Reliance Industries Ltd & anr v/s Union Of India, 2014

Advertisements

FACTS

Reliance Industries Limited (“Reliance”) and BG Exploration and Production India Limited (formerly Enron Oil & Gas India Ltd) (“BG”) are the claimants in an ongoing arbitration. The arbitration involves two production sharing contracts (“PSCs”) concerning gas and oil/natural gas fields off the west coast of India, known as Tapti and Panna Mukta, respectively.

The PSCs were established on 22 December 1994 between the Government of India, Oil & Natural Gas Corporation Ltd (an entity controlled by the government), Reliance, and BG. Together, they form “the Contractor” under the PSCs. The government granted exclusive rights to the Contractor to exploit the fields for a 25-year period, as outlined in the PSCs. The arbitration proceedings are conducted under the 1976 UNCITRAL Rules, with the Tribunal comprising Christopher Lau SC of Singapore as the presiding arbitrator, assisted by Mr. Peter Leaver QC and Justice B. Sudershan Reddy of India (substituting Justice B.P. Jeevan Reddy).

The Union of India, represented by its Joint Secretary (Exploration) of the Ministry of Petroleum and Natural Gas, acts as the respondent in the arbitration. The case involves intricate legal intricacies and contractual interpretations concerning the rights and obligations of the involved parties under the Tapti and Panna Mukta PSCs. The case’s essence revolves around the proper application and fulfillment of the PSCs, determining the scope of rights and responsibilities each party holds, especially in the context of exploiting the designated gas and oil/natural gas fields. The outcome of this arbitration will significantly impact the stakeholders involved, shaping the future operations and management of the Tapti and Panna Mukta fields in question.

ISSUES 

Whether the challenged award “Final Partial Award” was applicable or not.

JUDGMENT 

The court has made several critical determinations in this case the petition filed by the respondents in the Delhi High Court under Section 34 of the Arbitration Act, 1996, is deemed inappropriate and cannot be pursued.The court disagreed with the High Court’s decision that Indian laws would still apply, despite the arbitration agreement being under English law and the arbitration seat being in London. If a final award is made against the respondent, its enforceability in India can be challenged on the grounds of public policy. The High Court’s conclusion that seeking enforcement of the award outside India would leave the Indian party without recourse was deemed unfounded, given the agreed-upon arbitration agreement governed by English law. Any remedy against the award must be sought in England, aligning with the juridical seat, even though Indian laws would apply due to the contract’s substantive law being Indian. The court allowed the appeal, overturning the High Court’s decision.

Observation 

 The Court’s characterization of the arbitration as international commercial arbitration is fundamentally flawed. They emphasize that the court failed to critically analyze the 2014 Supreme Court judgment in its entirety and consider the broader context in which it was delivered. In the 2014 case, the petitioner sought the appointment of an arbitral tribunal involving British Petroleum, Niko, and Reliance, raising a pivotal question of whether the upcoming arbitration could be deemed “international commercial arbitration.” This determination hinged on the Supreme Court’s jurisdiction to appoint an arbitral tribunal for such cases. Notably, Reliance, acting as the “Operator,” was recognized by the court to represent the other two parties under the Petroleum Sharing Agreement (PSA), and the outcome of the arbitration would affect all three parties involved. The crucial point emphasized by the authors is that both British Petroleum and Niko were active participants in the arbitration, solidifying its nature as international commercial arbitration. The court said that Section 2(1)(f) of the A&C Act does not explicitly state that a mere “agreement” among parties automatically designates an arbitration as international and stresses that the court should focus on whether the arbitration meets the criteria outlined in Section 2(1)(f). In their view, the Delhi High Court erred by placing undue emphasis on the involvement of Niko and British Petroleum in the agreement, instead of evaluating if the arbitration satisfied the criteria specified by the law.

Furthermore, the authors draw a parallel from the case of M/s Larsen and Toubro v. MMRDA, where a consortium involving an Indian entity and a Malaysian entity was in dispute. The consortium invoked Section 11 for arbitration initiation, arguing that the dispute fell within the realm of “international commercial arbitration,” placing jurisdiction with the apex court. However, the Supreme Court ruled that the mere involvement of a foreign entity in the agreement did not automatically classify it as an international arbitration. They argue that a similar analogy can be applied in the present case, pointing out that despite three parties to the agreement involving two foreign entities and Reliance, the essence of an unincorporated association was maintained. Given Reliance’s significant role and controlling interest in the arbitration, the authors firmly believe that the arbitration cannot be classified as international commercial arbitration.

Reference 

https://indiankanoon.org/doc/52496610/

https://rmlnluseal.home.blog

This Article is written by Saketi Neeharika of Damodaram Sanjivayya National Law University, Intern at Legal Vidhiya.

Admin