US$ 1.7 billion gas dispute: Delhi High Court upholds arbitral award in favour of Reliance Industries; rejects Central government challenge

The Delhi High Court on Tuesday upheld an arbitration award rejecting Central government’s claims against Mukesh Ambani owned Reliance Industries Limited in a migrated gas dispute in the Krishna Godavari (KG) basin..Justice Anup Jairam Bhambhani upheld the arbitral award which had, by a 2:1 majority, ruled in favour of the RIL and its consortium partners – British Petroleum and Niko (NECO).The Union Ministry of Petroleum and Natural Gas had demanded disgorgement of about US $1.5 billion along with interest of US$ 174 million from RIL and its partners. This came as reports suggested that there was possible migrations of gas between the blocks belonging to state-owned Oil and Natural Gas Corporation (ONGC) and the ones owned by the RIL. .In a detailed order, Justice Bhambhani held that tribunal’s award is not in conflict with the ‘public policy of India’ and that the public trust doctrine was not contravened by Reliance.The bench said that the inferences drawn by the tribunal are factual conclusions which cannot be second-guessed by the court in exercise of its powers under Section 34 of the Arbitration and Conciliation Act.The factual conclusions by the tribunal are perfectly rational, coherent and logical, the Court underscored.“This court is accordingly not persuaded to hold that the conclusions drawn by the arbitral tribunal are such that no reasonable person would reach. Suffice it to say that the view taken by the arbitral tribunal is most certainly a ‘possible view’,” Justice Bhambhani held.As a sequitur to the above discussion, this Court finds no ground to interfere with the majority arbitral award, the judge concluded..Reliance led consortium and the Central government had entered into a Production Sharing Contract (PSC) on April 12, 2000. The PSC related to exploration and extraction of natural gas from Block KG-DWN-98/3 in the Krishna-Godavari Basin off the coast of Andhra Pradesh.Disputes arose in the year 2013 when the ONGC addressed a letter to the Directorate General of Hydrocarbons and informed that there was evidence of lateral continuity of gas pools between the Reliance Block and the adjacent blocks allocated to ONGC. In simple terms, this meant that the gas pools of the Reliance block and the ONGC blocks appeared to be connected with possible migration of gas between the two.In November 2016, based on a report by former Delhi High Court Chief Justice, Justice AP Shah, the government raised disgorgement and interest which amounted to more than US$ 1.5 billion. Subsequently, Reliance invoked the arbitration clause..The arbitration tribunal delivered its verdict in July 2018, mostly ruling in favour of Reliance..The then Attorney General for India, KK Venugopal along with Senior Advocate AK Ganguli and advocates Mamta Tiwari, Swati Sinha, Vijay Kumar and Debesh Panda appeared for the Central government.Senior Advocate Harish Salve with advocates Sameer Parekh, Sonali Basu Parekh, Ishan Nagar, Prateek Khandelwal, Manu Bajaj and Chetna Rai appeared for Reliance.Senior Advocate Dayan Krishnan along with advocates Mahesh Agarwal, Niyati Kohli, Pranjit Bhattacharya, Manavi Agarwal and Shravan Niranjan appeared for Respondent No. 2.Advocates Sasiprabhu, Vishnu Sharma, Tushar Bhardwaj, Vinayak Maini and Prakhar Agarwal represented Respondent No. 3..[Read Order]