The Delhi High Court (HC) has upheld the Union government's decision to deny Vedanta Ltd a 10-year extension of its production sharing contract (PSC) for the CB/OS-2 offshore oil and gas block off the Gujarat coast, paving the way for Oil and Natural Gas Corporation (ONGC) to assume control of the block's assets and operations.
The bench of justice Purushaindra Kumar Kaurav dismissed Vedanta's writ petition challenging the ministry of petroleum and natural gas's (MoPNG) 19 September 2025 order which had rejected the company's request to extend the PSC beyond 29 June 2023. The HC directed ONGC to immediately take over the contract area.
The Court held that MoPNG had acted within its powers in refusing the extension, after concluding that Vedanta had improperly deducted the Union government's share of petroleum profits to offset its liability arising from the special additional excise duty (SAED), despite being specifically directed not to do so.
The HC underscored that agreements involving the extraction of natural resources cannot be viewed merely as commercial contracts but must also be examined through the lens of the public trust doctrine, under which the Union holds natural resources in trust for the benefit of the people.
"Ex facie the said unilateral deduction was not bona fide. The petitioner is handling public resources of the people of India. The scheme of the PSC is such as would require the private company to give the share of the Government," the Court observed.
Vedanta argued that it met all the requirements under the 2017 extension policy governing PSC renewals and contended that the Ministry relied on factors outside the policy framework in rejecting its application.
The High Court, however, rejected this contention. It clarified that while an applicant has a right to have its request considered fairly and in accordance with the law, no company enjoys an absolute or automatic entitlement to an extension of a PSC.
The Court further observed that judicial review remains available in contractual matters to determine whether government action is arbitrary. However, after examining the facts, it found no arbitrariness in the ministry's decision.
A significant aspect of the ruling relates to the interpretation of the 2017 extension policy.
The Court ruled that the expiry of the timelines prescribed under Clause 1 of the policy does not automatically extend a PSC. It also held that the ministry is entitled to take into account developments that occur even after an extension application has been filed while deciding whether the applicant deserves an extension.
The judgement also clarified that the grounds listed under Clause 5 of the Extension Policy are not exhaustive and do not limit the government's authority to refuse an extension. According to the Court, MoPNG is entitled to consider any relevant factor, including conduct that undermines the contractual framework or runs contrary to the larger public interest in the management of natural resources.
The dispute arose after SAED was imposed on crude petroleum in 2022.
Vedanta had proposed adjusting its SAED liability against the government's share of the petroleum profit. Although the ministry rejected the proposal and warned that such an adjustment would violate the PSC, the company went ahead and deducted around US$9.33mn (million) or about ₹88 crore from the government's share between Q2FY22-23 and Q2FY24-25.
Subsequently, the directorate general of hydrocarbons (DGH) demanded recovery of the amount along with interest. Vedanta refunded the principal amount on 12 September 2025—just a week before the ministry rejected its extension application—but did so under protest while reserving its rights in arbitration proceedings.
The High Court held that the subsequent repayment did not erase the earlier conduct or prevent the government from considering it while evaluating whether the company should continue operating a public resource.
"The government cannot be held ransom to the whims of a private company, which as per its fancies, interpretations, wishful dreamy adjudications tramples upon the Union's share," the Court said.
It further observed, "The petitioner, while unilaterally deducting the Government of India‘s share of Profit Petroleum, unfortunately, has utilised India‘s natural resources for its own benefits, rather than for the interest of the Country. In doing so it has breached the obligations under the Public Trust Doctrine, which in turn flow from the Constitution of India."
The CB/OS-2 offshore block, located near Suvali on the Gujarat coast, comprises the Lakshmi and Gauri gas fields. It was originally awarded in 1998 to a consortium comprising Cairn Energy, Tata Petrodyne and ONGC. Vedanta later became the operator of the block.
At present, Vedanta holds a 40% participating interest, ONGC owns 50%, and Invenire Petrodyne holds the remaining 10%.
Although the original PSC expired on 29 June 2023, the government had granted five interim working permits while Vedanta's application seeking extension until June 2033 remained under consideration.
With the High Court dismissing the writ petition and all pending applications, the interim protection granted earlier stands vacated, leaving the Ministry's direction for ONGC to take over the assets and operations of the offshore block in force.
