Gas row: SC appoints foreign arbitrator in Reliance Industries, Oil Min dispute

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Apr 1 2014, 03:55am hrs
KG Basin gasReliance Industries had moved the Supreme Court for appointment of an arbitrator from a foreign country in the KG basin case.
The Supreme Court on Monday appointed former Australian Supreme Court judge James Spigelman as a presiding arbitrator in a dispute between Mukesh Ambani-owned Reliance Industries (RIL) Ltd and the oil ministry over reimbursement of full cost of developing its KG-D6 gas field.

A bench headed by Justice SS Nijjar appointed foreign arbitrator James Spegelman, the former chief justice of New South Wales Supreme Court, to avoid any confusion.

Reliance Industries wanted the third presiding arbitrator be appointed from a country other than India, UK or Canada, as its other contract partners - Cayman Islands-based Niko (NECO) Ltd and BP Exploration (Alpha) Ltd - are foreign companies.

Reliance Industries and Niko (NECO) had requested the apex court to appoint the umpire arbitrator as the two arbitrators former chief justices S.P. Barucha, (nominated by RIL in November 2011) and V.N. Khare (nominated by the oil ministry in June 2012) have failed to agree on a third and presiding arbitrator.

Mukesh Ambani

Senior counsel Harish Salve, appearing for Reliance Industries, had contended that considering that its consortium partners are foreign companies, who are directly affected by any determination in the present case, it would be appropriate if a third arbitrator is appointed from a Country other than India, UK or Canada. It is submitted that there is no paucity of names of eminent arbitrators from other jurisdictions from countries such as U.S.A, Singapore and Australia, which names are available from the various reputed international arbitration institutions... One way of doing this is to follow the list procedure as set out in the UNCITRAL Rules.

While Reliance Industries holds a 60% interest in KG-D6, the UK's BP holds 30% and Niko which was party to the PSC holds the remaining 10%.

However, the Centre had opposed RIL's plea for appointing a presiding arbitrator from a foreign country, saying that the matter between two of them is within the exclusive domain of the arbitral tribunal in India.

It had sought appointment of a former Supreme Court judge as the umpire arbitrator to resolve disputes relating to cost recovery of developing its KG-D6 gas field.

The Ministry of Petroleum and Natural Gas had said that since the substantive law applicable to the contract is Indian law and the disputes pertains to a matter arising in India under an agreement which is required to be performed in India and not in any other jurisdiction and the venue of arbitration is also in India, the third arbitrator, therefore ought to be from India and has to be a person who is fully conversant with and trained in Indian law and procedures.

It further added that the arbitrator has to be appointed under and in accordance with the Arbitration and Conciliation Act, 1996 alone and not in accordance with the United nations Commission on International Trade Law (Uncitral) Rules. Uncitral rules have no application to the appointment of any arbitrator under the PSC, the reply filed by KK Sharma, under secretary in the Ministry stated.

Besides, BP and Neco have neither issued any arbitration notice to the Centre nor have asked arbitration, and therefore, the petition by the foreign companies is misconceived and not maintainable, and thus the two of them should be deleted from the list of petitioners, senior counsel Anil Diwan, appearing for the government, had argued.

The PSC, though commercial in nature on the face of it, involves serious issues involving public law and public interest. The work to be done under the PSC, if done as intended and agreed by the parties. Would involve total outlay plan of over US$ 8835.73 million. The PSC thus is very crucial to the people of India and the nation as such, the government said

In November 2013, the government had disallowed cost recovery of $1.8 billion to RIL for underproduction of gas for 2012-13. RIL was not entitled to recover cost of $1.8 billion on account of underutilization of the assets resulting in considerable reduction in production of gas vis-a-vis committed gas production rates, Salve told the court quoting the letter.