A division bench headed by Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala directed ONGC to pay differences in royalty of crude within two months and also pay royalty, henceforth, to state government at market rate.
According to the Oil Field Act, ONGC is required to pay 20% royalty of the market value of crude oil it extracts from oil blocks to the state government.
ONGC used to pay such royalty to the Gujarat government but, in 2004, the Union government asked it to provide crude to Indian Oil Corporation (IOC) as burden-sharing mechanism, at a discounted rate, as IOC was offering subsidies on diesel, kerosene and liquefied petroleum gas (LPG) to consumers, resulting in huge losses to the latter.
Since ONGC started providing crude to IOC at a discounted rate, it started paying royalty to the state government at post-discount rate, resulting in a drastic reduction in royalty to Gujarat. The state also complained to the Centre in this regard.
In 2011, the state government filed a petition before the High Court, stating that it should be paid royalty at the market rate and the difference in royalty payment since 2008 at the pre-discount rate (in comparison to market rate) was computed at R5,000 crore-6,000 crore.