Indian Government challenged Panna-Mukta field arbitration award before UK High Court

Jun 7, 2021 #Arbitration #Panna-Mukta

Lekha G

The Government of India has challenged an arbitration award over a cost recovery dispute in western offshore Panna-Mukta and Tapti oil and gas fields of Shell and Reliance Industries Ltd. before the UK High Court.

On December 16, 2010, the Reliance and Shell-owned BG Exploration & Production India Ltd. through arbitration dragged the Government over cost recovery provisions, profit due to the State and amount of statutory dues including royalty payable.

The Government of India also advanced counterclaims 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 a Final Partial Award (FPA) on October 12, 2016, upholding the Government’s view that the profit from fields must be calculated after deducting prevailing tax of 33% and royalty to be calculated after inclusion of marketing margin charged over and above the wellhead price of natural gas.

The two firms then challenged the 2016 FPA before the English High Court, which on April 16, 2018, transmitted one of the issues challenged back to the Arbitral Tribunal for reconsideration.

On October 1, 2018, the Arbitral Tribunal decided in favour of Claimants and issued an FPA. Subsequently, the Government of India and Claimants filed an appeal before the English Commercial Court against the 2018 FPA.

“The English Commercial Court rejected the Government of India’s challenges to the 2018 Final Partial Award and upheld the Claimant’s challenge that the Arbitration Tribunal had jurisdiction over the limited issue and remitted the issue back to the Arbitration Tribunal,” the report said.

On April 9, 2021, the Tribunal based on the Clarification Applications of both the parties granted the minor correction requested by the Claimants and rejected all the clarification requests of the Government of India. Subsequently, the Government of India challenged the award before English High Court.

The Government had used the 2016 FPA to raise $3.85 billion on Claimants and also sought to block Reliance’s proposed $15 billion deal with Saudi Aramco. It also further filed an execution petition before the Delhi High Court seeking enforcement and execution of the 2016 FPA.

In this context, the Claimants contended that the petition was not maintainable and is abuse of process as no arbitration award fixed any final liability of dues on the company. It further filed an application challenging Delhi High Court order that directed to file affidavits of assets based on the Government’s contentions.

The matter is listed for further hearing on July 13, 2021.

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