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The Supreme Court on Friday referred the long-running dispute between Reliance Industries Limited and the Government of India concerning the exploration and extraction of natural gas in the Krishna-Godavari (KG) basin to mediation.

The bench comprising Chief Justice of India Surya Kant, Justice Joymalya Baghchi and Justice V Mohana requested former Supreme Court judge Justice Ranjana Prakash Desai to act as the mediator. It also requested her to take the assistance of two domain experts, to be suggested by the parties.

The Court noted that both sides had sought adjournments from time to time to explore the possibility of a settlement but had been unable to arrive at a viable solution.

Attorney General for India R Venkataramani and Senior Advocate Kapil Sibal informed the bench that the discussions did not reach a resolution.

"Both sides have requested adjournment from time to time to enable the parties to explore settlement. We are informed that they themselves have not been able to find out a viable solution," the Court observed.

"In view of the request made on their behalf, we request Justice Ranjana P. Desai to act as the mediator. We also request her to have the assistance of two domain experts as may be suggested by the parties," it added.

Background

The dispute concerns allegations that Reliance Industries Limited (RIL) extracted natural gas that had migrated from an adjoining block operated by the Oil and Natural Gas Corporation (ONGC) into its own block in the Krishna-Godavari (KG) basin.

ONGC alleged that the gas reservoirs in the two blocks were interconnected, resulting in the migration of gas from its block into RIL's block. Following a study by DeGolyer and MacNaughton, which indicated connectivity between the reservoirs, the Union Government constituted a committee headed by former Supreme Court judge Justice AP Shah to examine the issue.

Based on the committee's findings, the Government issued a demand notice to RIL seeking approximately USD 1.74 billion, along with interest, for the alleged extraction of migrated gas. RIL challenged the demand through arbitration under the Production Sharing Contract governing its exploration and extraction operations.

In its majority award, the arbitral tribunal held that although RIL had breached certain contractual obligations, the breach did not amount to a material violation of the contract warranting the relief sought by the Government.

The Union Government challenged the arbitral award before the Delhi High Court. In February 2025, a Division Bench of the High Court set aside the award, holding that it suffered from patent illegality. The Court observed that the Government, as trustee of the country's natural resources, could not be presumed to have permitted the extraction of migrated gas merely because it had remained silent.

The High Court emphasised that natural resources are held by the State in trust for the people and that their extraction must comply with the applicable legal and contractual framework. It also rejected the approach of treating the alleged contractual violations as insignificant.

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