In a major setback for Reliance Industries (RIL), BP and Niko Resources, the Delhi High Court on Friday quashed the around $1.7 billion arbitral award in the long-running Krishna Godavari (KG) basin gas migration dispute case.
Besides, the court also supported the central government’s claim that RIL unfairly benefited from extracting gas that may have migrated from State-run ONGC’s adjoining blocks.
The bench of Justices Rekha Palli and Saurabh Banerjee said the impugned order dated May 9, 2023, passed by the learned Single Judge (Delhi High Court) and the Arbitral Award passed by the learned Arbitral Tribunal dated July 24, 2028, being contrary to the settled position of law, are set aside.
The case is regarding gas production at the KG basin, which is operated by a RIL-led consortium. In April 2000, the KG-DWN-98/3 block was awarded to the consortium. RIL holds a 90 per cent stake, followed by BP Exploration (Alpha) with 30 per cent and Canadian firm Niko Resources with a 10 per cent stake.
“In view thereof, in our considered opinion, the view of the learned AT that “… … unless such an order is made, the Claimant is not prohibited and is permitted to continue its Petroleum Operations within its Contract Area in a situation where the reservoir extends beyond its Contract Area into another… …”, is patently erroneous, against the fundamental law of India and against the ‘public policy of India’, more so, being in breach of the terms of the PSC and being the technical expert and having the know-how, it was the fiduciary duty of the RIL to disclose the D&M 2003 Report to the (Union of India) UOI,” it added.
In 2013, ONGC claimed that the RIL-led consortium illegally benefited from its adjacent gas block. This led to the Centre seeking around 1.73 billion from the RIL-led consortium, which was also supported by the single-member Justice AP Shah committee report.
The government sent a notice to the KG D6 Contractor (RIL consortium) on November 4, 2016, asking the Contractor to deposit around $1.55 billion on account of alleged gas migration from ONGC’s blocks.
RIL, as Operator, for and on behalf of all constituents of the Contractor, initiated arbitration proceedings against the government of India (GoI) contesting its unfair claim, the company said in its FY23 annual report.
The Arbitral Tribunal on July 24, 2018, upheld the Contractor’s claims. GOI filed an appeal on November 15, 2018, before the Delhi High Court, under section 34 of the Arbitration Act, against the Final Award of the Arbitral Tribunal.
The Delhi High Court upheld the Arbitration Award in the Gas Migration dispute and dismissed GOI’s appeal challenging the Award in May 2023.
