Violates Public Trust Doctrine: Delhi HC Sets Aside Tribunal's Award Allowing RIL To Explore 'Migrated Gas' Without Express Permission

A Division Bench of the Delhi High Court, comprising of Justice Rekha Palli and Justice Saurabh Banerjee, while hearing an appeal under Section 37 of the A&C Act, set aside an arbitral award in favour of Reliance Industries Limited(RIL). The Court invoked the doctrine of 'public policy in India', 'public law' and 'Public Trust Doctrine' and observed that the findings of the Arbitral Tribunal (AT) which held that the RIL's breach of Production Sharing Contract (PSC) was not a material breach of the PSC and 1959 PNG Rules, was in violation of fundamental law of India and the award was patently erroneous. Factual Matrix: The Union of India (UOI) entered into a PSC with RIL and Niko Limited with a participating interest of 90%-10%, respectively. By way of a supplementary contract, RIL transferred its participation interest under the parent contract to British Petroleum Exploration Limited (BPEL). RIL and Niko had the right to take cost petroleum in accordance with the provisions of Article 15 of PSC. The UOI entered into another PSC with Cairn Energy Limited which was later acquired by Oil and Natural Gas Corporation Limited (ONGC). The blocks of RIL and ONGC turned out to be adjoining blocks. Certain disputes arose between ONGC and RIL, and ONGC wrote to UOI stating that there was “…evidence of lateral continuity of gas pools…” between the Reliance block and ONGC block, as both the blocks were connected and there was migration of gas inter-se them. ONGC filed a writ petition [W.P.(C) 3054/2014] against the UOI and RIL, claiming that since the gas migrated to the RIL's block due to two blocks being inter-connected, RIL had been unjustly enriched by producing and selling the migrated gas. During the pendency of the W.P.(C), ONGC and RIL entered into an “Agreement for Project Management of Independent Third-Party Study”. The single judge disposed of the W.P.(C). In light of the order of the single judge, D&M submitted its Final Report dated 19.11.2015 concluding that “the integrated analyses indicated connectivity and continuity of the reservoirs across the blocks operated by ONGC and RIL”, and UOI constituted a single member committee of HMJ A.P.Shah to consider the D&M Report 2015 and to recommend a future course of action. Aggrieved by the DGH's stand before the Shah Committee, RIL withdrew its participation. On 29.08.2016, the Shah Committee issued its Final Report, based on which UOI raised a Demand Notice for 1.74 Billion USD along with interest. RIL, in response, invoked the arbitration clause in terms of Article 33 of the PSC. The tribunal rendered the award in a 2:1 majority, holding that RIL was not in material breach of the PSC. Aggrieved by the UOI filed a Section 34 application for setting aside the arbitral award as it suffers from patent illegality. Despite holding RIL in breach of Article 26.1 of PSC, the AT observed that the said breach was not a material breach, specifically when RIL was guilty of suppressing D&M 2003, D&M 2004 and D&M 2005 Reports. the award u/s 34 of the A&C Act. The single judge while dismissing the Section 34 application observed that the arbitration between UOI and RIL was an 'International Commercial Arbitration' and the ground of patent illegality was not available, for the Courts to interfere with the arbitral award. Aggrieved by the order of the single-judge bench, the UOI filed the present appeal u/s 37 of the A&C Act. Analysis of the Division Bench: The arbitral proceedings are domestic arbitration in nature: While holding the nature of the arbitral proceedings to be domestic in nature, the Court observed that the AT in ¶157 has recorded that RIL is the only claimant in the arbitration and Niko has not been made a party to the arbitral proceedings. The Supreme Court in RIL v. Union of India appointed the third and presiding arbitrator u/s 11(6) of the A&C Act, which was rendered at a pre-adjudication stage; however, the AT recorded the findings pertaining to BP and Niko's participation in the proceedings at a post-adjudication stage. The single judge erred in not following the unchallenged findings of the AT: “… …the named claimant in this arbitration is RIL… …” instead of the findings of the Supreme Court in RIL v. Union of India.The AT concluded that RIL, an Indian entity, is the sole claimant, therefore the arbitration has to be treated as a domestic arbitration instead of an International Commercial Arbitration. The Supreme Court in L&T-SCOMI v. MMRDA observed that once it has been concluded that both companies are incorporated in India, the arbitration agreement would not be international commercial arbitration. The single judge while adjudication the Section 34 application exceeded the jurisdiction conferred u/s 34 of the A&C Act. Therefore, the Court found sufficient cogent reason u/s 37 of the A&C Act to enter into the domain of Section 34 of the A&C Act ...

Violates Public Trust Doctrine: Delhi HC Sets Aside Tribunal's Award Allowing RIL To Explore 'Migrated Gas' Without Express Permission

Mohd Talha Hasan

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