By TIOL News Service

NEW DELHI, OCT 21, 2016: PETITIONERS submitted that though Article 18.1 of the Production Sharing Contract ("PSC") provides that until India attains self-sufficiency, the Contractor is obliged to sell to the Government or its nominee the entire share of crude oil, yet Article 18.7 of the PSC entitles the Contractor to freely lift, sell and export any portion of its share of the Rajasthan Block Crude Oil which the Government or its nominee PSUs are unable to lift.

It is submitted that as Government and its Nominee PSUs are unable to lift the entire Rajasthan Block Crude Oil, Article 18.7 of the PSC comes into play and the petitioners have the unfettered right to lift and export the Rajasthan Block Crude Oil to the said extent.

Furthermore, Article 18.7 of the PSC is independent of Article 18.1 and, therefore, the fact that India has not attained self-sufficiency is irrelevant, the petitioner added.

The present writ petition has been filed for enforcement of the said legal right.

It is lastly contended that respondent-UOI's decision to deny permission to export was with intent to force the petitioners to sell their crude oil containing high viscosity and wax to Essar and Reliance at a price lower than the international rates.

The ASGappearing for respondents stated that the relationship between the petitioners and respondent is contractual in nature, which is governed by the provisions of PSC executed between the parties; that Union of India had entered into the said contract on 15th May, 1995 under Article 297 of the Constitution of India as it deals with natural resources of the country and, therefore, the High Court should not interpret the contract in exercise of writ jurisdiction. It is further submitted that the grievance raised by the petitioners qualifies as a dispute under the PSC which is arbitrable and hence, the present writ petition is not maintainable.

It is also stated that since in the present case PSU refineries were unable to lift the entire quantity of crude oil, the petitioners themselves requested the Government to permit sale of crude to Essar and Reliance.

The ASG also informed that the notional price difference between the domestic market and international market as urged by the petitioners is misleading and in fact, the petitioners are getting equal or more price from domestic private refineries as compared to the international market. So also, in view of section 3(2) of the Act, 1992, in exercise of the powers conferred upon the Central Government, the export of "crude oil" is provided in category of State Trading Enterprises ("STE"), and thus, is not freely exportable i.eexport of crude oilcan only be through "STE".

That the application of the petitioners to permit export of crude oil was considered by the DGFT after taking assistance and advice of EXIM Facilitation Committee &the DGFT and the EXIM Facilitation Committee sought the No Objection Certificate from the Administrative Ministry, i.e., the Ministry for Petroleum and Natural Gas and finally the DGFT in its meeting held on 16th February, 2016 rejected the petitioners' request in view of denial of NOC by Ministry of Petroleum and Natural Gas to the proposal.

Inasmuch as the ASG submitted that allowing export of domestic production of crude oil is neither legally nor economically justified.

After considering the submissions made by both sides, the High Court analysed paragraph 2.20 and Chapter 27 of the FTP 2015-2020 and observed –

+ In the opinion of this Court, merely because the product 'crude oil' is mentioned as STE and Export through Indian Oil Corporation Limited, it does not create a legal vested right in anyone to export crude oil. The said paragraph and Chapter provide 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 IOC, who will consider the same in its wisdom and after consulting anyone it deems appropriate. The ultimate decision to permit export/import is always a decision to be taken by the STE which is, of course, justiciable. Consequently, in the present case, it is for the IOC to allow or refuse permission for export on germane grounds.

+ In any event, the Foreign Trade Policy is a broad policy document providing for regime of import/export of items and cannot be read as a statute for seeking a mandamus solely based upon it, if otherwise, the decision of the STE Union of India is not arbitrary.

+ The other option to a party wanting to export crude oil is to apply under para 2.20(c) for an authorisation from DGFT and if so authorised, then to export it directly.

+ In the present case, the DGFT when approached by the petitioners in view of Clause 18 of PSC, sought a 'No Objection' from the Government of India, who in turn took a considered decision in the meeting of Empowered Committee of Secretaries dated 27th January, 2016 to reject the petitioners' request for export of crude oil.

+ In the opinion of this Court, the reasons given by the Empowered Committee of Secretaries are legal, germane and valid grounds to decline the request for export of crude oil. In fact, the policy prohibiting export of crude oil has concurrence of all the departments of the Union of India and has nexus with the energy security of the country. It is pertinent to mention that the respondent-UOI's argument with regard to mismatch between indigenously produced oil and the energy demand within the country is not denied by the petitioners.

After reproducing Articles 1.63, 18 and 27.1 of the PSC which deal with domestic supply, sale disposal and export of crude oil and condensate, the High Court further observed –

++ Court is of the view that petitioners get the right to lift and export their Participating Interest share of Crude Oil and condensate only when a notice regarding attainment of selfsufficiency by India is given by Government to the petitioners and that too, subject to Government exercising an option under Article 18.4 to purchase the entire production in a particular year. Article 18.7 itself makes it explicit that it is only when the Government has elected not to purchase, the petitioners 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.

++ 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 respondent no.2, under the dispute resolution mechanism provided under Article 33 of the PSC.

++ The petitioners' argument of loss to the exchequer is presumptuous and a disputed question of fact as according to the respondent-UOI the crude generated by the petitioners is Dated Brent and not Bonny Light. This is all the more relevant as it is an admitted position that the crude oil generated by the petitioners is of very heavy quality, high viscosity and wax with high pour point and residues. Even the petitioners during arguments admitted that the only way to ascertain the international price is to allow export of the crude generated. Consequently, it cannot be said with certainty today that the petitioners and UOI are suffering a loss on account of non-export of crude oil.

++ The allegation that the respondents have denied permission to the petitioners to export crude oil only to benefit Reliance and Essar cannot be examined behind their back. Despite this fact being pointed out during the hearing, the petitioners did not implead Reliance and Essar to the present writ petition.

The Writ petition & the application were dismissed.

(See 2016-TIOL-2550-HC-DEL-CUS)