'Government Cannot Be Held Ransom': Delhi High Court Upholds Rejection Of Vedanta's Oil Block Contract Extension Bid

The Delhi High Court on Wednesday upheld the Union Government's decision rejecting Vedanta Ltd's application for a ten-year extension of its Production Sharing Contract (PSC) for an offshore oil and gas block in Gujarat.

Observing that the government "cannot be held ransom to the whims of a private company", the court held that Vedanta had rendered itself ineligible for an extension. It found that the company had unilaterally deducted the Government's share of Profit Petroleum towards its Special Additional Excise Duty liability.

Justice Purushaindra Kumar Kaurav dismissed Vedanta's writ petition challenging the Ministry of Petroleum and Natural Gas's order dated September 19, 2025. The order had rejected Vedanta's application for extension of the PSC and directed Oil and Natural Gas Corporation (ONGC) to take over the assets and operations of the contract area.

Holding that Vedanta's unilateral deduction was not bona fide, the court observed:

"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. This arrangement does, to a certain extent, put the private company in a dominant position as the reigns of the Government share lie in its hands. It must, however, be extra-cautious while treading this course. 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 dispute arose after the 25-year Production Sharing Contract for the CB/OS-2 offshore oil and gas block expired on June 29, 2023. Vedanta sought a ten-year extension under the 2017 Extension Policy. The Ministry rejected the application on September 19, 2025.

Before the Court, Vedanta argued that it had complied with the requirements of the Extension Policy and that the Ministry's decision was arbitrary and contrary to the policy. The Union Government, however, contended that Vedanta had unilaterally deducted amounts from the Government's share of Profit Petroleum, rendering it ineligible for an extension.

The court also held that Vedanta had no vested right to an extension of the PSC. It observed that while the company's application could be judicially reviewed, the Extension Policy did not create an automatic entitlement to renewal merely because the eligibility conditions were met.

On the issue of the unilateral deductions, the court held that Vedanta had acted as "judge, jury and executioner". It said the company had unilaterally assumed that there had been a material change under Clause 16.7 of the PSC and treated the Government's share of Profit Petroleum as the means of restoring its economic benefits, even though the provision did not permit such a course.

Explaining its reasoning, the Court held, "By unilaterally assuming there to be a material change, and the change/revision in the PSC, which would maintain the economic benefit of the parties including the Government of India, to be a deduction from the Government of India's share of Profit Petroleum, the petitioner has acted as a judge, jury, and executioner in its own case."

The court also invoked the Public Trust Doctrine. It held that Vedanta had used India's natural resources for its own benefit rather than in the country's interest by deducting the government's share of profit petroleum.

Holding that Vedanta's conduct breached its obligations under the Public Trust Doctrine, the court 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."

Vedanta further argued that its application ought to have been considered strictly in accordance with the Extension Policy. Rejecting the contention, the Court held that Clause 9 of the policy vested the government with discretion while deciding extension requests.

It held that satisfactory performance alone did not entitle an awardee to an extension. In reaching this conclusion, the Court relied on its earlier decision in Himalayan Flora, which held that extension clauses confer discretion on the competent authority and do not mandate renewal merely because a contractor has performed satisfactorily.

The court further held that where a contractor exploiting natural resources unilaterally appropriates the government's share in violation of the PSC, such conduct constitutes a valid ground for rejecting an extension under the policy.

Holding that Vedanta's conduct was "serious and shocking", the court concluded that the government was justified rejecting the company's request for a ten-year extension.

For Petitioner: Jayant K Mehta, Sr. Advocate with Anuradha Dutt, Anish Kapur, Nikhita K Suri, Suman Yadav, Gurudas Khurana & Raghav Dutt, Advocates

For Respondents: R Venkatramani, AGI, Ashish K Dixit, CGSC, Chetan Sharma, ASG, with Nakul Sachdeva, Partner, Shreyansh Rathi, Sagar Arora, Shrinkhla Tiwari, Abhinandan Sharma, Kartikay Aggarwal, Yamika Khanna & Karan Sharma, Umar Hashmi, Iqra Shiekh, Ajoy Roy, Avlokita Rajvi, Lakshya Khanna, Bakhshind Singh, Abhishek Gupta, Kumar Kartikeya, Amit Gupta, Mr. R V Prabhat, Shubham Sharma, Yash Wardhan Sharma, Naman, Dhananjay Singh & Chanakya Kene, Advocates, Luthra and Luthra Law Offices.