Oil & gas field development: Govt moves SC against allowing of higher recovery to Vedanta

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Published: June 9, 2020 7:35 AM

The dispute arises out of the production sharing contract between Cairn India and the government over exploration of the Ravva oil fields in the shallow offshore area of the Krishna-Godavari basin on the eastern coast of India between 2000 and 2007.

The company had claimed that it had to incur more cost of exploration than what was calculated in the production sharing contract.

The ministry of petroleum and natural gas on Monday moved the Supreme Court against a foreign arbitration award allowing Vedanta and Videocon Industries to recover $499 million, instead of $198 million capped by the government, for development of the Ravva oil and gas fields off the Andhra Pradesh coast between 2000 and 2007. The case is scheduled to be heard again next week on June 15.

Challenging the Delhi High Court’s February judgment that allowed Vedanta’s predecessor Cairn India to implement the 2011 foreign arbitration award for higher recovery, the government argued that the HC had failed to look into “the colossal misconduct on the part of the tribunal” itself and had refused to interfere on the ground that the tribunal “has the right to make both right and wrong decisions as these are errors which fall within their jurisdiction”.

The arbitration tribunal’s rewriting of the contract apart from violating the constitutional policy had resulted in unjust enrichment of the contractor at the cost of public money, according to the government. The ministry said that the award was sought to be enforced beyond the period of limitation prescribed under the Limitation Act, 1963 and that the award offends public policy of India as it was contrary to the Constitution of India, the contract between the parties and without any supporting evidence.

While there is a general deference to foreign arbitral awards, such a principle of deference to foreign arbitral awards cannot supersede or override the public policy of India, the ministry told the apex court. The government said that the contract expressly stipulated that Cairn (now Vedanta) should carry out the enlisted works which included drilling of 21 wells at the capped cost of $188.98 million plus 5%. After winning the contract in a competitive bidding, the contractor unilaterally recovered $499.609 million for executing the enlisted work on spurious grounds, the ministry alleged.

The dispute arises out of the production sharing contract between Cairn India and the government over exploration of the Ravva oil fields in the shallow offshore area of the Krishna-Godavari basin on the eastern coast of India between 2000 and 2007.

The company had claimed that it had to incur more cost of exploration than what was calculated in the production sharing contract between the company and government in 1994 and the revised contract in 1999. When the dispute first arose in 2008, both the sides referred the case to an international arbitration panel based in Malaysia. The arbitration panel ruled in favour of the company in 2011. Subsequently, the government challenged the arbitration panel decision in the Malaysian courts, but was unsuccessful in all the three different Malaysian courts.
In 2018, Cairn moved the HC seeking enforcement of the award.

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