Centre For Public Interest ... vs Union Of India (Uoi) And Ors.
1999 Latest Caselaw 3 Del

JUDGMENT

Y.K. Sabharwal, J.

1. This petition in public interest has been filed seeking an independent investigation in respect of grant of a contract by the Government of India to a private consortium comprising of Enron Oil and Gas India Ltd. (for short 'Enron'), Reliance Industries Ltd (for short 'RIL') and ONGC. The Consortium has been granted 25 years lease of Mukta and Panna offshore oil and gas fields. According to the petitioner the contract is totally unconscionable induced by bribery and corruption and gives away the valuable natural resources of the country for a paltry sum of US$ 3.60 millions equivalent to approximately Rs. 12 crores only. It was contended by Counsel for the petitioner, that the relief for the cancellation of the contract may be taken up for consideration after completion of the independent investigation. Briefly the case of the petitioners is as noticed hereinafter.

2. In the year 1992, Government of India decided to privatize the oil sector. Pursuant to this decision the Government decided to handover several medium and small size discovered and developed oil and gas fields to private joint ventures in which ONGC was to also have a minor stake. One of the terms on which this privatisation had been approved by the Government was that the comparative economics of operating these fields through a Joint Venture or by ONGC on stand alone basis would be examined by the Government before a decision to grant contract to private party is taken.

3. In 1993 bids were invited for Mukta and Panna Oil fields. The negotiations with bidders were held between June and December, 1993. During this period Capt. Satish Sharma, who was the Petroleum Minister, received an amount of Rs. 4 crores from Reliance Industries, according to the statement made by Sh. B.N. Safaya, Private Secretary to the Minister, to CBI in Jharkhand Mukti Morcha Bribery case. In February, 1994, the Government approved the award of this contract to the aforesaid private Joint Venture alongwith ONGC.

4. the contract in question was awarded towards the end of the year 1994. Under the contract 25 years lease was granted to the Joint Venture in which 60% equity is held by ENRON and RIL. The lease is for extracting oil and gas from oil fields of Mukta and Panna. These oil fields had been developed by ONGC between 1973 and 1993 after incurring an expenditure of which the net present value in 1993 was Rs. 546 crores. ONGC was extracting oil from these fields and selling it to the Government at an administered price of approximately US $ 8 per barrel during the period around 1991 to 1993. In 1993 the administered price was approximately Rs. 1,741/- per tonne. The operating cost of extracting oil was less than Rs. 685/- per tonne. ONGC was still making substantial profits by selling oil to Government at the administered price.

5. The decision to award the contract was taken without examining the comparative economics of operating these fields through the Joint Venture or by ONGC alone. The suggestion is that had the Government examined the comparative economics for operating these fields through private sector or through ONGC on stand alone basis, it would have been apparent that on the terms, the contract was granted to Joint Venture, the Government would be loser of crores of rupees. The contention is that the award of the contract without examining the comparative economics was not only contrary to the decision approved by the Cabinet but even otherwise it amounted to distribution of largesse by the Government on the receipt of the bribe amounts running into crores of rupees. It has been pointed out that under the contract the Joint Venture was allowed to extract as much oil and gas from these fields as they could for next 25 years and sell it to the Government at the prevailing international price. On the other hand, the royalty and cess payable by the Joint Venture to the Government was frozen in rupee terms at 1993, levels for the next 25 years. In 1993 the royalty and cess were Rs. 1,381 /- per tonne. Rs. 481 /- was royalty and Rs. 900/- was cess. The transfer of the oil fields was granted for a payment called 'signature bonus' to ONGC of mere US $ 3.60 million which is approximately Rs. 12 crores. It has been pointed out that in the invitation of tender it was stated that the oil fields were estimated to have a recoverable oil reserves of 31.35 million tonnes worth which was more than Rs. 20,000 crores at current international prices. Apart from this, these oil fields had an estimated gas reserves of approximately 10 billion cubic meters (worth Rs. 4,000 crores at the current international price). It has also been pointed out that on account of low sulphur content from these oil fields, Reliance Industries in a submission to the Unit Trust of India for funds for this Venture has claimed that they would sell oil at the average price which was US $ 3 to 4 a barrel more than the current average international crude oil prices.

