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TMI Blog2018 (12) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... fficiency leads to the exercise of conscious option by the UOI (under Article 18.4) pursuant to its choice whether or not it intends to exercise its said option to purchase, in writing, not later than ninety days [90] prior to the commencement of the year in respect of which the sale is to be made. Thus, if the UOI, upon declaration of self-sufficiency of crude oil, elects not to purchase it, the contractor can be said to have an entitlement to export it. That eventuality did not arise in the facts of this case. On this count, the petitioner/appellants argument is insubstantial and has to fail. Whether under the FTP, the appellant could legitimately claim the entitlement they sought to enforce through writ proceedings? - Held that:- There is no right to export crude oil, per se. What the FTP enables is that if a case for export of crude oil is to be made, the canalizing agency, the IOL has to give the no objection certificate. The appellant s position therefore, that 'crude oil' is mentioned as STE Export through IOL, supports that no entitlement for anyone else to export crude oil is created. The relevant chapter in FTP provides that if STE itself wants to expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , inter alia through a share of the Government's nominee, royalty (paid to the State Government) and cess. It claimed that every additional US$ 1 per barrel of Rajasthan Block Crude Oil realized would fetch the public exchequer an additional US$ 41 million/Rs. 258 crores (Rs. 63/ per US$) on account of the Union's share of profit from petroleum, share of its nominee, royalty and cess. 3. Vedanta claimed that the Central Government s Foreign trade policy permits canalized export of crude oil through IOL or direct export with the approval of DGFT. In this respect Sr. No. 113 of Chapter 27 of Schedule 2 of ITC (HS) Classification of Export and Import was cited to say that they provide for the procedure for export of crude oil and it is permissible to export the crude oil. Consequently, Vedanta claimed an entitlement to export; the writ petition claimed directions to enforce that right. 4. The brief facts are that on 15.05.1995 a Production Sharing Contract ( PSC ) was executed between the Union, the Oil and Natural Gas Corporation Ltd. ( ONGC ) and Shell India Production Development NV ( Shell ), for the Rajasthan Block. On various dates between 1999 and 2003, Cairn Ene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot start till crude offtake was agreed with the buyers/nominees. Vedanta complained that PSUs were not forthcoming and the Union could not arrange for lifting of the entire production of 30,000 bpd by its nominated PSUs, CEIL issued a letter dated 22.07.2009 to the Union requesting for unfettered free marketing rights, so as not to curtail production by supplying Crude Oil to private buyers in India and to export smaller parcels through Kandla. The petitioner claimed that nominations had fallen short, i.e. there was requirement of additional nomination of 1.9 MMT for 2009-10, 4.4 MMT for 2010-11 and 8.9 MMT for 2011-12 on the basis of then production levels and forecasts. Eventually, production of crude oil from the Rajasthan Block for financial year 2009-10 was 2.6 MMT. 6. Vedanta refers to a meeting of the Empowered Committee of Secretaries ( ECS ), held under the Chairmanship of the Union Petroleum Secretary, convened on 17.08.2009, whereby the Union dispensed with the requirement of notifying self-sufficiency before permitting export, but permitted it (Vedanta) to sell the excess Rajasthan Block Crude Oil only to domestic private refineries, conditional inter alia upon: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even if purchase by the private domestic refineries were taken into consideration, 0.2 MMT of the Rajasthan Block Crude Oil would still remain unsold. 8. It is submitted that Vedanta had at the relevant time received several spot enquiries from international buyers on terms better than the PSC pricing agreed to with the PSUs (MRPL and IOL), as also with the private domestic refineries. It sought permission for export of the Rajasthan Block Crude Oil to avoid production constraints, and with a view to enable it to realize the best price for the said crude oil, which would be in the nation's best interest. It was pointed out that the private refineries export a significant portion of the refined products, which in effect would translate to export of the Rajasthan Block Crude Oil. Vedanta, on 8.1.2010, applied to the UOI for permission to supply the Rajasthan Block Crude Oil not lifted by it (i.e. the Union), through its nominee PSUs to a private SEZ refinery, as also export trial parcels to sustain production levels, as it was producing at a constrained production level of 22,000 barrels(bbls) per day as against a capacity of 50,000 barrels (bbls) per day, due to low off tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (no objection certificate) for export of Rajasthan Block Crude Oil to an SEZ refinery. The rationale for effecting direct supply rather than through IOL was explained. It was emphasized that commercial contracts for supply to an SEZ refinery had been negotiated and finalized by CEIL and it would be in the best position to ascertain volumes available for the SEZ refinery on a day-to-day basis. The commercial terms for supply to the SEZ refinery were also likely to be similar to a DTA refinery. Therefore, CEIL would be in a better position to directly supply the Rajasthan Block Crude Oil to the SEZ refinery and also finalize commercial terms for it. On 10.08.2011, IOL expressed its inability to increase offtake of the Rajasthan Block, but expressed willingness to facilitate Vedanta to export crude oil to a SEZ refinery, subject to UOI s permission. 