Delhi HC sets aside arbitral award passed in RIL’s favour

New Delhi: The Delhi High Court on Friday set aside an order which upheld an arbitral award in favour of Reliance Industries Ltd (RIL) and its partners for allegedly siphoning off gas from deposits they had no right to exploit.

A bench of Justices Rekha Palli and Saurabh Banerjee allowed the appeal of the Central government challenging the May 9, 2023 judgment of a single-judge which was passed in favour of Mukesh Ambani-owned Reliance Industries.

The single judge, while upholding the arbitral award, had said it was not persuaded to hold that the conclusions drawn by the arbitral tribunal were 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’, which calls for no interference. As a sequitur to the above discussion, this court finds no ground to interfere with the majority arbitral award; which is accordingly upheld,” the single judge had said.

No immediate comment was available from the company. However, they are likely to approach the Supreme Court challenging the high court’s verdict.

In July 2018, an international arbitration tribunal rejected the Indian government’s claim of $1.55 billion against RIL and its partners for allegedly siphoning gas from deposits they had no right to exploit. The three member panel by a majority of 2-1 had also awarded $8.3 million compensation to the three partners, Reliance had said in a regulatory filing.

The oil ministry on November 4, 2016, slapped a demand of $1.47 billion on Reliance-BP-Niko combine for producing in seven years ending March 31, 2016 about 338.332 million British thermal units (MMBtu) of gas that had seeped or migrated from ONGC’s blocks into their adjoining KG-D6 in the Bay of Bengal.

After deducting $71.71 million royalty paid on the gas produced and adding an interest at the rate of LIBOR plus 2 per cent, totalling $149.86 million, a total demand of $1.55 billion was made on Reliance, BP and Niko.

At the time, Reliance disputed the government’s demand as being based on a “misreading and misinterpretation of key elements of the PSC,” and it said that such a demand was without precedent in the oil and gas industry. It on November 11, 2016, slapped an arbitration notice.

Reliance is the operator of the KG-D6 block with 60 per cent interest while BP holds 30 per cent. The remaining 10 per cent is with Niko Resources.

The government’s compensation claim flowed from the report of the Justice (retd) A P Shah Committee. The Shah panel, in its August 28, 2016, report, concluded that there has been “unjust enrichment” to the contractor of the block KG-DWN-98/3 (KG-D6) due to the production of the migrated gas from ONGC’s blocks KG-DWN-98/2 and Godavari PML.

Originally, ONGC had sued Reliance for producing gas that had migrated from its blocks KG-DWN-98/2 (KG-D5) and Godavari PML in the KG basin to adjoining KG-D6 block of Reliance.

Under the direction of the Delhi High Court, the government had appointed a one-man committee under retired Justice A P Shah to go into the issue. Shah, however, said the compensation should go to the government as it is the owner of all unproduced natural resources.