Gas row: Mukesh Ambani's Reliance Industries gets relief from Supreme Court

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: May 29 2014, 00:36am hrs
OilHowever, ministry of petroleum and natural gas had opposed arbitration proceedings in London. Reuters
Mukesh Ambani-led Reliance Industries Ltd received a shot in the arm with the Supreme Court on Wednesday holding that English courts only had the jurisdiction to decide the ongoing arbitration dispute between the company and oil ministry over reimbursement of royalties and taxes in the Panna-Mukta and Tapti (PMT) gas fields.

Besides, it ruled that any final arbitral award can be challenged only in the English courts, but substantive Indian arbitration laws will have to be applied by the foreign courts. The English courts will also look at India public policy while deciding the issues, it added.

Reliance Industries (RIL) and BG Exploration and Production India had approached the apex court for settlement of issues with the government through arbitration in London. However, the ministry of petroleum and natural gas had opposed arbitration proceedings in London saying that the matter should be settled in an Indian court.

There are some eight disputes over the production sharing contract relating to the gas fields on the western coast, discovered in 1992. They involve royalty and taxes, cost recovery limit and removal of arbitrator. Some awards have already been passed by the arbitrator in England.

A bench comprising justices SS Nijjar and AK Sikri quashing the Delhi High Court's March last year's order that upheld the government's stand that the HC has jurisdiction over the matter. While allowing the RIL's appeal, it said the disputes between it and the Union government over the gasfields will be arbitrated in London. Besides, the arbitration will be according to substantive laws of India. However, the appeals, if any, will also be heard in English courts.

The ministry had moved the HC against the claims of BG Group and RIL for reimbursement of royalties and various taxes in the PMT fields. The government's petition is still pending before the HC.

It had argued against the foreign tribunal's award that held the companies' claim in respect of royalties, cess, service tax and CAG audit as arbitrable.

The international arbitrator in 2012 directed the government to reimburse the companies to the tune of $11,413,172, besides additional cess recovered from them. The arbitral tribunal comprising Christopher Lau SC, Justice B.P. Jeevan Reddy, former Judge of Supreme Court of India and Peter Leaver QC is hearing the matter.

RIL had argued that the parties had agreed that the seat of arbitration would be London and that the Uncitral Rules of 1976 would apply; thus courts in India have no jurisdiction to decide the matter and only courts of England have an exclusive jurisdiction in this regard.

According to the Ambani firm, Part II of the Arbitration and Conciliation Act 1996 does not empower the Indian courts to set aside a foreign arbitral award.

As per the terms of the arbitration agreement the courts of the seat would exercise exclusive supervisory jurisdiction over any arbitration proceedings, and any arbitration proceedings resulting in a foreign award could not be challenged in the Indian courts.

At the time the agreement was entered into, the Foreign Awards (Recognition and Enforcement) Act 1961 (the pre-cursor to Part II of the current Act), regulated the enforcement of the foreign awards in India, and the 1961 Act did not contain any provision empowering Indian courts to set aside foreign awards, the consortium partners stated.

The ministry on December 22, 1994, had entered into two Production Sharing Contracts (PSCs) with RIL and Enron Oil and Gas India (the predecessor to BG Exploration) and ONGC for the exploration and production of petroleum from the Tapti and Panna Mukta fields.

The two contracts were to be operative for a period of 25 years and would expire only in 2019 unless it is terminated earlier or mutually extended by the parties.

Earlier in 2011, the BG Group and Reliance Industries had approached the government to appoint an arbitrator for reimbursement for royalties and cess paid to the government on account of differences over methods to calculate cost recovery. Since the government refused, the firms approached the Court of Arbitration, Hague.