11. Eventually on 11.07.2014, Vedanta received several international expressions of interest with offers approximately US$ 3-5 per barrel higher than that offered by the PSUs and domestic private refineries. They applied to the UOI for permission to export Rajasthan Block crude oil citing improved realization of US$ 3-5 per barrel. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners shall be entitled to freely lift, sell and export any Crude Oil and Condensate. Consequently, attaining self-sufficiency is a precursor to trigger the right of the petitioners to seek permission to export their participating interest/share of crude oil and condensate. 46. Moreover, Articles 18.10 and 18.11 provide that if the Union of India fails to lift or does not exercise its option to lift the petitioners entire Participating Interest share of Crude Oil and condensate, the petitioners have a right to seek compensation. In the present case, in absence of any notice of India attaining self-sufficiency, the petitioners can only claim compensation under Article 18.10 read with 18.11 from the the Union, under the dispute resolution mechanism provided under Article 33 of the PSC. 47. It is pertinent to mention that the petitioners vide letter dated 14th August, 2013 had itself requested the Government to permit swapping of crude oil in International market as it agreed and admitted the true position of interpretation of PSC as understood by the parties in the following terms:- With the commissioning of offshore loading terminal, we will be able to load aframax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... looking that despite the UOI and its nominated PSUs being unable to lift beyond 30% of the annual Rajasthan Block Crude Oil production (Respondent No. 2 has been able to lift only 16.2% (approximately) of the entire Rajasthan Block crude oil produced till November 2011), DGFT and IOL in failing to take any action on the petitioners applications for canalized export through IOL or direct export overlooked the substantial loss running into several hundred crores per annum to the public exchequer. Counsel also stated that the learned single judge overlooked that the UOI, had as far back as on 17.08.2009, dispensed with the requirement of notifying self-sufficiency before permitting export of Rajasthan Block Crude Oil. 15. Counsel submitted that the inaction on the part of DGFT constrained the Petitioners to continue to sell the Rajasthan Block Crude Oil to domestic private refineries, and such restrictions on marketing rights available to the petitioner/appellants, given the small domestic market for the Rajasthan Block Crude Oil with few domestic refineries capable of processing such oil, renders it unable to access the international market and obtain the best price they would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that until India attains self-sufficiency, the contractor is obliged to sell to the UOI or its nominee, the entire share of crude oil, yet Article 18.7 of the PSC entitles it to freely lift, sell and export any portion of its share of the Rajasthan Block Crude Oil which the UOI or its nominee PSUs are unable to lift. He argued that as UOI, and its nominee PSUs were unable to lift the entire quantity, Article 18.7 of the PSC operates and the appellants have the unfettered right to lift and export the Rajasthan Block Crude Oil to the said extent. Furthermore, urged Mr. Sundaram, Article 18.7 (of the PSC) is independent of Article 18.1.Therefore, that India has not attained self-sufficiency is irrelevant. It was also argued that Article 18 of the PSC does not provide for partial waiver/dispensation of the condition of India attaining self-sufficiency. Additionally, it was emphasized that the embargo was dispensed with in the meeting of the Empowered Committee of Secretaries held on 17.08.2009. 