[Natural Gas Extraction In KG Basin] Delhi High Court Upholds Arbitral Award In favour Of Reliance Industries

The Delhi High Court in its judgment dated May 9, 2023, upheld the arbitral award in favour of Reliance Industries against the Ministry of Petroleum, noting that the conclusions arrived at by the Tribunal were rational, coherent, and logical, especially considering what was comprised in the Product Sharing Contract.

Justice Anup Jairam Bhambhani, while dismissing the petitioner observed,

“Reference to abrogation of sovereignty over a natural resource, refers to disposition of the title or ownership of natural gas by the Union to a third party. In the present case, since the limited role of Reliance was to explore and extract natural gas as a licensee, admittedly the title to the natural gas never passed to Reliance. The natural resource viz. natural gas was neither bought nor sold as between Reliance and the Ministry. For this additional reason, the public trust doctrine was not contravened.”

Following were the main issues addressed by the Court:

1. Was the arbitration an ‘international commercial arbitration’ within the meaning of section 2(1)(f) of the A&C Act, and consequently whether ‘patent illegality appearing on the face of award’ is available as a ground for challenge under Section 34 of the A&C Act? – Answered in Affirmative; grounds of challenge by the Ministry would therefore be narrower – that the Award proceeds on ignoring the evidence, etc. is not tenable as that would fall within “patent illegality”
2. Did the arbitration involve a question of ‘public law’ making the dispute non-arbitrable? – Answered in Negative; natural gas was neither ‘bought’ nor ‘sold’ between Reliance and the Ministry, therefore, ‘title’ did not pass over to Reliance and no contravention of public trust doctrine can be pleaded as such.
3. Is the award in conflict with the public policy or in conflict with the most basic notions of morality or justice? – Answered in Negative; reliance was placed on the Supreme Court decision in Associate Builders, (2015) 3 SCC 49.
4. Was the transaction between the contesting parties governed by Public Trust Doctrine? – Answered in Affirmative
5. Has the arbitral tribunal taken a ‘possible view’ and a view which is not ‘perverse’? – Answered in Affirmative

Brief Background:

The present petition was preferred by the Union of India (Ministry of Petroleum and Natural Gas) under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the Arbitral Award dated 24.07.2018 rendered by a 2:1 majority.

The dispute relates to Ministry of Petroleum and M/s Reliance, M/s Niko, M/s British Petroleum Exploration from Product Sharing Contract (PSC) dated 12.04.2000. The PSC was with respect to the exploration and extraction of natural gas from Block KG-DWN-98/3 in the Krishna-Godavari Basin off the coast of Andhra Pradesh. It is apposite to mention that under the PSC, Reliance Industries was the operator and Niko, and British Petroleum were the other two constituents.

As per the impugned award by Arbitral Tribunal, Reliance was fully entitled to produce all hydrocarbons resulting from Petroleum Operations conducted within its contract Area which may include hydrocarbons that have migrated from the adjacent block.

Case Title: Union of India v. Reliance Industries