Parties Can't Be Barred From Performing Contractual Obligations In Final Partial Award When It Remains In Force: Delhi HC

The Delhi High Court bench of Justice Jasmeet Singh has held that parties cannot be prevented from performing their contractual obligations as interpreted in the Final Partial Award, especially when both the Final Partial Award as well as the contract interpreted therein have not been stayed and remain in force. The present appeal has been filed under section 37 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) against an order passed by the Arbitral Tribunal (AT) by which an application of the Appellant seeking a restraint on the Respondent from unilaterally implementing the Final Partial Award (FPA) until final quantification is made by the AT, was dismissed. The present dispute emerged from the Production Sharing Contract (PSC) dated 15.05.1995 between the Appellant and the ONGC regarding Oil and Gas operations in Rajasthan. The Contract was initially valid for 25 years which was further extended by 10 years. The respondents invoked the arbitration clause under the PSC and the parties submitted their respective claims and counter-claims before the AT (upto14.05.2020). On 22.08.2023, the Arbitral Tribunal passed a declaratory award by which interpretational issues between the parties were resolved while parties were given liberty to approach the Arbitral Tribunal in case they failed to agree on figures. Subsequently, both parties filed post award applications under section 33 of the Arbitration Act and Articles 35-37 of the UNCITRAL Rules, 1976 on 21.09.2023. The Arbitral Tribunal approved the application filed by the Respondent thereby reclassifying the award as partial. It also confirmed that it had jurisdiction over quantum and costs. On 09.12.2023, the Arbitral Tribunal dismissed the appellant's additional award application and allowed the reclassification application of the Respondent thereby amending the Final Partial Award. Aggrieved by the unilateral deductions made by the respondents, the appellant filed an application under section 17 of the Arbitration Act. After hearing both the parties on the said application, the AT passed the Impugned Order. Feeling dissatisfied with the Impugned Order, the present appeal has been preferred by the appellant The Appellant submitted that enforcement of the FPA is premature till the final quantification is done which can be mutually agreed upon or determined by the AT in absence of any consensus. It was further submitted that unilateral revision of accounts by the Respondents is in contravention of the FPA therefore is invalid. Despite absence of any breach by the Appellant, opening of the past account was not justified. In response, the Respondents submitted that the FPA is declaratory therefore requires no court assistance. It was further argued that as operator under the PSC, they are mandated to prepare accounts. It was further submitted that the GT report wrongly disallowed USD 184.8 million post exploration costs despite the AT's clear finding that no Management Committee's approval was required. The court observed that since the FPA has not been stayed, its declaratory findings are binding and therefore must guide the implementation of the PSC. The non-compliance of the Award would render it merely a paper award. It further observed that just because no agreement was reached between the parties on quantum does not relieve the Respondents from performing its obligations under the PSC which was in force. The AT only allowed the parties to return for quantification if needed. The reliance of the Respondent on the FPA is not an enforcement but mere adherence to the contractual obligations as interpreted in the FPA. As the FPA is not a money decree and final quantification is still pending, the Respondent was within its right to recover post exploration costs. The court further observed that in the absence of the AT's directions for final quantification, the Respondent's deductions could be considered unilateral. However, since no stay on either the FPA or PSC was granted, the Respondent was obligated to follow the FPA's interpretation. Therefore, it cannot be said that their actions were unilateral rather they were performing their obligations under the PSC. The AT also permitted the Appellant to seek readjustment after final quantification. It further observed that the unrecovered cost can be recovered in the current of future years until the entire cost is recovered under Articles 14 and 15 of the PSC and as interpreted in the FPA including for post exploration period expenses. Therefore, the Respondent's actions cannot be labeled as unilateral. It concluded that stopping the parties from adjustments would curtail the ongoing contractual obligations which will contradict both the letter and spirit of the PSC and the FPA. Accordingly, the present appeal was dismissed.Case Title: UNION OF INDIA versus VEDANTA LIMITED & ANR.Citation: ...

Parties Can't Be Barred From Performing Contractual Obligations In Final Partial Award When It Remains In Force: Delhi HC

Mohd Malik Chauhan

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