Reliance moves Supreme Court against Delhi High Court order setting aside KG Basin award

Reliance Industries Limited (RIL) and its consortium partners, British Petroleum Exploration (Alpha) Limited and Niko (NECO) Limited, have moved the Supreme Court challenging the Delhi High Court's ruling that set aside a ₹12,800 crore arbitral award passed in their favour in the Krishna-Godavari (KG) Basin gas migration dispute with the Union of India..The special leave petitions were filed last week, on May 14, before the Supreme Court. While RIL filed the lead petition, its partners BP and Niko have filed separate but related pleas contesting the findings of the High Court..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 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 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% 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, but the Union of India appealed under Section 37 of the Arbitration and Conciliation Act, 1996. The Division Bench 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.