6. Reliance has been placed on the report submitted by CAG towards the end of 1996, inter alia, noticing that the comparative economics of developing specified oil fields on Joint Venture basis vis-a-vis ONGC/OIL developing these fields on a stand alone basis was not submitted to the Government before awarding the Production Sharing Contracts. It has also been pointed out that the estimates of the oil reserves were not properly assessed and it kept varying at different stages of the process. The bid evaluation was based on the lowest of these estimates and not on those given in the tender documents. Reference has been made to Table of Estimates of Oil reserve at different stages as given in the CAG report. According to it, as per the feasibility report of ONGC the oil recoverable reserves in Panna and Mukta oil fields were 31.35 MMT which was also the information furnished to the bidders but for purposes of bid evaluations the revised recoverable estimates as per ONGC were taken as 14.0 MMT. It has also been noticed in CAG report that during January-February, 1990, i.e. prior to the offer of fields for development under Joint Venture, ONGC had carried out 3600 line kms of 3D seismic survey in Rava field. Though the decision to offer this field for Joint Venture production was taken more than 2 years later i.e. July, 1992, ONGC had not interpreted the relevant data during this period. The reserve estimates kept varying at different stages leading to finalisation of the Production Sharing Contract. The estimated oil reserves of 14 MMT was even lower than the estimate of 20 MMT made by the successful bidder. The Petroleum Ministry could not explain to CAG the basis on which the recoverable reserves were revised from 31.5 MMT to 14.00 MMT which would make a substantial difference in working the economics of the project. The reply of the Ministry that carrying out 3D survey and obtaining opinion of international agencies on the same were time consuming and involved certain costs with uncertain benefits, was not accepted as a reasonable reason for arriving at the approximate oil reserves. It was noticed that a realistic assessment of the reserves is essential for assessing the techno-economic status and profitability of the field and in absence thereof it would be difficult for the Government to enter negotiations properly for obtaining higher Government take in the form of past cost, compensation, signatures and production bonuses to ONGC and increased share in profit petroleum. According to CAG the bargains with private parties were made from a relatively weak position which could have been avoided by firm commitment to data contained in NIT.

7. While noticing the inadequacies in the tender invitation and evaluation procedures, CAG has noticed that it was imperative that the names of the nominated officers present at the time of opening the bids are recorded and the bids opened are demonstrably authenticated by them on the same day to avoid any possible change of the bid at a later stage but there was nothing on the record to indicate that all bids considered for evaluation were received by the Ministry by 31st March, 1993 and were opened on the same day. Though the Ministry stated that bids were opened in the Ministry in the presence of representatives of the Ministry and ONGC but the relevant documents reveal that names of these officers at the time of opening of the bids were not recorded and comparative statements of original/revised bids offers were neither authenticated nor dated. The suggestion is that there is lack of transparency in the Government tendering procedure and also that the terms on which the bids were invited were not manifestly clear the everyone. In the bid documents it was not disclosed that ONGC even after invitation of bids, was incurring substantial expenditure. After invitation of the bids ONGC incurred expenditure of approximately Rs. 240 crores on Panna field. This expenditure was necessitated by the fact that there was a commitment in contract that ONGC would complete formalities such as Jackets main desk and pipe lines on which this amount was spent which would not be recovered from the Joint Venture. This information was not mentioned in the information docket furnished to bidders as part of tender documents. The information docket simply mentioned that certain facilities were under execution without clearly identifying as to who would bear the costs of such facilities. The non-disclosure of this key information has unduly benefited the successful bidders. The reply of the Ministry that details were given to all bidders at negotiation stage did not find favour with CAG as it was noticed that it does not cover the fact that eventually this investment was taken into account while awarding the contract. It was observed to be an unintended benefit to the successful bidder.

8. Reliance has also been placed on the observations of CAG regarding the absence of firm commitment having been taken form Joint Venture for operational costs and guarantee for committed production level. The bidders were asked to quote year wise operating expenditure (OPEX) and production levels during the contract period of 25 years. These alongwith capital expenditure quoted by the bidders were the main parameters based on which Net Present Value (NPV) analysis was carried out by the Ministry. The contract was awarded to the bidders who projected the highest NPV and offered maximum take to the ONGC and the Government. As NPV calculations for the bids were contingent on operation cost being kept low and production levels being maximised, CAG report said that the Ministry ought to have considered it necessary to determine both the parameters in the Production Sharing Contract (PSC). Contrary to this, operation cost has not been included as a firm commitment in any of the PSCs and no disincentives have been built into the contract for exceeding operation cost indicated in the bids. Similarly, no guarantee has been provided for achieving the committed production levels. The suggestion of Mr. Bhushan is that in case the operation costs are increased or higher operation costs are shown by the Joint Venture, the amount to be received by the Government and ONGC would considerably come down and thus the amount which was projected would not come to the Government and ONGC. It has also been observed in the report of CAG that in absence of clear enunciation of principles of computing cost escalation and control in the respective contracts, the "Management Committee" cannot exercise cost control to any meaningful extent and as such the Government take and the ultimate benefit of the PSC is unduly flexible and uncertain. The CAG has referred to another analysis made by Audit during the period 1986-87 to 1991-92, when Panna Mukta field was being operated by ONGC and observed that the weighted average operating cost (excluding royalty, cess and depreciation/depletion) of production of crude oil was only Rs. 685/- per tonne which shows that the operating cost under Joint Venture is much higher than the operating cost of ONGC. The reply of the Ministry that the operating cost of Joint Venture in the initial years would be higher because the operator has to set up all infrastructure etc. was observed to be not tenable as these were capital expenditures and should not have impact on the operating expenditure. If cost including cost as claimed by ONGC for the facilities provided by it were to be considered, the operating cost of the Joint Venture for the first year worked out to US $ 11.67 per barrel which was much higher. It was pointed out by Mr. Bhushan that the record shows that the ONGC was spending less than 3 Dollars per barrel. The CAG also noticed that even after updating ONGC operating cost of escalation, the Joint Venture operating cost was still higher,

