The Supreme Court on Friday directed that the Krishna-Godavari (KG) Basin gas migration dispute between Reliance Industries Limited (RIL) and the Union government be referred to mediation.
The Court also proceeded to appoint former Supreme Court Justice Ranjana Prakash Desai as the mediator.
"Let Justice Ranjana Prakash Desai be the mediator. She handles complex commercial disputes well. Let an expert from each side also assist her," the Court said.
The bench of Chief Justice of India (CJI) Surya Kant and Justices Joymalya Bagchi and Vipul Pancholi passed the order after noting that the parties themselves have not been able to find out a viable solution.
Senior Advocate Kapil Sibal, appearing for Reliance, said that the company was open to mediation.
"We have no problem with mediation. A mediator can be appointed," he submitted.
"We suggest, on their behalf, that a former Judge of this Court be requested to act as mediator. We also request the learned mediator to have the assistance of two domain experts, as may be suggested by the parties, for the aforesaid purpose. We are assured that fruitful cooperation will be extended to the learned mediator by the parties. The parties may contact Hon'ble Justice Ranjana Prakash Desai during the course of the day or by tomorrow and fix the date and time as per her convenience. We are not fixing any timeline for the mediation proceedings. The parties may make their presentations, both written and oral, before the learned mediator," the Court said in its order.
The bench then listed the matter for further consideration after four weeks when the parties have to inform the Court about the progress made in the mediation.
The Court was hearing appeals filed by Reliance and its consortium partners, British Petroleum Exploration (Alpha) Limited and Niko (NECO) Limited, challenging the Delhi High Court's ruling that set aside a ₹12,800 crore arbitral award passed in their favour.
The Delhi High Court division bench of Justices Rekha Palli and Saurabh Banerjee had, on February 14, held that the arbitral award suffered from “patent illegality”, violated India’s public policy, and was inconsistent with the public trust doctrine.
Importantly, the High Court also found that the arbitration was domestic in nature and not an international commercial arbitration as previously held by a single judge.
“In our considered opinion, since the lead member, like RIL in the present case, in an arbitration proceeding is an Indian entity, the arbitration has to be treated as a domestic arbitration and not an International Commercial Arbitration,” the High Court ruled.
The arbitration arose out of a Production Sharing Contract (PSC) signed in April 2000 between the Union of India, Reliance, and Niko for the development of the KG-DWN-98/3 block. RIL initially held a 90 percent stake, later divesting part of it to British Petroleum Exploration Limited (BP).
In 2013, Oil and Natural Gas Corporation (ONGC) alleged that gas from its adjacent block had migrated into the RIL-led block, allowing RIL and its partners to extract and sell gas that belonged to ONGC. A 2015 technical study by DeGolyer and MacNaughton confirmed reservoir connectivity. Subsequently, the Central government demanded nearly $1.55 billion (approximately ₹12,800 crore) from RIL.
RIL disputed the claim and initiated arbitration under the PSC. A majority of the arbitral tribunal ruled in favour of RIL, holding that there was no contractual bar on extracting the migrated gas. However, one arbitrator dissented, stating that RIL was not entitled to profits from migrated gas without explicit government approval.
The arbitral award was initially upheld by a single-judge of the High Court, but the Union of India appealed under Section 37 of the Arbitration and Conciliation Act, 1996.
The division b ench reversed the ruling and set aside both the award and the single-judge’s order on four key grounds:
Patent Illegality: The Court held that allowing RIL to extract and profit from migrated gas without disclosing a 2003 report on reservoir connectivity constituted a material breach of the PSC.
Nature of Arbitration: The Court ruled that the proceedings were not international commercial arbitration as RIL, the sole claimant, was an Indian entity. Foreign participation by BP and Niko did not alter the character of the arbitration.
Public Policy and Public Trust Doctrine: The Court said that natural resources are held in trust by the Union for the people of India and cannot be exploited without proper authorisation.
Unjust Enrichment: The Court found that RIL and its partners had unjustly enriched themselves by extracting and selling gas that legally belonged to ONGC or the government.
This led to the appeals before the Supreme Court.
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