation of the principles enshrined in Art.14 and 39(b)
of the Constitution of India.
D. That the difference in the payment of the royalty by Vedanta and
ONGC amounted to around Rs 47,000 crores which alone should
have been sufficient reason to force the third respondent to offer
the shares to ONGC. The amount is more than the amount at
which the deal was struck between third and fourth respondent.
On the other hand, Cairn Energy UK would not have been
prejudiced and had got the same amount if it offered the shares to
ONGC under ROFR and yet mysteriously did not do so. This
raises a strong presumption that the entire deal is based on
extraneous considerations.
E. That not exercising of the preemption rights by the ONGC to the
detriment of the national exchequer and the benefit of a private
firm was not on the basis of any policy. It was therefore not open
to the ONGC to simply sign away the rights to a natural resource
that belongs to the people of the country. Hence giving up of its
rights by ONGC under ROFR is an unreasonable, arbitrary and
mala fide exercise of power which falls foul of Article 14 of the of
Constitution of India.
F. That at the current fallen price of brent crude of more than 110
dollars per barrel, projected production level of 240,000 barrels per
day, 41% of the share of the oil field represents over 20 billion
dollars of profits for the remaining period of the lease (presuming
that the same may not be extended) even after payment of pro
rata royalty and cess. The entire shareholding is available for less
than 8 billion dollars. There is absolutely no reason for the
Government to hand over valuable natural resources to private
profiteers when it has the first right to purchase the shares. Thus
the Government’s decision is made without proper application of
mind and without taking into account relevant considerations.
G. That petroleum and natural gas being a national asset belonging
to the people of India, the state could not have extended the time
for private corporations to explore beyond the time limit provided in
the PSC especially in areas where the existence of oil has become
known without framing clear policy in this regard. The extension of
time to exploit India’s oil fields, by the ministry of petroleum and
natural gas was an unreasonable and mala fide exercise of power
abhorrent to the doctrine of public trust.
H. That the state is accountable to its people for the exploitation of
natural resources and must show clear and cogent reasons before
vesting the right to exploit a natural resource to private
corporations, especially when the state itself had the opportunity to
exploit such resources, the profits of which would ultimately be a
part of the national exchequer. The government/ONGC while
dealing with natural resources worth billions of dollars, owned by
the people of the country, are bound to put every detail in the
public domain and to be completely transparent on the details of
the deal so that the people are convinced that they are not being
shortchanged and that these deals are not based on extraneous
considerations. Neither the government nor the ONGC has been
forthcoming on the details of the deal and have proceeded without
even minimum level of transparency.
I. That this Hon’ble Court in its recent decision in CPIL vs UoI (WPC
423/2010) while quashing 2G telecom licenses has held that
economic actions and policies of the state can be set aside if the
same are shown to be contrary to public interest or are detrimental
to the public exchequer.
J. That the prevailing corruption in the country in high places
seriously impairs the right of the people of this country to live in a
corruption and criminal free society. This is a violation of Article 21
of the Constitution. The right to life guaranteed to the people of this
country also includes in its fold the right to live in a society, which
is free from crime and corruption. The following decisions
conferring largesse of billions of dollars to the private operators
were without any public interest and are covered by section 13
(1)(d) (ii) and (iii) of the Prevention of Corruption Act and therefore
require criminal investigation by CBI to fix accountability:
(a) The introduction of the term in the contract between ONGC
and Cairns by which all the royalty and cess would be paid
by ONGC and not on a proportionate basis resulting in
ONGC losing money in spite of having 30% stake. The loss
in one quarter alone is over 1150 crores.
(b) The non-enforcement of the terms of PSC by the
Government and deliberately giving extension to the
exploration period resulting in loss of 13 wells which were
discovered in the extended period. The same also resulted
in loss of billions of dollars. The extension was completely
unwarranted especially in light of the fact that private
operator did not agree to pay its share of royalty and cess.
(c) The non assertion of the right to acquire 41% of the share
holding under the right to first refusal which has resulted in
a loss of over one lac crores.
PRAYERS
In view of the facts & circumstances stated above, it is most respectfully
prayed that this Hon’ble Court in public interest may be pleased to: -
a. Declare the Cairn Energy -Vedanta deal wherein Vednata
acquired shares of Cairn India, and the Government’s approval of
the said deal on 24.01.2012 as void ab initio.
b. Direct the ONGC to exercise its right of preemption over the
sale of shares of Cairns India on the same terms without causing
any loss or profit to Cairns Energy.
c. Direct the CBI to investigate the reasons for ONGC and
Government in not asserting and exercise their legal rights under
the ROFR and giving clearance of the Cairn-Vedanta deal on the
basis of the existing right to share the royalty and cess on pro rata
basis.
d. Direct the CBI to investigate the abuse of authority by
Ministry of Petroleum and ONGC by which ONGC (instead of
Cairns) was made liable to pay the entire royalty at the rate of 20%
and cess on the entire production instead of only on its 30% share
of production on oil resources in the Rajasthan block.
e. Direct the CBI to investigate the considerations involved
in the illegal extension of time for exploration given by the Ministry
of Petroleum and Gas to Cairns when it was fully aware that the
area had billions of dollars of oil as highlighted in the report of the
CAG.
f. Direct the CAG/Government to calculate the losses from the
payment of 100% of royalty & cess by ONGC before the Cairn -
Vedanta deal and direct the ONGC/Government to recover the
excess royalty paid by ONGC from Cairn India.
g. Issue or pass any writ, direction or order, which this Hon’ble
court may deem fit and proper in the facts and circumstances of
the case.
Petitioner
Through
PRASHANT BHUSHAN
Counsel for the Petitioner
Drawn By: Pranav Sachdeva, adv.
Drawn On: February 2012
Filed On: February 2012
New Delhi
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