9. Regarding concession relating to royalty and cess payments the CAG report notices that in the initial proposal submitted to the Government in June, 1992, the Ministry had stated that partners in the Joint Ventures would be required to pay royalty and cess. In the final PSC executed (after obtaining Government approval in January, 1994), between October and December 1994, the royalty and cess payments were frozen at the rates applicable at the time of invitation of bids (March, 1993), i.e. Rs. 481 /- per tonne as royalty and Rs. 900 per tonne as cess on oil for the entire period of 25 years, even though in February, 1994 itself Government had provisionally enhanced royalty on oil to Rs. 528/- per tonne with retrospective effect from 1st April, 1993. At on stage the Government was apprised of the concession proposed to be given to the Joint Venture by freezing of royalty and cess payments in the above manner. The result was that National Oil Companies were paying higher royalty in respect of projects undertaken by them independently.

10. It was also strenuously submitted that effect of freezing of royalty and cess payment at the rate of Rs. 1,381/- per tonne for entire period of 25 years would be that in years to come, in terms of Dollars the amount received would be a negligible percentage of International crude oil price on account of expected fall of Rupee value as compared to Dollars. Mr. Bhushan contended that a look at the Dollar-Rupee rate for last couple of years would clearly show the effect of freezing of the royally and cess payment in Indian Rupees at 1993, level for a period of 25 years.

11. Reference has also been made to the CAG report stating that the price of crude oil and gas produced by National Oil Companies is administered and thus what is paid to the Joint Venture under the contract is much more; the Joint Venture getting Rs. 1,423/- more for every tonne of crude oil sold by it to Government of India.

12. Mr. Bhushan contended that besides payments at double the rates to Joint Venture, as noticed above, the Joint Venture would also get the gas free, the value of which was approximately Rs. 4,000 crores as the expected gas to be taken by Joint Venture was 10 billion metric tonne.

13. While dealing with the estimated Government take for Panna and Mukta field Production Sharing Contract, as given in the affidavit dated 16th September, 1997 filed on behalf of the Union of India, Mr. Bhushan contended that various wrong assumptions were taken while working gross project revenue of Rs. 13,338 crores. According to learned Counsel, the wrong assumptions were :

1. The recoverable oil reserves were taken at 14 million metric tonnes though according to ONGC it was more than 31 million metric tonne.

2. Prices of crude oil will not increase and will remain static for 25 years.

3. Gas reserve was not taken into consideration.

14. The capital expenditure was taken at Rs. 2,079 crores. This would mean about Rs. 1,000 per tonne. Mr. Bhushan urged that on this basis too, the amount to be expanded by ONGC would be must less and the Government would have received supply of oil at a much less value. The operating expenditure was taken as Rs. 3,037/- crores which mean Rs. 1,500/- per tonne which was stated by Mr. Bhushan to be nearly two and a half times than the operating expenditure of ONGC of Rs. 645/- per tonne. Referring to the Government's share of profit petroleum amounting Rs. 330 crores it was explained that the share of profit petroleum of the Government would depend upon the formula of "Investment Multiple" which provides for Government and Contractors' share of profit petroleum. The profit petroleum which the Government may be entitled in any financial year in accordance with the said formula, shows that the Government would become entitled to it after the contractor has recovered all its capital costs and thus further submission of Mr. Bhushan was that if on the basis of said formula the Government of India's share is taken at Rs. 330 crores representing 5% it would mean that the Contractor's share would be many crores representing the balance 95%. The contention of Mr. Bhushan was that looking from any angle it was evident that no prudent person would have decided to give the contract to JVC for 25 years on the terms on which it was given except for oblique and mala fide reasons with a view to distribute largesse on taking hefty bribes of crores of rupees. It was vehemently contended that the present is a classical case of corruption at high levels.

