Russian oil major Rosneft has signed an initial "non-binding" memorandum with the Ruia family-led Essar group to buy 49 percent stake in Essar Oil's Vadinar refinery in Gujarat.
The deal has come at a time when India is taking part in the ongoing BRICS leaders' summit in Russia.
The agreement, signed on Wednesday, is subject to regulatory approvals.
Rosneft and Essar Oil last December signed a contract for the Russian firm to supply 10 million tonnes of oil a year for 10 years.
"The performance of the terms of the signed documents will have a substantial impact on the scale of economic cooperation between Russia and India. The goods trade between the two countries will grow by more than 50 percent," Rosneft chairman Igor Sechin said in a statement.
Rosneft and Essar also plan to expand the Vadinar refinery annual capacity to 45 million tons by 2020 from the current 20 million tons, the statement said.
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The deal includes a retail chain of 1,600 stations across India.
As of June 2015, Essar had on its books a debt of Rs.17,000 crore.
Last April, Essar Oil received the Reserve Bank of India's approval to raise external commercial borrowings up to $2.27 billion, to replace its rupee debt with low-cost dollar loans.
Essar said it has "signed a non-binding Term Sheet with regard to Rosneft's participation in the equity capital of Essar Oil Limited with a share of up to 49 percent."
The proposed transaction is conditional upon various factors such as due diligence, determination of the transaction price, execution of definitive transaction documents and receipt of requisite approvals, Essar said in a statement.
"Appropriate disclosures shall be made in accordance with applicable law as and when any definitive steps in relation to the aforesaid are undertaken," it added.