The dispute arose two years ago when India’s ministry of petroleum and natural gas said it would limit Reliance’s cost recovery for the two fields to penalise it for falling gas output. Reliance filed for arbitration in November 2011, relying on arbitration clauses in two production-sharing contracts signed in 2000. The contracts provide for arbitration in New Delhi under the 1996 Indian Arbitration Act.
After it filed the claim, Reliance immediately nominated Supreme Court Justice S P Bharucha as party-appointed arbitrator, and the government eventually selected another former justice, V N Khare, in mid-2012.
When the two party-appointed arbitrators failed to agree on a chair, however, Reliance applied to the Supreme Court for help in appointing a third panel member in August. It has asked the Supreme Court to appoint a chair from a “neutral country” – not India, Canada or the UK.
According to India’s Financial Express, the government has submitted to the Supreme Court that an Indian arbitrator should hear the dispute because the arbitration clause is governed by Indian law; the contract is to be performed in India; and India is the seat of arbitration, therefore the chair must be “a person fully conversant with and trained in Indian law and procedures”. The government also notes that the dispute is solely between itself and Reliance as operator since it has never received a notice of arbitration from either Niko or BP.
In addition to setting the date for further hearings on the appointment of a third arbitrator, the Supreme Court rejected an application to stay its proceedings submitted by two interveners – an MP for the Communist Party of India, Gurudas Dasgupta; and an NGO called Common Cause that engages in litigation with the aim of representing the public interest.
The Times of India explains that Dasgupta and Common Cause had asked the court to defer any decision on the appointment of a tribunal chair pending the outcome of a separate public interest litigation they have filed in the Supreme Court. In that litigation, they allege that Reliance and Niko Resources conspired with the government to be permitted “exorbitant, unreasonable and excessive profits” from the fields. The Times of India says they have also claimed that the arbitration is part of the conspiracy and that they accuse Reliance and the government of compromising the national interest by holding a dispute over “the scarce resources of the nation” in private.
In its decision yesterday, the Supreme Court threw out the interveners’ application, holding that they should apply to the judge hearing their public interest litigation for a stay of the arbitration proceedings instead.
Reliance has appointed Harish Salve SC as lead counsel to represent it in the Supreme Court. Salve represented the winning side in the landmark Balco case before the Supreme Court in 2012, which reversed an earlier decision called Bhatia that had found part I of the 1996 Arbitration and Conciliation Act permits challenges to awards issued by foreign tribunals. Salve also became a member of London’s Blackstone Chambers earlier this year.
The Indian government, meanwhile, is using a team led by senior advocates Anil Divan and Dushyant Dave.
For the arbitration, Reliance is understood to be handling much of the work in-house, but calling on regular counsel AS Dayal & Associates in Mumbai, when needed. India is relying on government lawyers, with no external firms mentioned to date.
Reliance will claim in the arbitration that its production-sharing contracts with the government entitle it to recover fully the cost of developing the two fields before sharing profits, and contain no provisions for the government to restrict cost recovery.
The Indian oil company has a 60 per cent interest in the fields, while Niko has a 10 per cent stake and BP has had a 30 per cent stake, which it purchased as part of a wider, US$7.2 billion transaction with Reliance in early 2011.
As signatories to the production sharing contracts, BP and Niko Resources could join the arbitration, but neither company appears to have entered the dispute to date.
Meanwhile, Reliance is party to another arbitration over cost recovery and tax that it brought with BG Group in 2010 against India’s state-owned oil company ONGC. The case formed the subject of a discussion at last month’s GAR Live Hong Kong by Matt Gearing and Sheila Ahuja, partner and associate at Allen & Overy – the firm representing BG and Reliance in the arbitration.
A tribunal issued a partial award in favour of BG and Reliance in 2012, but the Delhi High Court accepted jurisdiction to hear a challenge by ONGC against the award in March, ruling that Balco did not apply retroactively to the case, which arose from production-sharing contracts signed in 1994. In July, however, the Supreme Court accepted a special leave petition from BG and Reliance to hear the case, permitting them to “leapfrog” the normal appeal process.
Reliance Industries Ltd. & Ors. v Union Of India
In the Supreme Court of India
- Justice Surinder Singh Nijjar
Counsel to Reliance Industries
- Senior advocate Harish Salve SC
- Parekh & Co
Partner Sameer Parekh with advocates Lalit Chauhan, Nitin Thukral, Utsav Trivedi and Abishek Vinod Deshmukh
Counsel to India
- Senior advocates Anil Divan and Dushyant Dave, with advocates Bindu Saxena, Shailendra Swarup, Aparajit Swarup, KK Patra and Ranvir Singh
Counsel to Gurudas Dagupta
- Senior advocate Colin Gonsalves
Counsel to Common Cause
- Advocate Prashant Bhushan
In the arbitration
Counsel to Reliance Industries
- In-house counsel
- AS Dayal & Associates
Counsel to India
- Indian government lawyers