15. It was also contended that those who were responsible for the grant of the contract and to undertake negotiations and analyse the bid on behalf of the Government and ONGC, were in fact looking after the interest of ENRON and RIL and not of the Government. It was pointed out that Mr. Mehrotra was a member of the Negotiating team and he was involved in the negotiations and immediately after retirement he joined RIL. It was further suggested that Mr. Mehrotra had access to 3D survey data and there is a possibility of the same having been passed on by him to the Joint Venture. Similar doubts have also been expressed about Mr. Khosla who had also joined RIL after leaving ONGC.

16. It was vehemently contended by Mr. Bhushan that only an independent enquiry and/or investigation can bring to light how the natural resources of the country have been sold for a song for reasons which are obvious. Mr. Bhushan submitted that for working out comparative economics what had to be seen was the payment the Government would have made to ONGC if it had extracted the oil on same terms as were given to Joint Venture and what it would be required to pay to JVC under the contract. Instead of doing that, Counsel contends, every kind of jugglery of accounts etc. is being indulged into by respondents to show that public interest has not been compromised.

17. The petition has been strongly opposed by Government, ENRON, RIL, ONGC and CBI. CBI has placed on record in sealed cover two reports as a result of investigation conducted by it on registration of a Preliminary Enquiry and examination of the issue by Oil India. It has been contended by Mr. Bhatt that no criminality in grant of contract has been found by CBI. On behalf of Joint Venture partners submissions were made by Mr. Kapil Sibal, Mr. Arun Jaitley, Mr. Harish Salve and Mr. B; Sen, Senior Advocates. Mr. Vaidyanathan assisted the Court on behalf of the Government. Reference was made to the extensive material placed on record in support of the contention that the contract in question was beneficial to the Government and the apprehensions and doubts of the petitioner are result of various wrong assumptions. We will first examine the preliminary submission urged by Mr. Sibal about the maintainability of the writ petition.

18. Mr. Sibal submitted that a petition of this nature is an abuse of the public interest litigation. Mr. Sibal contends this Court entertains public interest litigations with a view to provide redress to those who are unable, for social, economic or other genuine reasons, to approach the Court. Learned Counsel pointed out that in above category would fall cases like Bhagalpur Blinding, cases relating to environment and other pollutions, unauthorised construction etc. Mr. Sibal further submitted that where honest investigation has not been conducted by the Investigating Agencies in cases where serious allegations of corruption and bribery against the public functionaries have been made, in which category may fall the Hawala and JMM cases, are other class of cases, which the Courts have been entertaining as public interest litigation. The submission of Mr. Sibal, however, is that the present case does not fall in any of the aforesaid categories and here yet another category of public interest litigation is sought to be carved out by the petitioner requiring this Court to examine the terms of the contract entered into by the Government with private sector and decide the very mathematics of the contract in the garb of public interest and then presume that bribe must have been paid. It was contended that this new category of public interest litigation which is sought to be carved out, would not subserve public interest and would rather harm the public interest inasmuch as no internationally renowned operator would come forth to enter into such contract^ thus adversely affecting the development programme of the Nation and the concept of open economy being persued by respective Governments.

19. In short the preliminary submission of Mr. Sibal is that public interest litigation in the matters of award of contract by the Government in favour of private parties is not maintainable. Learned Counsel submitted that though there was no direct judgment of the Supreme Court on this preliminary submission but observations made by Supreme Court in some of the decisions clearly support this viewpoint. Strong reliance has, however, been placed on the decision of the High Court of Madras in an unreported decision in Re : K. Ramamoorthy v. Tamil Nadu Electricity Board and Ors., (W.P. No. 15819/1993, decided on 30th March, 1994). Mr. Sibal contends that in this case, on the examination of the case law on the subject, it was held that such public interest writ petition in respect of award of contract would not be maintainable. In Ramamoorthy's case petitioner's prayer for issue of directions for holding independent enquiry into the alleged illegalities and irregularities in the grant of tender floated by the Tamil Nadu Electricity Board allegedly resulting in heavy loss to the Public Exchequer of about Rs. 300 crores of tax payers money and that too in the foreign exchange which was alleged to have happened on account of blessing of the Government of Tamil Nadu, was declined by Madras High Court relying upon the decision of the Supreme Court in S.P. Gupta and Ors. v. President of India and Ors., . Reliance has been placed to the observations in the decision to the effect that the Court cannot take upon itself the role of a Commission of Enquiry -- a knight errant roaming at Will with a view to destroying evil wherever it is found. Reliance has also been placed on some observations made in the case of Tata Cellular v. Union of India, . We are, however, unable to accept the broad proposition that the public interest litigation in the matter of grant of contract by the Government is not maintainable or that a public spirited person in such matters has locus standi to approach the Court. To interfere or not in such matters would, of course, depend on facts and circumstances of each case. Neither the Madras High Court decision nor decision in Tata Cellular case lend support to the broad proposition put forth by Mr. Sibal. The writ petition was not entertained by Madras High Court as it was brought to the notice of the Court that the State Government had already appointed a Commission of Enquiry to go into the alleged irregularities in tender procedures in the import of Coal by the Electricity Board, tampering of records, loss to public exchequer, charges of corruption and criminal connivance involving the Chief Minister of Tamil Nadu, Minister for Public Works and officers. There is no doubt that the Government has freedom of contract and is allowed a fair play in the joints but its decision has to be fee from arbitrariness and not affected by bias or actuated by mala fides and if it is so, the Court is duty bound to quash the same despite the fact that it relates to matter of contract and irrespective of a competitor having not challenged it. If a contract is result of arbitrariness, bias or mala fides resulting in distribution of State largesse to individuals, the Court will not hesitate in quashing it when such irregularities are brought to its notice by a public spirited person by filing a public interest litigation or in ordering an independent enquiry or investigation if strong case for issue of such directions is made out. The Court would not, however, act on mere suspicion and surmises of the petitioner. In public interest litigation relating to grant of a contract by the Government, a really strong case will have to be shown by the petitioner alleging corruption and bribe and then only the Court will exercise jurisdiction in clear and rare cases and not in cases where reasonably plausible explanation exists for grant of contract. The Court will not act as a super auditor and take the Government to task even if Government has faltered so long as it has acted fairly. The Government is allowed certain amount of flexibility in such matters and its decision would be quashed only by applying Wednesbury principle that the decision is so unreasonable that no sensible person would have arrived at it. While deciding such a case the Court would of course keep in view, as one of the factors, of a competitor having not challenged the award of contract. It is different matter that when a public interest writ petition in such a matter of contract is filed, the Court would be more careful in examining the matter so as to ward off the possibility of a competitor having set up the petitioner. It has also to be borne in mind that an investor -- in particular a foreign investor, should not be entangled in avoidable litigation as foreign investment is one of the important aspect of open economy.

