The Supreme Court on Thursday said it cannot sit in judgment over commercial decisions taken by parties to an agreement after evaluating the contract’s financial implications, unless such decisions were in clear violation of any statutory provisions or perverse or for extraneous considerations or improper motives.A Bench of Justices K.S. Radhakrishnan and Dipak Misra dismissed a public interest litigation petition that sought a direction to the Centre to scrap the Cairn-Vedanta deal and a CBI probe.

The petitioner, Bangalore-based financial expert and lawyer Arun Kumar Agrawal, quoting a CAG report, had alleged that the country had suffered a loss of about Rs. 1 lakh crore in the tie-up between Cairn Energy and Vedanta — wherein the latter acquired shares of Cairn India — for oil exploration.

Writing the judgment, Justice Radhakrishnan said, “We notice that ONGC and the Government of India have considered various commercial and technical aspects flowing from the Production Sharing Contract and also advantages that ONGC would derive if the Cairn-Vedanta deal was approved.”

Holding that States and their instrumentalities could enter into contracts that may involve complex economic factors, the Bench said it found no merit in the petition. “…[the writ petition was filed] without appreciating or understanding the scope of the decision or the [decision-making] process concerning economic and commercial matters which gives States and its instrumentalities [the liberty] to take appropriate [decisions] after weighing [the] advantages and disadvantages of the same and 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.”The Bench said economic decisions always had the element of risk arising from trial and error, and so long as a decision was bona fide, it could not be deemed to be arbitrary, capricious or illegal: “The State or State undertaking, being a party to a contract, have to make various decisions which they deem just and proper. There is always an element of risk in such decisions, ultimately it may turn out to be a correct decision or a wrong one. But if the decision is taken bona fide and in public interest, the mere fact that [the] decision has ultimately proved to be a wrong [one] [in] itself is not a ground to hold that the decision was mala fide or done with ulterior motives.”The Bench noted that the Ministry of Petroleum and Natural Gas had, on September 26, 2011, conveyed to Cairn U.K. and its affiliates and Vedanta U.K. that the Government of India was pleased to grant its consent to the Cairn-Vedanta deal subject to the fulfilment of the certain conditions — they had to give an undertaking that in the royalty payable be added to the project cost and thus made cost-recoverable, and that the arbitration case pertaining to cess be withdrawn. The Union of India could, in its wisdom, make Cairn agree to those conditions — clearly a business decision taken with good intention — since the fate of the arbitration proceedings could not be predicted.

Holding that it could not accept the CAG’s report in the instance case, the Bench said CAG reports were subject to parliamentary debates. It said: “It is possible that the PAC [Public Accounts Committee] can accept the ministry’s objection to the CAG report or reject [it]. The CAG, indisputably is an independent constitutional functionary. However, it is for Parliament to decide [on the report] after… the PAC [has made] its comments on [it]. We may, however, point out that since the report is from a constitutional functionary, it commands respect and cannot be brushed aside as such, but it is equally important to examine the comments [that] respective ministries have to offer on the report. The ministry can always point out if there is any mistake in the report or [if] the CAG has inappropriately appreciated the various issues.”

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