19. Mr. Tushar Mehta, learned Solicitor General appearing for respondents argued that the relationship between the parties, which is governed by the provisions of PSC executed between the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export of crude oil, apart from being not intended under the PSC was also against the national policy of zero per cent export till India attain self-sufficiency. It was stated that the energy security would be adversely affected in light of the fact, firstly that allowing crude oil exports would lower the domestic supply available to meet demand. It would also reduce India's energy security by increasing its dependence on foreign oil, which is still susceptible to recurrent supply disruptions which may occur for a variety of reasons, including conflicts, natural disasters as well as technical difficulties. It was argued, secondly that declining trends have been reported in domestic oil and gas production which would be further heightened if the export of scarce petroleum mineral viz. crude oil is permitted and would be detrimental to the Indian economy as an additional cost burden on account of two-side shipping tariff. It was also argued that permitting export of domestic crude can certainly compel Indian refineries to operate by importing additional equivalent quantity of crude oil at higher cost, consequently leading to reduction in gross refining margin of Indian refinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mported or exported by the concerned STE as per conditions specified in ITC (HS). The list of STEs notified by DGFT is in Appendix 2J. (b) Such STE (s) shall make any such purchases or sales involving imports or exports solely in accordance with commercial considerations, including price, quality, availability, marketability, transportation and other conditions of purchase or sale in a non discriminatory manner and shall afford enterprises of other countries adequate opportunity, in accordance with customary business practices, to compete for participation in such purchases or sales. (c) DGFT may, however, grant an authorisation to any other person to import or export any of the goods notified for exclusive trading through STEs. xxxxxxxxxxxxxxxx Chapter 27 Mineral Fuels; Mineral Oils and Products of their Distillation; Bituminous Substances; Mineral waxes. The UOI s position further was that DGFT after taking assistance and advice of EXIM Facilitation Committee under Para 2.51 rendered its opinion, which is as follows: 2.51 EXIM Facilitation Committee (a) Restricted item Authorisation may be granted by DGFT or any other RA authorised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Condensate, subject to the Government's option to purchase by giving notice to the Contractor as provided in Article 18.4. 18.4 Following the service of notice under Article 18.3 that India has attained self-sufficiency, the Government shall have the option but not the obligation to purchase all the production in a particular year of crude oil and condensate from a Development Area representing the Contractor's Participating Interest share of Cost Oil and profit Oil. The Government shall indicate whether or not it intends to exercise its said option to purchase, in writing, not later than ninety days [90] prior to the commencement of the year in respect of which the sale is to be made. Failure by the Government to give such notice within the period specified shall be conclusively deemed an election to continue the election made in respect of the current year or if no election has been made, to take all of the crude oil and condensate produced in the ensuring year. The Government shall be obliged to take and pay for the crude oil and condensate in respect of which it has or is deemed to have elected to exercise its option to purchase. 18.5 All payments in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in Article 18.6 b) of any Crude Oil and Condensate (whether forming part of the Government's or the Contractor's share) together with interest in accordance with Article 18.6, or the Government has paid all such amounts, whichever first occurs; provided, however, that if the Government makes a payment after the Contractor has commenced the sale of Government's share of Profit Oil and such payment together with the value of Government's share of Profit Oil sold, determined as aforesaid, exceeds all such amounts including interest, the necessary adjustment shall be carried out to refund to the Government forthwith the excess amount received by the Contractor. 18.7 The Contractor shall be entitled to freely lift, sell and export any crude oil and condensate which the Government has elected not to purchase pursuant to this Article 18, subject to Government's generally applicable destination restrictions in respect of countries with which the Government, for policy reasons, has severed or restricted trade. 18.8 No later than sixty (60) days prior to the commencement of production from a Development Area, and thereafter no less than sixty (60) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , of its expected of take and consequences of inability or failure to off take. xxxxxxxxxxxxxxxx ARTICLE 27- TITLE TO PETROLEUM, DATA AND ASSETS 27.1 The Government is the sole owner of Petroleum underlying the Contract Area and shall remain the sole owner of Petroleum produced pursuant to the provisions of this Contract except as regards that part of Crude Oil or Gas the title whereof has passed to the Contractor or any other person in accordance with the provisions of this Contract. 