Reliance Industries Ltd. & Ors vs U.O.I

3. Briefly stated, the relevant facts are as under:

4. In 1999, UOI announced a policy-New Exploration and Licensing Policy (hereinafter referred to as “NELP”). Under NELP, certain blocks of hydrocarbon reserves were offered for exploration, development and production to private contractors under the agreements which were in the nature of Production Sharing Contract. One of the said blocks was Block KG-DWN-98/3 (“Block KG-D6”). The joint bid made by the Petitioners No.1 and 2 for the Block KG-D6 was accepted by the UOI. Thereafter on 12th April, 2000, Production Sharing Contract (hereinafter referred to as ‘PSC’) was executed between the Petitioners No.1 and 2 as Contractor on one side and UOI on the other. The Arbitration Agreement in the PSC is contained in Article 33. Relevant facts thereof, is in the following words:

5. On 8th August, 2011, UOI granted its approval to the Petitioner No.1 to assign 30% of its participating interest in the Block KG- D6, under the PSC to Petitioner No.3. On the same date, i.e. 8th August, 2011, Petitioner No. 3 also entered into PSC as a party. Further, Petitioner No.1 was appointed as the ‘Operator’ for Block KG-D6, both under the terms of the PSC, and the Joint Operating Agreement that was executed between Petitioner No. 1 and Petitioners No. 2 & 3.

8. On 23rd November, 2011, Petitioner No.1 (RIL), through its Advocates, served upon the Respondent a notice invoking arbitration, in accordance with the arbitration agreement contained in Article 33 of the PSC. In this letter, Petitioner no.1 also nominated Mr. Justice S.P. Bharucha, former Chief Justice of India, as its arbitrator and called upon the Respondent to nominate its arbitrator within 30 days of the receipt of this letter. Respondent replied to this letter on 21st December, 2011, and intimated Petitioner No.1 that the matter is under consideration and that “the Ministry needs more time to respond and would do so by 31st January, 2012.” In its letter dated 2nd January, 2012, the Petitioners pointed out to the Respondent that, “the PSC, the UNCITRAL Rules and the Indian Arbitration and Conciliation Act, 1996 – set a period of thirty days for your making appointment of an Arbitrator.” Nevertheless, as a matter of good faith, time for nomination of an arbitrator by the Respondent was extended until 31st January, 2012.

11. On 17th February, 2012, Respondent wrote a letter to Petitioner No.1, wherein it was reiterated that no dispute concerning the cost recovery under the PSC has arisen between the parties to the PSC. The Respondent once again called upon the Petitioners to withdraw the notice of arbitration dated 23rd November, 2011.

12. In response to the aforesaid letter, Petitioner No.1, through its Advocates, addressed a letter dated 9th March, 2012 to the Respondent, wherein the demand made in the notice of arbitration dated 23rd November, 2011 was reiterated. The letter inter alia stated as under:

16. On 12th July, 2013, Petitioner No.1 addressed a letter to Mr. Justice S.P. Bharucha and Mr. Justice V.N. Khare, requesting them to nominate the third arbitrator. On 1st August, 2013, Mr. Justice Bharucha wrote a letter to Petitioner No.1, inter alia, as follows :

48. The Arbitration Petition was disposed of as both the parties had no objection to the arbitrator nominated by each other. Therefore, the matter was left to the two arbitrators to nominate the third arbitrator who shall be the Chairman of the Arbitral Tribunal. However, by letter dated 1st August, 2013, Mr. Justice Bharucha pointed out that the two arbitrators have not been able to agree on the third arbitrator. Therefore, the Petitioners had to approach this court for appointment of a third arbitrator. In these circumstances, the present Petition came to be filed under Section 11(6).

54. In my opinion, the submission is misconceived and proceeds on a misunderstanding of the PSC, RIL, Niko and BP are all parties to the PSC. They are all contractors under the PSC. The PSC recognizes that the operator would act on behalf of the contractor. All investments are funded by not just the Petitioner No.1 but also by the other parties, and they are equally entitled to the costs recovered and the profits earned. For the sake of operational efficiency, the Operator acts for and on behalf of the other parties. Therefore, I find substance in the submission of Mr. Salve that the disputes have been raised in the correspondence addressed by Petitioner No.1 not just on its own behalf but on behalf of all the parties. During the course of his submissions, Mr. Anil Divan had, in fact, submitted that Niko and BP will be affected by the arbitral award and it would be binding upon them too. Therefore, if the Petitioner No.1 was to succeed in the arbitration, the award would enure not only to the benefit of Petitioner No.1 but to all the parties to the PSC. Conversely, if the Government of India were to succeed before the tribunal, again the award would have to be enforced against all the parties. In other words, each of the Contractors would have to perform the obligations cast upon them. In that view of the matter, it is not possible to accept the submission of Mr. Divan that the arbitration in the present case is not an international arbitration.

56. Both the parties had brought to the attention of the Court the correspondence from their own perspective. Having considered the aforesaid correspondence, relevant extract of which have been noticed earlier, it is not possible to hold that the correspondence is only on behalf of the RIL. I, therefore, do not accept the submission of Mr. Anil Divan that this is an arbitration between the two Indian parties only.

59. At this stage, it would be appropriate to take notice of the observations made by two such commentators.

28. In the result, I am of the view that under Section 11(9) of the Act it is not mandatory for the court to appoint an arbitrator not belonging to the nationality of either of the parties to the dispute.”

73. I must emphasise here that the trend of the third arbitrator/presiding officer of a neutral nationality being appointed is now more or less universally accepted under the Arbitration Acts and Arbitration Rules in different jurisdictions.

78. Keeping in view the aforesaid principles, I have examined the submissions of Mr. Divan and Mr. Salve on the issue with regard to the neutrality, impartiality and independence of the third arbitrator. As held earlier, the apprehension expressed by the Respondent Union of India seems to be imaginary and illusory. Whatever is being said about the influence/presence of British Petroleum in other jurisdictions would apply equally to the Union of India, if the third arbitrator is an Indian national, within the Indian jurisdiction.

79. The apprehension expressed by Mr. Divan that if a foreign national is appointed as a third arbitrator, the Tribunal would be at a disadvantage as all applicable laws are Indian, in my opinion, overlooks the fact that the two arbitrators already appointed are Former Chief Justices of India and can be very safely relied upon to advise the third arbitrator of any legal position, which is peculiar to India.

83. The Arbitration Petition is allowed in the aforesaid terms. No costs.

……………………………J. [Surinder Singh Nijjar] New Delhi;

March 31, 2014.

Date: 31/03/2014 This Petition was called on for pronouncement of judgment today.

For Petitioner(s) M/S. Parekh & Co., Advs.

For Respondent(s) Mr. Shailendra Swarup, Adv.

Hon'ble Mr. Justice Surinder Singh Nijjar pronounced the judgment. The petition is allowed in terms of the signed reportable judgment.

[Signed reportable judgment is placed on the file.]