TaxTMI 
TaxTMI 
2000 (10) TMI 931
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....n that the domestic crude production was declining and there was a need to augment its production. With the said policy in mind, the GOI invited bids for 12 medium sized oil fields and 31 small sized oil fields. In response to the invitation of the GOI in regard to the two medium sized oil-fields, namely, Panna and Mukta, as many as 8 consortia offered their bids and after preliminary technical evaluation of those bids, discussions were held with the bidders and based on such discussions, the GOI shortlisted respondent Nos. 4 and 5 and another consortium of Hyundai Heavy Industries, Essar Oil Limited, Dan Offshore and Albion International. Sometime in October 1993, these two consortia were called for further negotiations by the Negotiating Committee to finalise the contract and after such negotiations and evaluation of the bids on the recommendations of the said Committee, the bid of respondent Nos. 4 and 5 was accepted in February 1994 and a Letter of Award (LOA) was issued to the said consortium. As per this award, the oil-fields - Panna and Mukta - were agreed to be given to the said consortium with a participating interest of 30% each to respondent Nos.4 and 5 in association wi....
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.... It was also contended before the High Court that the GOI agreed for a fixed royalty and cess payment from the consortium which would mean that the GOI has tied its income from the royalty and cess from these oil-fields to a fixed rate for a period of 25 years which was opposed to all known standards of business prudence. They also contended that the price at which the GOI agreed to purchase the oil from the JV was far in excess of the market price and over and above that excess market price, the GOI also agreed to pay a further sum of $ 4 per barrel of oil as a premium on an ostensible ground of the quality and locational advantage of the oil so purchased . The appellants who were the petitioners before the High Court strongly relied on the observations made by the Comptroller and Auditor General of India (CAG) who in its report submitted to the Parliament, had raised many objections in regard to this contract. They also relied upon a recommendation made by the Superintendent of Police, Anti Corruption Unit of CBI, Bombay, who had recommended the filing of a First Information Report pointing out various irregularities committed in the awarding of this contract. According to the ....
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....figure was deliberately inflated by the petitioners, and there was no such agreement to pay $4 per barrel as premium. On the contrary, the price fixed under the contract for purchase of the crude oil by the GOI was the international market price prevailing on the date of such purchase minus a rebate of $ 0.10 cents per barrel on such price which meant that the price paid by the GOI was less than the international price prevailing. The respondents also questioned the correctness of the petitioners claim that the quantity of oil reserves in these wells were to an extent of 54.4 MMT and also contended that at no point of time the reserve oil figure was deflated, as alleged in the petition. They also contended that re-employment of the officials named in the petition had no effect on the contract. In regard to the statement of Mr. Safaya, they contended that the alleged statement of the Private Secretary to the Minister was false and, at any rate, the same was subsequently withdrawn before the court and the said bribery case is the subject-matter of a pending criminal trial. The CBI has also denied the allegation made against it. The High Court as per its judgment dated 25th January, 1....
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....mics of operating the oil wells on a stand-alone basis by the ONGC or the OIL vis-a-vis offering these wells on a joint venture basis. He contended that the Ministry of Petroleum, however without any such comparative economis, in August, 1992, invited bids for development of the discovered oil/gas fields including the oil fields of Panna and Mukta on a joint venture basis without first considering the feasibility of operating them on stand-alone basis by the ONGC/OIL. The appellants contend that these oil fields which were with the ONGC on a long term lease and on which the ONGC had already spent more than Rs.800 crores from 1976 to 1993; and from which the ONGC had been producing oil and selling it to the Government of India at an administered price of $ 8 per barrel need not have been given on joint venture basis; and if a comparative study were to be made, it would have been crystal clear that the development of these wells on a stand-alone basis would have been much more profitable to the GOI than by giving these wells on a joint venture. On behalf of the first respondent in regard to this contention of the appellants, it is stated that even though in the notes submitted to th....
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....e CAG, the same were also placed before the CAG, and the CAG has also accepted this fact but commented in its report that the study conducted by the Ministry has not taken into consideration the ONGCs current cost of development of the well platforms vis-à-vis the cost of similar facilities to be provided by the joint venture contractors. Be that as it may, the fact remains that a comparative study was conducted; but the same was not placed before the GOI when the latter accepted the proposal of the Ministry to give these wells on a joint venture basis. The question, therefore, for our consideration is: does the non-placing of the materials pertaining to the comparative economics vitiate the contract impugned in this appeal. As noted above, the GOI in its counter has stated that though the result of the comparative economics conducted was not submitted to the Cabinet, the same was discussed with the Cabinet Sub-Committee on Economic Affairs and on their approval and with knowledge and consent of the Cabinet, a decision was taken to give the oil wells for development on a joint venture basis. This submission when taken in the background of the fact that at the relevant point ....
