• High Court dismisses govt plea to enforce arbitral award against RIL

    The Delhi High Court has dismissed the government’s petition seeking enforcement of a 2016 final partial award (FPA) of an arbitral tribunal, in a dispute with Reliance Industries over cost recovery provisions and reimbursement of royalties and taxes related to the Panna, Mukta and Tapti gas fields.

    The high court rejected the petition holding it to be “premature and not maintainable”. The 2016 FPA is “not an executable arbitral award” as it does not award any amount to the government, it said in the order on Friday.

    Reliance and Shell-owned BG Exploration & Production India had in December 2010 dragged the government to arbitration over cost recovery provisions, profit due to the government and also statutory dues including royalty payable.

    The companies wanted to raise the limit of cost that could be recovered from the sale of oil and gas before profits are shared with the government. However, the government raised counter claims over expenditure incurred, inflated sales, excess cost recovery, and short accounting.

    A three-member arbitration panel headed by Singapore-based lawyer Christopher Lau by majority issued an FPA on October 12, 2016, upholding the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33% and not the 50% rate that existed earlier.

    It also upheld the cost recovery in the contract, fixed at $545 million for the Tapti gas field and $577.5 million for the Panna-Mukta oil and gas field in the Arabian Sea off the Mumbai coast. The two firms wanted that cost provision to be raised by $365 million in Tapti and $62.5 million in Panna-Mukta.

    Subsequently, the tribunal with the consent of parties agreed to decide the dispute including various components of the cost recovery formula through a series of partial awards. It was only after all the FPAs were passed that the actual amounts to be paid were to be computed in the final award. The most critical issues to be decided were the cost recovery limit following which the investment multiple had to be recalculated.

    While the 2016 FPA, one in a series of FPAs passed by the arbitral tribunal, had not awarded any amount to the government, the oil ministry used this award to claim $2.31 billion from Reliance and partner BG Exploration & Production India by filing an execution petition in the HC.

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