Delhi HC permits Vedanta to keep subtracting government’s portion in Rajasthan oil field.

In a blow to the Union government, the Delhi High Court on Friday rejected the Centre’s request to stop Vedanta Ltd from taking deductions from its revenue share in specific oil and gas fields in Rajasthan.

Justice Jasmeet Singh, in his provisional ruling concerning an arbitration conflict, denied the government’s plea to prevent Vedanta from executing a 2023 arbitration decision. To date, Vedanta has modified $377 million (approximately ₹3,235 crore) from provisional revenue projections for the second, third, and fourth quarters of 2023-24 and still needs to adjust an additional $157 million ( ₹1,347 crore).

The court decided that Vedanta has the right to keep making these deductions as allowed by the arbitration award, also permitting the mining company to update adjustments for the fourth quarter of FY23.

“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 reasons 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 ruling, in effect, allows Vedanta to proceed with its deductions until the final payout is quantified by the arbitration tribunal.

The Union government contended that Vedanta was lowering payments without consent, as the arbitration ruling did not indicate a precise financial figure. However, the Delhi High Court determined that Vedanta was simply adhering to the award, which specified the distribution of costs and profits under the production sharing agreement for the Barmer oil block in Rajasthan.

The court stated that the primary question of whether Vedanta’s deductions are completely accounted for or if additional amounts are still to be recovered is for the tribunal to determine in the quantification proceedings. The court stated that because the award was declaratory, determining the validity of the deduction at this point would disrupt the tribunal’s authority, and it emphasized that its ruling will not influence the government’s primary dispute regarding the arbitration award, which is still unresolved.

A declaratory award explains the rights, duties, or meanings within a contract without mandating prompt payment or action. It settles disagreements regarding the interpretation or implementation of agreements. In the instance of Vedanta, the tribunal outlined how to compute costs and profits under the production sharing contract but did not determine specific figures, allowing the final payment quantification to be addressed later if the parties failed to reach an agreement.  A dispute arose from a 1995 contract between the Union government, Shell/Vedanta, and ONGC over the Barmer oil block. Vedanta’s arbitration win was challenged by the government in court.