20. The thrust of the petition is that commercially terms of contract are so one sided in favour of ENRON & RIL so as to warrant presumption of contract having been procured by corrupt means. For this plea the main base of the petition is the report of CAG. It is sought to the supplemented by the statement of Mr. Safaya made before CBI under Section 161, Cr.P.C. and the fact of Mr. Mehrotra and Mr. Khosla after leaving Government & ONGC and Mr. Handique after, leaving Oil India, having joined the Joint Venture partners and the failure of CBI to conduct honest investigation.

21. Before examining the terms of the contract to form prima facie opinion whether the same are so unreasonable as to suggest the payment of bribe of hefty amounts and corruption at high levels, requiring further independent probe, it may be noticed that while examining these aspects it would also be relevant to bear in mind that the writ petition was filed in July, 1997, whereas bids were invited in 1992, and the contract awarded in 1994. We are, however, conscious of the explanation offered by the petitioner that the case came to light on examination of matter by CAG. At the same time it is also to be kept in view, as noticed earlier, that no bidder has challenged the Production Sharing Contract and also that there have been successive Governments headed by different political parties and none of them had questioned the contract. Moreover, neither the petitioner has alleged nor CAG report suggests that any other bidder had offered better commercial terms. The ENRON & RIL were evidently highest and best bidders. This is the background under which we are called upon to decide whether it is a fit case for issue of directions for further independent probe into the matter. We will now broadly examine the main points put forth by Mr. Bhushan in support of the contention that the contract is one sided and suggestive of corruption and presumption to be drawn under the provisions of Prevention of Corruption Act, 1988.

1. Comparative Economics of operating the fields through a Joint Venture or by ONGC on stand alone basis not examined by Cabinet before award of Contract.

It was pointed out that one of the terms on which privatisation had been approved by the Government was that comparative economics would be examined by the Cabinet but in February, 1994, the contract in question was approved without examining the same and this, Counsel contends, was as a result of payment of bribe' to the then Petroleum Minister Mr. Satish Sharma.

Mr. Vaidyanathan does not dispute that the approval granted by the Cabinet in July, 1992, regarding privatisation of the oil fields contemplated undertaking of comparative assessment for grant of contract and thus as per that decision comparative economics had to be examined to find out as to what would be the position if ONGC had to extract oil from these fields on stand alone basis without any partner. Learned Counsel admits that when the Cabinet granted approval in February, 1994, such a comparative assessment had not been done. The submission of learned Counsel, however, is that before the contract with Joint Venture was signed, ONGC had given comparative assessment and the aspect of ONGC exploring the oil on stand alone basis was examined and considered by the Government before entering into contract with Joint Venture. The comparative assessment was taken into account by the Minister of Petroleum in consultation with the Ministry of Law and Justice. Not disputing that at the said stage the matter did not go before the Cabinet Committee again, it was explained by Mr. Vaidyanathan that the February, 1994 decision of the Cabinet stipulated that the matter may be decided by the Minister. In this view, the mere fact of the comparative economics having not been put up before Cabinet is of no significance. Further, at best it would be an irregularity and would not be sufficient by itself without showing any prejudice which may have been caused to the public interest to direct further probe as sought by the petitioner. It would be relevant to bear in mind that fields in question were only partially developed for further development for which, according to Government, there was resource crunch at the time when decision to offer the fields for private participation was taken and, in any case, these were the matters of economic policy in respect whereof the Government has a greater latitude and flexibility and the Courts are slow to interfere.

