Supreme Court rules in RILs favour on London arbitration

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: May 29 2014, 10:30am hrs
The Mukesh Ambani-led Reliance Industries and partner BG Exploration and Production received a shot in the arm with the Supreme Court on Wednesday holding that only British courts had the jurisdiction over the ongoing arbitration between the company and India's oil ministry over the former's demand for 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 British courts, but substantive Indian arbitration laws will have to be applied by the foreign courts. The British courts will also look at India public policy while deciding the issues, it added.

The international arbitrator in 2012 said the companies' claim in respect of royalties, cess, service tax and CAG audit as arbitrable and also directed the government to reimburse them to the tune of $11.4 million, besides additional cess recovered from them. The arbitration panel comprises Christopher Lau SC, Justice BP Jeevan Reddy, former judge of Supreme Court of India and Peter Leaver QC and some aspects of the matter is still being heard by it.

The ministry of petroleum and natural gas had subsequently opposed arbitration proceedings in London, saying that the matter should be settled in an Indian court.

A bench comprising justices SS Nijjar and AK Sikri quashed the Delhi High Court's March 2013 order that upheld the government's stand that the HC has jurisdiction over the matter.

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. RIL and partner BG had originally approached the apex court for settlement of issues with the government through arbitration in London. PMT fields' current production hovers around 6-7 mmscmd of natural gas and around 22,000-23,000 barrels of oil per day (bopd).

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 in 1994 had entered into two production-sharing contracts (PSCs) with RIL and Enron Oil and Gas India (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.