Reliance Industries (RIL) and its foreign partners — BP Plc and Niko Resources — may find it tough to proceed with the arbitration over non-revision of domestically produced natural gas prices from the KG-D6 block in the east coast. The government on Monday asked the Supreme Court to reject the Mukesh Ambani-led company’s plea for appointment of the umpire arbitrator as the dispute is “not arbitrable”.

On January 10, 2014, the-then UPA government notified the Domestic Natural Gas Pricing Guidelines, 2014, for a new gas price regime to be implemented from April 1, 2014. However, an Election Commission diktat did not allow government to do so. The NDA government that came to power in May 2014  deferred revising of gas price and a new price of $5.61/mBtu was implemented only from November 1, 2014, for a period of six months and the price was subsequently revised to $5.18/mBTu effective April 1.

The government told the apex court that its role as an executive in framing policies for an entire sector of entities and the public at large cannot be challenged.

It added that it decided under a private contract which the government has entered into with a private party for the purposes of exploration, extraction and exploitation of natural resources.

On May 09, 2014, RIL, BP and Niko slapped arbitration on government for not implementing new gas price, which it claimed was due for revision from April 1, 2014 onwards.

Justice Ranjan Gogoi asked both the government and RIL to file their written submissions before May 1 and posted the matter for final hearing on May 6.

According to the government, the dispute is not arbitrable as the economic policy matters cannot be delved into by the courts unless there is violation or infringement of any of the constitutional or statutory provisions while implementing such policies. “In any event the appropriate forum to decide matters of public policy would necessarily and exclusively be the courts and not a private arbitral tribunal,” the Ministry of Petroleum and Natural Gas said in its reply to the petition filed by RIL and its partners BP and Niko Resources.

While RIL and its partners had appointed Sir David Steel, the government had appointed former judge of Supreme Court G S Singhvi as its arbitrator in the dispute initiated by RIL and its partners.

The companies wanted the apex court to appoint an umpire arbitrator since the two arbitrators “have been unable to come to an agreement for appointment of third and presiding arbitrator for constitution of the arbitral tribunal. The contractors, who jointly manage KG-D6 block, want an umpire arbitrator of a “different nationality other than the nationalities of the parties to the arbitration” as the two of them are foreign parties.

Considering that two companies “are foreign companies, who are directly affected by any determination in the present case, it would be appropriate that the third arbitrator is appointed from a country other than India, UK, and Canada that is of neutral nationality,” the petition had stated, adding that “the principle of neutrality is a common feature of a number of institutional rules that govern the appointment of arbitrators.”

However, the government submitted that the constitutional mandate is that the natural resources belong to the people of this country and the state being the trustee of all natural resources is bound to protect them and carry out the functions for the benefit of the public. “ These resources meant for public use cannot be converted into private ownership,” it said.

According to the oil ministry, it has already laid down the regulations and guidelines for determining the pricing of domestically produced gas in a manner which would serve the best interests of the country and such guidelines have been framed to be uniformly applicable to all contractors engaged in production and extraction of the natural gas. “The role of the respondent (oil ministry) as the executive is to lay down policies and guidelines which would best protect the interests of the public and are actions which ought not to be made subject tp private arbitration proceedings,” the affidavit stated.

The government further told the SC that it had already notified the October 2014 Guidelines, therefore, no arbitration in any event could lie as the policy is already in place… such challenge of a policy applicable universally to all sectors and contractors cannot be made subject matter of challenge before a private arbitral tribunal. Any challenge, if at all, to a government policy will essentially have to be made before the appropriate courts of India as the same shall have a bearing on the public at large…”

It also alleged that RIL had deliberately not disclosed material correspondence and facts in the petition with the intent of suppressing facts essential for the determination of the arbitrability of the disputes and if perused by the apex court would result in dismissing the petition.

For Updates Check Company News; follow us on Facebook and Twitter