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 Economic Times - - Economy - OUR BUREAU

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.”

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