SC approves Cairn deal with Vedanta

SC approves Cairn deal with Vedanta

Says govt move prudent,sets framework for intervention in business decisions

Commending the Centre for what it called a prudent economic decision,the Supreme Court Thursday gave a thumbs up to the government’s approval for the $8.48 billion deal by Britain’s Vedanta Group to acquire a majority stake in Cairn India which had rights to explore oil and natural gas blocks in Rajasthan.

The verdict not only upholds a major deal between two private multinational firms,in the quest of commercial discovery of oil and natural gas under the government’s exploration licensing policy in India,but also sets a precedent as far as judicial intervention in business decisions goes.

The court said in unequivocal terms that even if a decision turns out to be wrong eventually,a court would not be justified in questioning it if it was bona fide.

“We are of the view that on facts,as well as on law,the ONGC and the government of India have taken a prudent commercial and economic decision in public interest. We are not prepared to say that the decision is mala fide or actuated by any extraneous or irrelevant considerations or improper motive,” held a bench led by Justice K S Radhakrishnan as it threw out a PIL challenging the rationale of the decision.


The PIL by Arun Kumar Agrawal had challenged the Centre’s nod in 2011-12 to the Cairn-Vedanta deal,as a result of which a majority stake and consequently controlling rights in Cairn India Ltd,a subsidiary of Britain-based Cairn Energy,was sold to Vedanta. Cairn India was the operator of five oil blocks in Rajasthan at the time of the deal.

The PIL said that the government and the ONGC had,with ulterior motives and against the public interest,given up their preferential right to purchase stakes in Cairn India and this decision caused a loss of Rs 1 lakh crore to the public exchequer.

However,after a close scrutiny of records,the apex court ruled that the PIL had been filed without correctly appreciating the impugned decision,its reasons and also the complexities of economic and commercial matters that gave liberty to the state and its instrumentalities to take an appropriate decision after weighing the advantages and disadvantages.

“This court is not justified in interfering with those decisions,especially when there is nothing to show that those decisions are contrary to law or actuated to mala fide or irrelevant considerations,” said the bench,adding that the ONGC and the government had considered various commercial and technical aspects before deciding not to buy the shares in Cairn India.

It noted that experts had advised ONGC not to buy the shares since the proposed value of shares was way more than the value estimated and hence defied commercial viability.

“Matters relating to economic issues,have always an element of trial and error. So long as trial and error are bona fide and with best intentions,such decisions cannot be questioned as arbitrary,capricious or illegal,” said the court,underlining that the approval to the deal was based on deliberations at many appropriate levels of government.

The bench also dismissed the petitioner’s request to rely on indictment of the government by the Comptroller and Auditor General in allegedly granting extension to Cairn India for carrying out exploration activities beyond the period framed by the Rajasthan block production sharing contract.

“The CAG,indisputably,is an independent constitutional functionary. However,it is for the Parliament to decide whether after receiving the report i.e. Public Accounts Committee,to make its comments on the CAG’s report,” the bench said.