Unilateral Deduction From Government's Profit Petroleum Violates Public Trust Doctrine: Delhi HC Upholds Rejection Of Vedanta's PSC Extension

"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." Delhi High Court, in a significant ruling, held that a private contractor cannot unilaterally deduct statutory tax liabilities from the Government's share of Profit Petroleum under a Production Sharing Contract (PSC).

A bench of Justice Purushaindra Kumar Kaurav dismissed Vedanta Limited's plea against the rejection of its PSC extension, observing that natural resources are vested in the State as a trustee, and any unilateral reduction of the government's share violates the constitutional Public Trust Doctrine.

Vedanta Limited, operating the offshore CB/OS-2 Block in Gujarat, applied for a 10-year extension of its PSC in 2021 under the Central Government's Extension Policy. While the application was pending, the government imposed a Special Additional Excise Duty (SAED) on petroleum crude, prompting Vedanta to unilaterally deduct its SAED liability of approximately Rs. 88 Crores from the Union's share of Profit Petroleum. Citing this unilateral deduction as a serious breach of trust, the Ministry of Petroleum and Natural Gas rejected Vedanta's extension application on September 19, 2025, leading the company to challenge the decision before the High Court.

The primary question before the court was whether the government could reject a PSC extension application on grounds other than those expressly mentioned in the Extension Policy, such as the applicant's subsequent conduct. The court was also called upon to determine if Vedanta was justified in unilaterally deducting its excise duty liability from the government's share of Profit Petroleum under the "change in law" clause of the PSC without prior adjudication.

State Action In Commercial Contracts Open To Review

The court first addressed the maintainability of the writ petition, firmly rejecting the Union's argument that contract extension matters are entirely immune from judicial review. Relying on Supreme Court decisions in Shreelekha Vidyarthi v. State of U.P. and Bharti Airtel Limited v. Union of India, the court noted that State actions in the contractual domain, especially those concerning natural resources, must conform to the non-arbitrariness mandate of Article 14 of the Constitution.

Public Trust Doctrine Paramount

The bench heavily emphasised the Public Trust Doctrine, observing that the Union of India acts strictly as a trustee of the people regarding the nation's natural wealth. Citing the Supreme Court's landmark ruling in Reliance Natural Resources Ltd. v. Reliance Industries Ltd., the court held that any contract or policy concerning natural resources must be interpreted in light of this doctrine to ensure that public interest is never compromised for private commercial gains.

No Absolute Right To Automatic Extension

Addressing Vedanta's contention that its application should have been deemed granted due to the government's delay in processing it, the court clarified that the Extension Policy does not provide for automatic renewals. The bench observed that the mere expiry of processing timelines does not vest an absolute right in the applicant, noting that a "casus omissus" cannot be read into a policy to create an automatic extension where none exists.

Subsequent Conduct Can Be Evaluated

The court ruled that the government was well within its rights to consider events and conduct that occurred after the extension application was initially filed. The bench noted that limiting the grounds for rejection strictly to technical parameters existing on the date of application, while ignoring a contractor's subsequent offending conduct, would directly defeat the Public Trust Doctrine and the purpose of the Extension Policy.

Residuary Power Of Rejection Vested In Government

Analyzing the text of the Extension Policy, the court held that Clause 5 is not the sole reservoir of the Union's power to reject an application. The residuary powers enshrined under Clause 9(b) allow the government to decline an extension, provided the decision is not arbitrary and is supported by valid justifications such as a breach of contract, unauthorized deductions, or a broader breach of trust.

Unilateral Deduction Lacked Bona Fides

Turning to Vedanta's deduction of the SAED amount from the government's Profit Petroleum share, the court found the action to be arbitrary and lacking bona fides. The bench held that Vedanta could not act as a "judge, jury, and executioner in its own case" by unilaterally assuming a material change in economic benefits under Article 16.7 of the PSC without seeking judicial adjudication or invoking the mandatory dispute resolution mechanism.

"The act undertaken by the petitioner, while short-circuiting a judicial adjudication, is not for a holy purpose of protecting or serving public interest, or protecting the natural resources, but rather to “maintain its economic benefits”..."

Belated Payment Does Not Cure Breach

The court observed that Vedanta's belated payment of the deducted amount, made just days before the impugned rejection order was passed, did not absolve it of its offending conduct. The bench remarked that the initial unilateral deduction was a serious breach of the agreed terms and caused massive financial loss to the public exchequer, wholly justifying the government's ultimate decision to deny the contract extension.

Dismissing the petition, the High Court upheld the Ministry's rejection order, concluding that Vedanta's unilateral deduction from the government's share in the exploitation of natural resources constituted a valid and serious ground for denying the PSC extension. The ruling firmly reinforced the State's overriding constitutional duty to safeguard public wealth against arbitrary corporate interpretations.

Date of Decision: 22 July 2026