SC Allows London Arbitration in Dispute Over Panna-Mukta
Court says if parties have agreed to overseas arbitration, then local courts can’t interfere
The SC has upheld pleas by Reliance Industries and British Gas (BG) that Indian courts should not interfere with the ongoing arbitration abroad, rejecting the government’s contention that in cases involving public policy, the local judiciary has jurisdiction over arbitration that was agreed to be held in London. The verdict appears to have significant implications for other disputes as the arbitral panel had ruled that timelines and production estimates laid down in production-sharing contracts (PSCs) were not final and binding — a position that has a direct bearing on the government’s approach towards companies, operating oil and gas fields, including RIL, which has been penalised for not producing the amount of gas that was envisaged in its field development plan for the KG-D6 block. The Supreme Court’s ruling was related to an arbitration award in a dispute over the Panna-Mukta and Tapti (PMT) fields. The Delhi High Court had upheld the government’s position. On Wednesday, the bench, comprising Justices SS Nijjar and AK Sikri, set aside the high court’s verdict. “… it is too late in the day to contend that the seat of arbitration is not analogous to an exclusive jurisdiction clause…. Once the parties con- sciously agreed that the juridical seat of the arbitration would be London and that the arbitration agreement will be governed by the laws of England, it was no longer open to them to contend that the provisions of Part I of the (Indian) Arbitration Act would also be applicable to the arbitration agreement,” the court said. The bench said all disputes were contractual in nature and the performance of any of the obligations would not lead to any infringement of any of the laws of India. The top court said such awards could only be challenged in English courts which would apply Indian laws in deciding the issues. But the award cannot be challenged in Indian courts. Enforcement issues can also be raised in London, not before Indian courts.
In the dispute between RIL and the government over KG D6, the oil ministry had argued that an Indian judge should preside over the case because RIL’s partner BP Plc could have influence in foreign countries. But the court rejected this argument and ruled that it could be similarly argued that the Indian government may have influence over an Indian panel. The issues involved in KG-D6 are cost recoveries, underproduction and CAG audit, so the outcome in the Panna-Mukta Tapti (PMT) case could spell trouble for the government. The other issues relate to cess, royalty and service tax, which RIL raised in the PMT arbitration. The arbitration panel rejected all the government’s objections to these issues being raised in arbitration. The Delhi High Court held that the government’s petition was maintainable even
The Supreme Court ruling appears to have significant implications for other disputes
though the award was in London under an arbitration agreement which is expressly governed by the laws of England and the seat of the arbitration was London. On its part, RIL, its petition, filed through law firm Parekh and Company, claimed that in such cases issues of arbitrability and any challenge to the arbitral award would only be decided in English courts only.
RIL further argued that the Delhi High Court committed an error in ruling that Indian courts would have jurisdiction over the arbitration, as otherwise Indian public policy issues would not be addressed. The top court rejected all the objections of the government, which was represented by senior advocate Ashok Kumar Ganguly, to the ongoing arbitration.
There court said the issue “seems to be a claim for making necessary revisions and adjustment to the contract to off-set the effect of any changes in the law. We fail to see any apparent or so patently obvious violation of Indian laws in any of these claims”. RIL has nowhere claimed to be exempted from the laws of India, the court said. They claim that the government, party to the contract, i.e., PSC has failed to seek and obtain exemption as stipulated in the contract.
“Whether or not the claim has substance is surely an arbitral matter. It is not the case of the appellants that they are not bound by the laws of India, relating to the performance of the contractual obligations under PSCs.” “In view of what we have said earlier, it is not possible to sustain the conclusion reached by the High Court. The arbitration agreement cannot be jettisoned on the plea that award, if made against the government would violate public policy of India.”