HC Upholds Tribunal Verdict Favouring Reliance Industries In Gas Sale Case

The Delhi High Court (HC) on Tuesday dismissed the Centre’s petition accusing Reliance Industries (RIL) and its partners of draining gas from their deposits and making a profit off it.

In doing so, Justice Anup Jairam Bhambhani upheld the international arbitration award of July 24, 2018, in favour of the RIL-led consortium. The consortium includes UK-based BP Plc and Niko Resources of Canada.

“This court is not persuaded to hold that the conclusions drawn by the arbitral tribunal are such that no reasonable person would reach. Suffice to say that the view taken by the arbitral tribunal is most certainly a ‘possible view’, which calls for no interference,” the order read.

The HC observed that when an arbitral award is challenged, it may interfere only if the award is induced or affected by fraud or is in “contravention of the fundamental policy of law, or if it is in conflict with the most basic notions of morality and justice”. 

“In the opinion of this court, firstly, the aforesaid inferences are factual conclusions arrived at by the arbitral tribunal, which cannot be second-guessed by this court in the exercise of its powers under Section 34 of the Arbitration and Conciliation Act, 1996 (grounds to challenge the arbitral award). Secondly, in the opinion of this court, the factual conclusions are perfectly rational, coherent, and logical, especially considering what was composed in the production sharing contract (PSC) was a purely commercial transaction entered into by two contracting parties,” the order read.

The government had contended that RIL was guilty of fraud and unjust enrichment of over $1.5 billion.

“It is contended that the migrated gas alone was valued at about $1.5 billion as on June 30, 2016,” the order noted.

The dispute between the government and RIL arose when Oil and Natural Gas Corporation (ONGC) on July 22, 2013, wrote to the Directorate General of Hydrocarbons (DGH) saying that the gas pools of the Reliance block and the ONGC blocks appeared to be connected with possible migration of gas between the two blocks.

RIL, which is the contractor of KG-DWN-98/3 block in the Krishna-Godavari Basin off the coast of Andhra Pradesh, was accused of making a profit by draining and selling the gas that migrated from adjacent ONGC blocks.

This led ONGC to file a writ petition before Delhi HC in which the Ministry of Petroleum and Natural Gas (MoPNG), DGH, and RIL were also made parties.

D&M said on November 19, 2015, that “the integrated analyses indicated connectivity and continuity of the reservoirs across the blocks operated by ONGC and RIL”.

Based upon the Shah Committee report, MoPNG raised upon Reliance a demand for $1.5 billion and $174 million for ‘unjust enrichment’ made by Reliance.

Reliance then approached the three-member tribunal headed by Singapore-based arbitrator Lawrence Boo. The tribunal rejected the government’s contention and said that the PSC doesn’t prohibit the contractor from producing gas, irrespective of its source, as long as the producing wells were located inside the contract area. The government then approached Delhi HC against this order.