Delhi High Court refuses to stop Vedanta's deductions in oilfield dispute

The Delhi High Court has allowed Vedanta to proceed with deductions from its revenue share in the Mangala, Bhagyam, and Aishwariya fields, dismissing the Centre's appeal

The Delhi High Court on Friday dismissed an appeal by the Centre to restrain Vedanta from deducting payments from its revenue share from the Mangala, Bhagyam, and Aishwariya fields in the Rajasthan oil and gas blocks.

 

Justice Jasmeet Singh, in his interim order, rejected the government’s request to stop Vedanta from implementing a 2023 arbitral award. So far, Vedanta has adjusted about ₹3,235 crore from provisional revenue estimates for the second, third, and fourth quarters of FY 2023-24 and is yet to adjust another ₹1,347 crore. 

Vedanta can now proceed with its deductions until the final payout is quantified by the arbitration tribunal. 

“For the foregoing reasons, this Court, within the limited jurisdiction as noted above, is not to re-evaluate the merits or alter the view taken by the AT (arbitration tribunal), particularly when the AT has passed a well-reasoned order and reserved the appellant’s entitlement to seek re-adjustment… I find no reason to interfere with the impugned order. Hence, the instant appeal is devoid of merit and is accordingly dismissed,” the Delhi High Court stated in its interim order. 

 

The government had sought to restrain Vedanta from implementing the 2023 arbitral award by making adjustments in the provisional estimates, pending quantification of liabilities in Q2, Q3, and Q4 of FY 2023-24 (over $300 million).

 

The dispute stems from the 1995 production-sharing contract between the Union government, Shell (later acquired by Vedanta), and the Oil and Natural Gas Corporation Ltd for the Rajasthan oil and gas blocks.

 

The original license for oil and gas exploration and production in the Barmer block expired on 14 May 2020. The government then offered a 10-year extension but sought a higher share of oil and gas, along with the resolution of a ₹5,651 crore dispute over cost recovery. The government’s claim revolved around the reallocation of common costs among different fields in the block and the disallowance of pipeline-related expenses. The Directorate General of Hydrocarbons also raised audit objections for FY 2016-17 and 2017-18.

 

Vedanta disputed these findings and initiated arbitration. In August 2023, the tribunal issued a final partial award largely favouring Vedanta by dismissing most of the government’s claims, but did not fix the exact payment amounts. The award was partially modified in December 2023.

 

The modified award was in favour of Vedanta and rejected the government’s demands for a higher payout after disallowing costs of ₹9,545 crore and reallocating certain common costs, including pipeline expenses. The government challenged this award in the Delhi High Court, arguing that it conflicted with India’s public policy and legal principles.  "The judgment decides the challenge by the government to the interim order of the arbitral tribunal, whereby the tribunal rejected the challenge to the adjustment made by Vedanta and Cairn from the government's share of profit petroleum. The effect is that Vedanta has already adjusted and can adjust to the extent of approximately 530 million dollars," Anuradha Dutt, Founder & Managing Partner at of law firm DMD Advocates said. Dutt appeared for Vedanta and Cairn Energy Hydrocarbons Limited. 

The case file 

*  Court has rejected govt’s request to stop Vedanta from implementing a 2023 arbitral award

  *  Firm can proceed with deductions until final payout is quantified by arbitration tribunal

  *  The original licence for oil and gas  exploration and production in the Barmer block expired on May 14, 2020

  *  Dispute was regarding 1995 production sharing contract between the Centre, Shell (later acquired by Vedanta), and Oil and Natural Gas Corporation