2. Royalty & Cess payable by joint Venture to Government was frozen in Rupee terms at 1993 level for the next 25 years.

Regarding the Royalty and Cess which was not made a biddable item as per contract and the same being frozen at 1993 level, Mr. Vaidyanathan submitted that these levies are fixed under the Oil Industries (Development) Act, 1974 and Oil Field (Regulation and Development) Act, 1948, and can be changed from time to time by amendment of Schedules. It was explained that no prudent bidder would agree to a levy which can be enhanced by amendment and the bidders had to know their obligations in order to make the proper bids. It was pointed out that there were various options before the Government such as not to levy Royalty and Cess or to levy it on fixed basis either in Dollars or in Rupees or to link it with oil price. It was submitted that considering all these options it was thought fit and proper to have a fixed Royalty and Cess amount instead of not having it at all. In any case the Royalty and Cess amount payable was uniformly applicable to all the bidders. The submission is that in light of all these facts it cannot be said that there was any illegality in the stipulation of Royalty and Cess amount being paid in Indian Rupees at the rate at which the same were being charged in 1993.

The liability to pay Royalty and Cess is upon the oil produced and sold, irrespective of the volume of revenue based on oil prices. It was explained that even if the oil prices crash and that recently there was sharp decline of international oil prices, still a major part of sale proceeds is appropriated towards Royalty and Cess and the Government did not want to risk the amount and instead desired to have fixed amount. We do not find any basic fallacy in this approach.

3. Estimates of Oil Reserves were not properly assessed and bid evaluation was based on the lowest of these estimates and not on those given in the tender documents.

It was urged on behalf of the petitioners that for purposes of bid evaluation the oil reserve estimates were taken as 14.0 MMT although estimates of oil reserves at different stages even as per ONGC were much higher. The CAG report shows that as per feasibility report of ONGC the estimated oil reserves were 31.35 MMT and as per ONGC's Economic Recovery Plan the same were 24.9 MMT. It is also correct that as per information docket furnished to bidders the estimates of oil reserves were 31.35 MMT. There is also no dispute that forbid evaluation the recoverable estimates were taken as 14 MMT. It was urged on behalf of the petitioners and as also noticed in the CAG report the estimate of 14 MMT was even lower than the estimate of 20 MMT made by the successful bidder.

It has been noticed in the CAG report that during January-February, 1990, i.e. prior to offer of fields for development under Joint Venture, ONGC had carried out 3600 line kilometres of 3D seismic survey in Rava field. As noticed earlier, the decision to offer this field for Joint Venture production was taken approximately 2 years later in July, 1992. During this period ONGC had not interpreted the relevant data. The stand of the Ministry was that carrying out 3D survey and obtaining the opinion of international agencies on the same were time consuming and involved certain costs with uncertain benefits.

It was explained by the respondents that the reserve estimation from a field is an ongoing exercise based on the data (drilling, production data etc.) obtained through operators and the reserves may be revised either upward or downward depending upon the interpretation of field data. It was pointed out that reserves cannot be precisely estimated and the same can vary from time to time.

According to the respondents the fiscal regime provided in the contract took care of Government 'take' in the case of revision of reserves and any increase in the reserves will result greater revenue to the Government in various fiscal forms. To a large extent this has been accepted by CAG. But it states that a realistic assessment of reserves by the offeror is essential for assessing the techno-economic status and profitability of the field. It may be useful to reproduce as to what was stated by CAG in this regard :

"While the fiscal regime may provide for taking care of Government 'take' in case of increase in reserves, the fact remains that a realistic assessment of the reserves by the offeror is essential for assessing the techno-economic status and profitability of the field. In the absence of a reasonable assessment of reserves, it would be difficult for the Government to anchor negotiations properly for obtaining higher Government take in the form of past cost compensation, signature and production bonuses to ONGC and increased share in profit petroleum. Rationalisation offered by the Ministry on technical grounds for the inability of ONGC to timely interpret 3D data with them, shows that the bargains with private parties were made from a relatively weak position which could have been avoided by firm commitment to data contained in the NIT."

From the above it appears that probably two views were possible and it may have been more appropriate to evaluate the bid on the basis of data contained in the NIT but we are unable to conclude any mala fides particularly when the terms of the Production Sharing Contract take care of Government's 'take' in case of increase in reserves.

