The government has lost its appeal in the English High Court against a $111-million arbitration award in favour of Reliance Industries (RIL) and Shell in a cost recovery dispute in the western offshore Panna-Mukta and Tapti oil and gas fields. 

High Court judge Ross Cranston on June 9, 2022, ruled that the government should have brought its objections over the arbitration tribunal not meeting the required thresholds, when issuing the 2021 award earlier, two sources with knowledge of the matter said. 

Rejecting the government’s arguments, the court said that the objections were barred by an English law principle whereby a party cannot raise matters in new proceedings that could have been raised in earlier proceedings. 

While an email sent to the Ministry of Petroleum and Natural Gas for comments remained unanswered, officials said that the government would study the court order and look for appropriate forums for remedy. 

A separate email sent to Reliance for comments too remained unanswered. 

Reliance and Shell-owned BG Exploration & Production India on December 16, 2010, had dragged the government to arbitration over cost-recovery provisions, profit due to the State and amount of statutory dues, including royalty payable. They wanted to raise the limit of cost that could be recovered from sale of oil and gas before profits were shared with the government. 

The Centre had also 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 a majority had issued a final partial award (FPA) on October 12, 2016. It had upheld the government’s view that the profit from the fields should be calculated after deducting the prevailing tax of 33 per cent and not the 50 per cent rate that existed earlier. 

It had also upheld that the cost recovery in the contract was fixed at $545 million in Tapti gas field and $577.5 million in Panna-Mukta oil and gas field. The two firms wanted that cost provision to be raised by $365 million in Tapti and $62.5 million in Panna-Mukta. 

Royalty, it had said, had to be calculated after inclusion of marketing margin charged over and above the wellhead price of natural gas. 

The government had used this award to seek $3.85 billion in dues from Reliance and BG Exploration & Production India (BGEPIL). 

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

The arbitration tribunal had ruled in favour of the two in a January 29, 2021, award. 

“The Arbitral Tribunal decided in favour of the Claimants (Reliance and BGEPIL) in a large part, vide its final partial award dated October 1, 2018. The Government of India (GoI) and Claimants had filed an appeal before the English Commercial Court against this 2018 FPA,” Reliance had said in its annual report last year. 

“The English Commercial Court rejected GoI's challenges to the 2018 Final Partial Award and upheld the Claimants’ challenge that the Arbitration Tribunal had jurisdiction over the limited issue and remitted the issue back to the Arbitration Tribunal.” 

The final award on the issue came in January 2021, it had stated. 

Subsequently, both the sides had filed clarification applications before the tribunal, which on April 9, 2021, granted minor corrections requested by Reliance and Shell and had rejected all of the government’s clarification requests. 

Thereafter, the government had challenged the award before the English High Court. The court gave its ruling on June 9, 2022, they said.