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.... 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. The GOI and the ONGC in their statements as well as in their submissions had given their own explanation in regard to the varying figures found in the records. They contended that the figure of 51.4 MMT originally noted was not an estimate of oil reserve only but was the total estimate of reserve of oil and gas found in these wells out of which the ONGC had estimated oil reserve at 34.4 MMT only; the balance being gas reserve. It is also contended that in the year 1990 the ONGC undertook a 3D seismic survey which revealed that the actual oil available for commercially viable extraction from these wells was to the extent of 14 MMT only. They contend that this figure, as obtained from the 3D seismic survey, was not conveyed to any of the bidders. On the contrary, the intending bidders were asked to conduct their own survey for the purpose of offering their bids. They also contend that 34.4 MMT of reserve oil was not actually the quantity of economically recoverable....
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....hat these two officers could have played an important role in reduction of the figures mentioned by the ONGC. It is true that in the year 1992, Mr. Mehrotra was the Member (Exploration) and Mr. Khosla was the Managing Director of the ONGC. Among these two officers, Mr. Khosla retired as an M.D. in the month of September, 1992 and Mr. Mehrotra retired as Member (Exploration) on 31.12.1993, while the contract in question was approved by the GOI on 23.2.1994 and a Letter of Award was issued to the consortium on 16.3.1994 by which time these two officers had left the services of the ONGC, and it is to be noted that they had no part to play in the approval of the award of contract to the consortium which was done by the GOI on the recommendations of a Committee of Secretaries. Therefore, it is difficult to accept the argument that these two officials connived to reduce the oil reserves so as to help their future employers. We will now consider the argument of the appellants that the GOI had deliberately agreed to peg down its income from the royalty and cess payable to it to a fixed rate for a period of 25 years which, according to the appellant, is opposed to all known standards of bu....
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....s on the footing that if international prices of oil were to be increased in future, there would be no corresponding increase in royalty and cess, hence, the GOI would stand to lose, but then this argument does not take within its sweep the repercussions consequent to a reduction in the international oil prices, however rare it might be, if it were to happen, the corresponding share of the GOI under this head would also get reduced. Then again, one should not be oblivious of the fact that the Profit Sharing Contract in the present case is not anchored on the basis of a single head of payment as we could see it is an offer of a basket containing payments under various heads. The offering party and the accepting party in such cases, will assess the total value of the basket and decide on the acceptance or otherwise of the offer. In such a case, it is not possible to evaluate the profit from a contract by assessing the value under each head of receipt individually. That can be done only by taking into account all the heads of receipt cumulatively. Therefore, it is difficult to accept the argument of the appellants that by pegging the rate of royalty and cess to a fixed sum, the GOI h....
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....h alone would cause a loss to the GOI to the tune of Rs.3,000 crores. They contend that there is no logic of paying $ 4 per barrel for the oil produced from Panna and Mukta oil fields on the ground of superior quality of oil or on the ground of locational advantage. In reply, on behalf of the GOI, it was contended that sharing of the profit petroleum between the Government and the contractor was a biddable item and the same was fixed with reference to the take of the GOI in the entire contract. They contend that this was the best offer that the GOI got from amongst the final bidders. They further contend that the bid for profit petroleum was invited by two alternatives, namely, on slabs of investment multiple (IM) or on the post tax rate of return achieved by the companies. According to this, the profit petroleum share of the GOI ranges from 5 to 50 per cent depending on the level of IM reached. It also contends that this share of profit petroleum with the Government is over and above the payment of statutory duties and other takes like royalty, signature and production bonuses, tax etc. It was also contended that this element of sharing profit petroleum is a new element and there ....
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....ernational market price for the purchase of crude oil from them. They also contend that, on the contrary, the agreement provides for a concession of $ 0.10 per barrel from the international price fixed under the contract. The price fixation in a contract of the nature with which we are concerned, is a highly technical and complex procedure. It will be extremely difficult for a court to decide whether a particular price agreed to be paid under the contract is fair and reasonable or not in a contract of this nature. More so, because the fixation of price for crude to be purchased by the GOI depends upon various variable factors. We are not satisfied with the argument of the appellants that the nation has suffered a huge financial loss by virtue of this arbitrary fixation of crude price. As a matter of fact, the figure mentioned by the appellants of Rs.3,000 crores as a loss under this head of pricing is based on incorrect fact that the consortium is charging $ 4 per barrel as premium. It is because of this factual error that the appellants came to the conclusion that under the contract the GOI had agreed to purchase the crude from the consortium at an inflated price. We also take n....
