Delhi HC Dismisses Centre's Plea Challenging Arbitrators In KG-D6 Cost Recovery Dispute

The Delhi High Court on Friday dismissed as "not maintainable" the Centre's plea relating to the appointment of two of three judges on an arbitration panel looking into cost recovery dispute in Reliance Industries Ltd's (RIL) KG-D6 gas block.

The Union government had moved the court to seek a declaration that the two judges should be discharged from their functions due to alleged bias.

Justice Yashwant Varma of the Delhi High Court upheld the preliminary objection raised by the counsel for RIL and said the petition of the Union Ministry of Petroleum and Natural Gas was dismissed as being not maintainable.

The court, however, clarified that it has neither considered nor ruled upon the allegations levelled by the government against the members of the Arbitral Tribunal, and all contentions were kept open.

Senior Advocate A. K. Ganguli appeared for the petitioner-Union of India whereas Senior Advocate Harish N. Salve appeared for the Respondent.

The RIL had in November 2011 initiated an arbitration disputing disallowance of over USD 2.3 billion of KG-D6 cost by the government on grounds of gas output lagging targets.

In 2014, it named former UK judge Sir Bernard Rix as its arbitrator on the three-member tribunal in place of its original choice, S P Bharucha, a former chief justice of India.

Justice Bharucha had recused himself from the tribunal where the government had named former chief justice of India V N Khare as its arbitrator.

Michael Kirby, a former judge of an Australian High Court, was in September 2014 appointed by the Supreme Court as the neutral arbitrator and chairman on the panel.

The central government approached the high court seeking a declaration that Kirby and Rix are 'de jure/ de facto' unable to discharge their functions and consequently their mandate stands terminated in terms of Section 14 (failure or impossibility to act) of the Arbitration and Conciliation Act, 1996.

The government had in November 2011 issued a notice disallowing certain costs RIL and its partners had incurred on the KG-D6 blocks, saying the gas output had lagged targets.

The RIL challenged the notice, saying the contract for KG-D6 does not provide for output targets and there was no provision for disallowing any part of the cost because of production not being in line with output guidance.

The government initially did not join the arbitration within the stipulated 30 days as provided under the Production Sharing Contract (PSC) but relented after RIL moved the Supreme Court for the appointment of a second arbitrator.

However, Justice (Rtd) Bharucha and Justice (Rtd) Khare failed to agree on the name of the third presiding arbitrator for 13 months and RIL again moved the Supreme Court on August 8, 2013.

The Supreme Court in September 2014 appointed Kirby as the chairman of the arbitral tribunal.

In the Delhi High Court, the counsel for RIL raised a preliminary objection with respect to the maintainability of the government petition and said since the challenge to the Arbitral Tribunal in the present case is raised on the ground of bias and a justifiable doubt with respect to the independence and impartiality of the arbitrators, it is the procedure specified in Section 13 alone which could have been pursued.

The high court, in its order, said it failed to find any merit in the submission of the counsel for the Centre that the members of the Arbitral Tribunal have already prejudged the entire issue and that relegating the petitioner to pursue the pending application would be an empty formality for the following reasons.

"Accordingly, and for all the aforesaid reasons, the preliminary objection is upheld. The petition shall consequently stand dismissed as being not maintainable. The present order, however, shall not preclude the petitioner from pursuing its application dated November 28, 2022, preferred before the Arbitral Tribunal.

"While that application is titled as having been preferred under Section 14 of the Act since an application under the aforenoted provision can only be presented before a court as defined, it would be open for the petitioner to amend the nomenclature of the said application, if so chosen and advised," it said.

Cause Title- Union of India v. Reliance Industries Limited & Ors. (Neutral Citation Number 2022/DHC/005381)

Click here to read/download Judgment

With PTI inputs