The Delhi High Court has set aside an arbitral award that previously favored Reliance Industries Ltd (RIL) and its partners, involving allegations of illegally extracting gas from neighboring deposits. On Friday, a bench comprising Justices Rekha Palli and Saurabh Banerjee ruled in favor of the Central government’s appeal against a May 9, 2023, judgment by a single judge which upheld the arbitral decision in favor of RIL.
The controversy centers around accusations that Reliance Industries and its partners, including BP and Niko Resources, siphoned gas from deposits in the KG Basin owned by the Oil and Natural Gas Corporation (ONGC). These deposits were adjacent to their own block, KG-D6, in the Bay of Bengal.
In 2018, an international arbitration tribunal initially dismissed the Indian government’s claim for $1.55 billion against RIL for the unauthorized gas extraction. The tribunal, by a majority decision, also awarded $8.3 million in compensation to Reliance and its partners. However, this Friday’s High Court ruling reverses the earlier judgment, reigniting the complex legal battle involving significant stakes for both the government and the corporate giant.
The government’s initial demand made in November 2016 was based on calculations that Reliance-BP-Niko had produced about 338.332 million British thermal units of gas that had migrated from ONGC’s blocks over seven years up to March 31, 2016. After accounting for royalties paid and adding interest, the total compensation sought was pegged at $1.55 billion.
This legal dispute follows findings by the Justice (retd) A P Shah Committee, which in 2016 concluded that there was “unjust enrichment” by the contractor of block KG-DWN-98/3 (KG-D6) due to the production of migrated gas. Justice Shah suggested that the compensation should be directed to the government as the rightful owner of the unproduced natural resources.
Reliance Industries, the operator of the KG-D6 block with a 60% interest (BP holding 30% and Niko Resources 10%), has consistently contested the government’s claims. The company has argued that the demand was based on a misinterpretation of key elements of the Production Sharing Contract (PSC) and maintained that such a precedent was unprecedented in the oil and gas industry.