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....ttee, any arbitrary or unreasonable increase effecting the take of the Government in the PSC is impossible. Respondents 4 and 5 have also submitted that though it is a fact that in the initial stage of the working of the contract the operating expenses was in the range of $6 per barrel which was as expected because of the heavy expenditure they had to incur at the initial stage to make improvements on the wining of the oil, they point out that over the years the said expenditure has come down to $2.49 per barrel which almost equals to what was promised in the bid offer. From the arguments referred to herein above, it is clear that though under the contract no ceiling limit as such has been imposed on the OPEX, in our opinion, the apprehension of the appellants cannot be accepted as a likely happening because of the built safety of budgetary control by the Committee constituted under the said contract wherein the representatives of the GOI and the ONGC have an unassailable role in accepting in the proposal for increase in the OPEX or not. Therefore, there can be no apprehension that Respondents 4 & 5 can bulldoze their way into increasing the OPEX to the detriment of the interest of....
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....his modified offer was not acceptable to the GOI, hence the same was not further pursued. In regard to the costs incurred by respondent Nos.4 and 5 as to which the contract provided for reimbursement, it was pointed out that this investment by respondent Nos.4 and 5 had gone into the development of the oil wells when it was still being exploited by the ONGC. Consequently, the ONGC derived financial benefits from this investment while respondent Nos.4 and 5, who actually invested this amount, had no benefit whatsoever. This fact was also discussed at the time of the negotiations and the GOI considered it prudent to agree to the present terms in the PSC. It was averred that the amount spent on the wells by the ONGC for its development and the possibility of repayment of the amount spent by respondent Nos.4 and 5 was taken into account by the said respondents while offering their bids. We have considered the arguments of the parties in this regard and we agree with the respondents that from the investments made by the ONGC as also by respondent Nos.4 and 5 on these oil wells, the production of oil in these wells had increased and the benefit of this increase had gone exclusively to t....
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....be prima facie or otherwise held to be vitiated so as to call for an independent investigation, as prayed for by the appellants. Therefore, the above contention of the appellants also fails. While considering the allegations levelled against the acceptance of the impugned contract, we may usefully refer to the observations of this Court in the case of Tata Cellular v. Union of India (1994 6 SCC 651) which are as follows : The principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of ....
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....maker must understand correctly the law that regulates his decision-making power and must give effect to it. (ii) Irrationality, namely, Wednesbury unreasonableness. It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at. The decision is such that no authority properly directing itself on the relevant law and acting reasonably could have reached it. (iii) Procedural impropriety. Applying the above principle, we find it difficult to come to the conclusion that the decision of the GOI in accepting the bid of respondent Nos.4 and 5 on the advice of the Committee of Secretaries is so unreasonable as to accept the prayer of the appellants to grant the reliefs sought for in this appeal. Appellants rely upon another factual circumstance which is outside the terms of the PSC to establish their contention that the contract in question was awarded to respondent Nos.4 and 5 because of certain collateral considerations. In this behalf, they contend that there is a clear and specific evidence to show that respondent No.4 had paid certain sums of m....
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....nt to the headquarters. In the writ petition, it was specifically alleged that this Part II file was opened in the Anti Corruption Branch-II CBI, Mumbai sometime in March, 1996 itself and the same was segregated from the original file and withheld by some officers of the CBI with ulterior motives. In reply to the said allegation, the CBI filed a counter affidavit before the High Court verified by one Shri K.Surenderan Nair, Deputy Superintendent of Police, CBI Special Task Force, New Delhi, wherein in paragraph 4 of the said affidavit it is stated thus : So far as Part-II of File No.1/636/D/95/AC/BOM in which Shri Y.P.Singh, the then Superintendent of Police-II, ACB, Mumbai Branch allegedly recommended that a FIR be registered and a Regular Case started, it was got checked up with Dy.Inspector General of Police, ACB Mumbai who has intimated that no such file is in existence in ACB Mumbai Branch. ( emphasis supplied). It is based on the use of the words no such file is in existence which made the appellants contend before the High Court that a deliberate incorrect statement was made by the CBI in its affidavit filed before the High Court with a view to deny the allegation made by t....