28. As is evident, the parties to the PSC agreed on certain terms. Clause 1.63 defined self-sufficiency in crude oil as the situation whereby the volume of Crude Oil and Crude Oil equivalent of Petroleum products exported from India during that Year either equals or exceeds the volume of Crude Oil and Crude Oil equivalent of Petroleum products imported into India during the same Year. By clause 18.1 till self-sufficiency was attained the Contractor shall be required to sell to the government or its nominee all of the Contractor's entitlement to crude oil and condensate in order to assist in satisfying the national demand. Clause 18.2 obliged the contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be obliged to take and pay for the crude oil and condensate in respect of which it has or is deemed to have elected to exercise its option to purchase.. 30. Articles 18.5 and 18.6 are the mechanism for payments to the contractor, and consequence of the failure to pay. In case of the default event- i.e omission to pay in accordance with Article 18.5, the contractor has the option to sell or condensate quantities produced and even export, by virtue of Article 18.6. Then comes Article 18.7; it states that The Contractor shall be entitled to freely lift, sell and export any crude oil and condensate which the Government has elected not to purchase pursuant to this Article 18 subject to destination restrictions. 31. A joint reading of Articles 18.3 to 18.7 would show that: (a) self-sufficiency is to be declared by the UOI, in a given year having regard to the objective material; (b) self-sufficiency is the first contingency which can enable the contractor to suspend its obligation and proceed to lift and export the crude oil; (c) Concededly it is not the appellant s contention that self-sufficiency was declared, nor that conditions for its declaration existed; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular Clause 2.11 of the FTP (27 August 2009 - 31 March 2014) and Clause 2.20 of the FTP (1 April 2015 - 31 March 2020) permits the free export of crude oil, subject to its being done through a canalizing agent which in terms of Chapter 27 S.No.87 of the FTP (1 April 2015 - 31 March 2020) is the IOL. It is therefore argued that IOL as the canalizing agent was bound in law to facilitate the export of crude by the appellants, and failure on its part obliged DGFT, the authority under the FTP, to direct it to do so. The appellants consequently point out that the learned single judge fell into error in assuming that merely because export of crude oil was through a canalizing agency, i.e. the third respondent, its export would be restricted, when in fact, the nomination of a canalizing agent was only a form of regulating the export and not restricting it. The learned single judge, however, went into the issue of whether contractually under the PSC, the appellant was entitled to export the crude. It was submitted that, if at all this issue was of any relevance, it could only be so if an inter se dispute arose between the appellant and the other parties to the PSC, i.e. the UOI and ONGC. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STEs. Chapter 27 of Schedule I which defines mineral oils, also provides for item 87, tariff description 270.900 w.r.t. Crude oil only that STE Export through Indian Oil Corporation Limited was permissible. 37. Now, it is not as though a private entity has unrestricted right to export or import articles. It would be relevant here, to notice that in the context of whether any individual or entity can carry on international trade when it is regulated, the Supreme Court held as follows, in D. Navinchandra Co. Bombay Anr. Etc. v. Union of India Ors, [1987] 2 S.C.R. 989, wherein this Court has observed: Analysing the said order, it is apparent, (1) that the importation that was permissible was of goods which were not specifically banned, (2) such banning must be under the prevalent import policy at the time of import, and (3) whether items which were canalised or uncanalised would be imported in accordance with the relevant rules. These conditions had to be fulfilled. The Court never did and could not have said that canalised items could be imported in any manner not permitted nor it could have given a go-bye to canalisation policy In Dava s/o of Bhimj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;court would Proceed on the assumption that the decision is in the interest of the general public unless the contrary is shown. 39. Given this position in law, in this case, the court notices that there is no right to export crude oil, per se. What the FTP enables is that if a case for export of crude oil is to be made, the canalizing agency, the IOL has to give the no objection certificate. The appellant s position therefore, that 'crude oil' is mentioned as STE Export through IOL, supports that no entitlement for anyone else to export crude oil is created. The relevant chapter in FTP provides that if STE itself wants to export/import, it can do so and if 'any other person' intends to import/export, it will have to apply to the STE, which can enable exports. The Central Government in this case, states that permission to export cannot be given, because the Empowered Committee of Secretaries in its letter dated 27th January, 2016 rejected the appellants' request for export of crude oil. The Committee inter alia, stated that the energy security of the country is paramount for economic development and well being of the citizens of the country. All efforts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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