Public Trust Doctrine allows rejection of PSC extension based on unilateral deduction of Government’s Profit Petroleum share.

The Petitioner, as operator of the CB/OS-2 Block offshore Suvali, Gujarat, entered into a Production Sharing Contract (PSC) with the Union of India in 1998.

Ahead of the PSC’s expiry on 29.06.2023, the Petitioner applied for a 10-year extension under the 2017 Extension Policy.

While the application was pending, the Government imposed a Special Additional Excise Duty (SAED) in 2022. Despite express rejection by the Ministry of Petroleum and Natural Gas (MoPNG) of the Petitioner's proposal to adjust SAED against the Government's Profit Petroleum (PP), the Petitioner unilaterally deducted approximately USD 9.33 million from the Government’s share of PP, citing Article 16.7 of the PSC.

Although the Petitioner eventually remitted the deducted amount in September 2025, the MoPNG rejected the extension application on 19.09.2025, primarily due to this breach of contract and trust.

The court applied the Public Trust Doctrine, which mandates that the State holds natural resources as a trustee for the people.

It relied on Shreelekha Vidyarthi v. State of U.P. and Sky Power Southeast Solar India v. MP Power Management to establish that State actions in the contractual sphere must be non-arbitrary and satisfy Article 14.

The court further applied the principle from State of Tamil Nadu v. Hind Stone, holding that there is no vested right to the renewal of a lease/contract concerning natural resources.

Finally, it utilized the rules of statutory interpretation (specifically ut res magis valeat quam pereat) to ensure that the policy remains effective rather than redundant.

The Court reasoned that while the Petitioner had no vested right to an extension, it had a right to be considered fairly under the 2017 Policy.

However, the Public Trust Doctrine requires the State to act with heightened scrutiny when dealing with natural wealth.

The Court rejected the Petitioner's argument that Clause 5 provided exhaustive grounds for rejection, finding that Clause 9(b) retained a "residuary power" for the State to reject applications in the public interest.

Regarding the SAED, the Court found the Petitioner’s unilateral deduction of the Government’s share of Profit Petroleum to be a "judge, jury, and executioner" approach which bypassed the mandatory dispute resolution mechanism in Article 33 of the PSC.

Since the Petitioner breached its fiduciary-like duty as a private player handling public resources, the MoPNG’s decision was neither arbitrary nor irrational.

The Court also clarified that the Policy did not provide for "automatic" extensions upon the expiry of administrative timelines.

The Court dismissed the Writ Petition and all pending applications, vacating the previous interim status quo order. It concluded that the State’s duty to protect natural resources outweighed the Petitioner’s claim for commercial continuity.