Delhi HC overturns $1.7 billion arbitration award in Reliance gas dispute

The case revolves around state-owned ONGC's claims that RIL drilled wells near their block boundaries, allowing gas to migrate from ONGC's fields to RIL's KG-D6 block between 2009 and 2013

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The Delhi High Court has ruled in favour of the Indian government, delivering a major blow to Reliance Industries Ltd (RIL) and its foreign partners, UK-based BP Plc and Canada’s Niko Resources, in a long-running gas dispute. The court overturned a 2018 international arbitration award that had favoured the RIL-led consortium, accusing the companies of “insidious fraud” and “unjust enrichment” amounting to over $1.729 billion.

 

The case revolves around allegations by state-owned ONGC, which claimed that RIL had illegally extracted natural gas from adjacent deposits in the Krishna-Godavari (KG) basin. ONGC accused RIL of drilling wells near their block boundaries, allowing gas to migrate from ONGC’s fields to RIL’s KG-D6 block between 2009 and 2013.

 

RIL, which holds a 60 per cent stake in KG-D6, has consistently denied any wrongdoing, stating that it operated within the terms of its production sharing contract (PSC).

 

The Division Bench of Justices Rekha Palli and Saurabh Banerjee set aside a May 2022 ruling by a single judge that had dismissed the government’s accusations. It also ruled that the international arbitration award of July 24, 2018, was ‘contrary to public policy’ in India.

 

The arbitration panel, led by Singapore-based Lawrence Boo, had previously ruled 2-1 in favour of RIL, stating that the PSC did not prohibit contractors from extracting and selling gas that had migrated from an external source.

 

Background of ONGC-Reliance gas dispute

The dispute began in 2014, when the Indian government, citing an investigation by US-based DeGolyer and MacNaughton (D&M), demanded $1.47 billion from RIL for allegedly draining and selling ONGC’s gas without authorisation. The report indicated that RIL’s drilling operations had the capability to deplete gas reserves from ONGC’s Godavari PML and KG-DWN-98/2 blocks. The case has since gone through multiple legal and arbitration proceedings.

 

In May 2023, the government renewed its challenge to the arbitration ruling, calling it a violation of public policy and accusing RIL of amassing vast wealth through fraudulent means. RIL countered that joint development of the fields was not feasible due to differing stages of exploration, as confirmed by the Directorate General of Hydrocarbons.

 

With the Delhi High Court siding with the government, the ruling could have major implications for India’s oil and gas industry, particularly on how disputes over resource ownership and migration are resolved. The financial liability of RIL and its partners will depend on the next legal steps, as the consortium may choose to challenge the verdict in the Supreme Court.