4. Contract did not provide for Past Cost Reimbursement to ONGC and Ministry did not disclose material fact regarding Post Bid Costs of ONGC in the information docket of the notice inviting bids.

A great stress was laid on this point by Mr. Bhushan. Learned Counsel strongly contended that it was elementary that crores of rupees in past had been incurred by ONGC and the said past costs had to be reimbursed to ONGC and not having done that, demonstrates that the grant of contract was mala fide. We are unable to accept the contention. The contention of learned Counsel has a basic fallacy. It ignores that in the notice inviting offers, no mention whatsoever was made requiring any bidder to make any payment towards the past costs or to reimburse ONGC of any unrecovered past costs incurred by it in connection with the development of these fields. It was neither the contention nor it could be contended that there were any mala fides right from the inception when the terms of notice inviting bids were drawn. It has also not been contended that the terms of notice inviting offers were tailor-made for ENRON/RIL. This contention has, therefore, to be examined keeping in view this vital aspect.

It appears that ONGC had incurred substantial past costs in developing the fields. There was, however, a deliberate decision not to make past cost a separate head to evaluate the bids. It was not made a biddable item. While replying to the Planning Commission whose audit had cautioned Ministry of Petroleum about past costs of ONGC, the stand taken by the Ministry, inter alia, was that to compensate ONGC, bidders were required to quote signature and production bonuses which were to be paid to ONGC and that where private investment was sought to be attracted, the economics of the project was of great importance. It also stated that with International prices of oil at fairly/low levels and with the Companies being required to pay Royalty and Cess, it may not be possible to fully reimburse ONGC for all past cost incurred. The Ministry also stated that past costs should be arrived at on the basis of established international practice and taking into account both the value of production realised from the fields as well as the Government 'take' through profit oil/profit gas in future revenue streams. According to the Ministry, the private investor was simply not concerned with historical sunk costs incurred on such fields as any rational investor would be concerned primarily with the return on his investment which is determined by the total 'take' of Government. The question of past costs seems to be a matter of difference of perception between ONGC and the Ministry and as to what amount ONGC would get and what would come to the Ministry/Government. The non disclosure of additional work by ONGC at its own costs in bid document and its disclosure at negotiation stage, seems more to be a procedural objection and is not of must consequence.

It has been explained that while offering bid amount, a bidder would consider as to what he would have to spend to develop and operate the fields and what would be the return on his investment and not what had been spent on it by ONGC.

22. It may be useful here to briefly notice the concept of Production Sharing Contract.

23. The oil rich countries with a view to raise capital or induct new and latest technologies, earlier used to sell oil and gas fields to international oil companies on receipt of outright upfront payment. It was learnt by owners from their experience that oil companies were getting higher than anticipated profits--may be on account of various difficulties including difficulty in properly and correctly estimating oil reserves. The Production Sharing Contracts were evolved to protect owners of oil fields. These contracts, inter alia, provide for owner getting more with improved profitability of the oil company. These contracts are attempted to structure in such manner that owner gets an increased proportion of the profits as the profitability of the project improves either due to higher than anticipated production of oil and/or lower than expected costs. According to respondents there is a committee, as provided in the contract, to oversee and supervise the operation costs in which the Government has almost the power of veto.

24. The terms to be incorporated in the contract cannot be placed in a watertight compartment. The nature of contract, various variables and also the long term impact or revenue receipts are some of aspects which are kept in view while finalising such contracts. It was pointed out that these were high risk activities. The estimate of oil reserve depended on lot of guess work and, therefore, there could be wide variations between the estimate of oil reserves and the oils which may ultimately be found. It has also to be borne in mind that whether it is an Indian bidder or foreign bidder it had to be a commercial transaction. These contracts are entered like any other commercial transactions to make profits. It was further pointed out that the international documents (Summary of World Fiscal System for Oil 1997) finalised by Barrow Company showed that this contract was more in favour of the Government and did not favour the contractor. The Government 'take' was 86%. Further it was evident when one looks at the oil contracts in various other countries that the contractor's share of profit in the contract in question was almost the lowest when seen in the context of such contracts in 12 countries. It was submitted that the petitioner's contentions were based on many wrong assumptions ignoring the hard realities of the nature of activities involved in the contract in question. How much oil would be available depends on various guess works. Further, in case after digging of well, the oil is not found the crores spent in digging amounts to almost a dead loss. It was pointed out that had it been an isolated contract ENRON/ RIL may not have been even opted for it like many big oil international companies which opted not to bid for it. It was submitted that ENRON/RIL opted for Panna-Mukta oil fields bearing in view as one of the important aspect that it may help them to have a foothold in the oil industry and it may help them to go international in the oil trade and also that they may get Tapti oil fields.

