Supreme Court gives Reliance Industries a third arbitrator, 28 months after it first filed case

Apr 01 2014, 12:51 IST
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A bench headed by justice SS Nijjar appointed the third arbitrator 'to avoid any confusion'. Reuters A bench headed by justice SS Nijjar appointed the third arbitrator 'to avoid any confusion'. Reuters
SummaryNearly three years after the upstream oil regulator cast doubts on Reliance Industries' (RIL) KG-D6 production pattern and about two-and-half years

Nearly three years after the upstream oil regulator cast doubts on Reliance Industries' (RIL) KG-D6 production pattern and about two-and-half years after the company pre-emptively initiated arbitration against the government for contemplating penalties on it for alleged underproduction, the company got some relief on Monday with the SC naming former Australian apex court chief justice James Spigelman as presiding foreign arbitrator.

A bench headed by justice SS Nijjar appointed the third arbitrator “to avoid any confusion”. The dispute is over denial of full cost of KG-D6 development to the company. RIL attributes the output fall to geological reasons.

The company had, in August 2013, moved SC, seeking an order to name an umpire arbitrator.

This is in addition to the two arbitrators appointed earlier – one by RIL and another by the government.

At a time the promised gas price hike is mired in uncertainty (an over-eager Election Commission has deferred the hike that was due to be effective from Tuesday) and with penalty notices amounting to $1.8 billion having already been slapped on RIL, Monday's court order is expected to impart momentum to the dispute resolution, crucial for not only the country's energy sector but for “the nation and its people,” going by the government's own admission.

Even by the Cabinet decision approving the formula that would have nearly doubled the gas price from $4.2/mmBtu now benefiting public sector ONGC along with others, RIL was required to furnish bank guarantees equivalent to the incremental revenue from the price increase, given the pendency of the dispute. As for RIL's two partners in KGD6 venture, BP and Niko Resources, there remains the extra ambiguity over their eligibility to benefit from the proposed price increase, for their being parties to the arbitration (both the foreign companies last week issued supplementary notices of arbitration to the government).

RIL wanted the third presiding arbitrator to be appointed from “a country other than India, UK or Canada”, as its contract partners are foreign companies. It had requested the apex court to appoint the umpire arbitrator as the two arbitrators – former chief justices SP Bharucha, (nominated by RIL in November 2011) and VN Khare (nominated by the oil ministry in June 2012) failed to agree on a third and presiding arbitrator.

Senior counsel Harish Salve, appearing for RIL, had contended that considering that its consortium partners “are foreign companies, who are

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