Delhi High Court Rejects Government Appeal Against Reliance Industries In $1.72-Billion Gas Dispute

The Delhi High Court on Tuesday dismissed an appeal of the union government against an arbitration tribunal's decision in favour of Reliance Industries Ltd. over selling gas that migrated from a block of Oil and Natural Gas Corp.

The international arbitral tribunal had observed that Reliance was within its rights while selling gas from deposits adjacent to its contract area in the east coast Krishna-Godavari basin.

A single-judge bench of Justice Anup Jairam Bhambhani did not find any infirmity with the tribunal's decision and dismissed the appeal. 

Reliance was in a product-sharing contract with the Ministry of Petroleum and Natural Gas on one side, and itself, Niko Ltd. and BP PLC on the other side for extraction of natural gas. The Reliance block was adjacent to blocks allocated to ONGC.

In 2011, ONGC in a letter to the Directorate General of Hydrocarbons, said they had proof of possible migration of gas between their and Reliance's block. In 2014, ONGC approached the high court, which directed the ministry to look into the report of an expert agency that submitted that there was indeed a migration of gas between the two blocks.

In 2015, the ministry constituted a one-man committee to consider the report and put forth a further course of action. This committee submitted that unjust enrichment had been made by Reliance from the ONGC block. But it is pertinent to note that there was no expert involved in this report. Even Reliance had opted out of the proceedings of the committee. 

Based on the report, the ministry claimed $1.72 billion from Reliance for siphoning gas from the block—$1.55 billion for alleged fraud and over $174 million for "unjust enrichment".

That led Reliance to invoke the arbitral clause of the PSA contract. When the tribunal decided in favour of Reliance in a 2:1 verdict, the ministry approached the court under Section 34 of the Arbitration and Conciliation Act.