25. Regarding the past costs having not been reimbursed to ONGC, it was also explained that the ONGC had extracted oil and earned revenue from these fields over a period of 9 years before handing them over to Joint Venture. ONGC received payment under APM which guarantees ONGC a 15% post tax rate of return on its investment. Past cost is one of the element of the total economic value provided to Government of India. The bids were evaluated on the basis of highest economic value to Government of India including payment of signature bonus, production bonus, profit oil, royalty, cess and taxes etc. It was also submitted that under the contract Joint Venture is to be paid brunt crude price minus US $ 0.10/Barrel which means the purchaser i.e. Government of India would pay to JVC less than the international price. It is also pointed out that almost similar oil was being purchased by the Indian Oil Corporation at a price which is US $ 0.5 --1.0 above brent crude price. Regarding evaluating the PSC's it was submitted that economic value of any reserve equals the revenue receipts from oil and gas as well as net of the operating and capital costs, taxes and levies (including royalty and cess) incurred to realise the revenue. It was also pointed out that risk factor was such that production from any Well can decline 8 to 10% or more per year. The production platforms erected on huge capital costs are of salvage value once the Wells are exhausted. It was also disputed that there had been trend of increase in oil prices. It was pointed out that in July, 1998 the international oil price was 11.954, Dollars per barrel. In August, 1998 it was 11.944 Dollars per Barrel. In September, 1998 it was 11.855, Dollars per Barrel and in October, 1998 it was 13.29 Dollars per Barrel. It was explained that the calculations placed on record by either side make it clear that the Government 'take' on any assumption would not be less than 80% and it could go upto 93%.

26. Dealing with the argument that the JVC can peg up its capital and operational cost thereby reducing the payments to be made to the Government, it was pointed out that under the contract the capital cost have been limited to or capped at the figure of US $ 577.5 million beyond which it is not recoverable from the cost petroleum and regarding the operation cost the Government has almost a veto power.

27. From these fields, it was also pointed out, that ONGC was extracting about 8,000 Barrels per day whereas by use of modern technology and making huge investments, even in the 4th year i.e. 1998, about 27,000 Barrels per day are being extracted which figure is likely to go up to 37,000 Barrels per day in the 5th year. This results in great saving of the foreign exchange to the Government. The effect of the contract also is that ONGC can now utilise its resources which were earlier being utilised on these fields to other activities. It was also pointed out that on the aforesaid assets and 40% investment of ONGC during the period of contract, the Government will get 80% to 93% profit in any given year of contract and thus it could not be said that there was any compromise with public interest.

28. Reference has been made to the expenditure and investment made by Reliance and ENRON from 22nd December, 1994, upto 31st October, 1997, and revenue accrued to them from sale of crude oil during the said period to bring home the point that the break even point depends upon several variable factors and it will be reached after approximately 8 years if "proceeded on the assumption that the average international oil price was US $ 17 per Barrel and there were 143 million Barrels of economically recoverable reserves. Another tabulated form shows that if the average international price is 14 Dollars per Barrel, the break even point is not reached for about 12 years. All this was shown to bring home the point that various variable factors have an important bearing in a contract like the one in question. From material on record, it is also not possible to accept the plea that Joint Venture is getting Rs. 1,423/- more for every tonne of crude oil or it is getting the gas free.

29. The facts as aforesaid have been examined by us only with a view to prima facie satisfy whether the contract is unconscionable so as to call for an independent probe. We hasten to add that neither we are experts in the fields nor have we attempted to perform the function of a special Auditor.

30. Much was made of officers having joined RIL/ENRON after retirement or leaving ONGC and/or Oil India. Whether such officers violated any rule or regulation is not relevant for our purposes. If they have committed any such violation, it is to their own peril. For purpose of this petition, we are unable to read much into it.

31. Regarding the statement of Mr. Safaya, it may only be noticed that he retracted it when during investigation on registration of Preliminary Enquiry, his statement was recorded by CBI. We refrain from making any further comment on it. Regarding the missing of Part II file of CBI and role of Mr. Mahendra Kumawat, DIG, Mr. K.P. Raghivanshi and Mr. Murli languor as stressed by the petitioner, or role of Y.P. Singh as stressed by CBI, we may only say that both sides have their different versions to state and we need not go into it as, prima facie, we have not found the contract in question to be unconscionable. It may only be noticed that we have not found any such deficiency or discrepancy in the status reports submitted by CBI so as to direct an independent investigation either by Central Vigilance Commission or any other authority. We may also note that the expression of opinion on the terms of the contract in this judgment is only prima facie reached for the purpose of decision of this petition.

For the aforesaid reasons, we dismiss the petition leaving the parties to bear their own costs.