The union government’s appeal against a $111 million arbitral awards to Reliance Industries Ltd (RIL) and Shell-owned BG Oil exploration India Ltd in production sharing contracts involving the Tapti and Panna-Mukta offshore oil fields in India has been dismissed by an English High Court.
An arbitration tribunal found in favour of the big oil and gas firms in January of last year. The tribunal awarded Reliance and BG Exploration about $111 million of the total $260 million sought in its partial final award.
The judgement was contested by the British government per sections 68 and 69 of the Arbitration Act 1996. The court denied India’s claim that the tribunal’s inability to adopt elements of Indian constitutional created “substantial unfairness” under section 68.
“There is no foundation for claiming that the Judiciary struggled to deal with them in such a way that a substantial irregularity occurred.” “There is no need to evaluate whether substantial injustice occurred in light of this,” the 9 June ruling stated.
The court dismissed the government’s claim that the award is against public policy, saying that the challenge “goes nowhere.”
The case began in December 2010, after RIL and Shell-owned BG Exploration and Mining India sued the Indian government for cost recovery provisions, earnings due to the government, and other debts.
Reliance and BG Exploration sought to enhance the cost ceiling that could be recovered from oil and gas sales before profits were shared with the government through arbitration.
In addition, the union government asserted counterclaims for incurred expenses, exaggerated sales, excess cost recovery, and under-accounting.
An arbitration tribunal granted a final partial award (FPA) in October 2016, upholding the Centre’s position that the income from the fields should be computed after deducting the current tax rate of 33%, rather than the previous one of 50%.
The three-member board also upheld that the contract’s cost recovery is set at $545 million in the Tapti gas reserves and $577.5 million in the Panna-Mukta oil and gas field, rejecting the companies’ request to increase the cost stipulation by $365 million in the Tapti gas field and $62.5 million in the Panna-Mukta oil and gas field, respectively.
The 25-year production sharing contracts between RIL and BG Exploration and ONGC expired in December 2019, and RIL and BG Exploration surrendered their stakes in the two oil and gas properties to ONGC. Tapti stopped producing in 2016, and the Panna-Mukta oilfield’s output has also decreased over time.
Following this favourable ruling, the Indian government demanded $3.85 billion in back payments from RIL and BG Exploration, prompting the corporations to appeal the 2016 decision to the English High Court. In April 2018, the High Court remanded one of challenges to the arbitration court for review.
The arbitration tribunal found in favour of the two firms on January 29, 2021, awarding Reliance and BG a total of $111 million.
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