SC upholds government stand on jurisdiction in Hardy case

Earlier in June, the US District Court for Columbia had also rejected a claim of Hardy Exploration and Production (India), or (HEPI), for enforcement of a Rs 600-crore international arbitration award in its favour.
A bench led by Chief Justice Dipak Misra, while remitting the case back to the Delhi High Court, which had given a contrary ruling, upheld the government’s stand that Kuala Lumpur was only the venue, but the seat of arbitration was in India.

The apex court was hearing an appeal filed by the Union of India challenging the Delhi High Court’s judgment that held that the Indian court did not have jurisdiction to hear the government’s appeal against the arbitration tribunal’s ruling related to the relinquishment of the CY-OS/2 exploration licence by the Union of India.

Hardy holds a 75% participating interest in — and along with GAIL and ONGC is a party and operator of — an 859 sq km gas block (CY-OS/2) in the northern Cauvery Basin off the Pondicherry coast.

This case stems from HEPI’s participation in 1997 in a PSC with the GoI for the extraction, development, and production of hydrocarbons in an area off India’s southeastern coast. HEPI discovered a reserve of hydrocarbons in 2006 and claimed that it was natural gas, entitling it to a five-year appraisal period. India disagreed, and after two years informed HEPI that the block had been relinquished because the company had failed to declare commerciality within two years of the find, as set out in the rules for oil discovery.

This prompted HEPI to initiate arbitration proceedings and the tribunal on February 2, 2013 ruled in favour of the company. The arbitrators, sitting in Kuala Lampur, ordered the block be restored to HEPI and GAIL and they be allowed three extra years for appraisal. The tribunal also asked the oil ministry to pay 9% interest on the `500 crore spent on the block. India challenged the award in the HC, which dismissed its plea in July 2006. The HC upheld Hardy’s preliminary objection that Indian courts have no jurisdiction to entertain the application filed by the UoI to question the legality and correctness of the award.

Since HEPI was not allowed back onto the Block even three years after it had won the arbitral award, HEPI sought confirmation of its arbitral award in the US court under the Federal Arbitration Act.

Meanwhile, the government challenged the HC decision in the SC, which in May referred the matter to a larger Bench.

Rejecting Hardy Exploration and Production (India)’s petition for enforcement of the award, Rudolph Contreras, the US district judge, said that this infringement on India’s national sovereignty would contravene the US’ public policy interest in respecting the territorial integrity of other nations to control the extraction and processing of natural resources within their own sovereign territories.