The apex court bench upheld the high court’s decision and said the Malaysian court had rightly examined the issue and the award doesn't offend public policy of India
NEW DELHI: The Supreme Court on Wednesday upheld a foreign arbitration award favouring Vedanta Ltd and Videocon Industries Ltd, allowing the two companies to recover $499 million spent in developing Ravva oil and gas fields off the coast of Andhra Pradesh.
The case had reached the SC after the petroleum ministry’s petition against enforcing the award on the grounds that it went against India’s public policy was rejected earlier by the Delhi High Court. The HC on 19 February decided not to interfere in the arbitral award from a Malaysian tribunal. The government has claimed that the contract entitled the companies to recover a maximum of $198 million.
An SC bench headed by Justice S. Abdul Nazeer stated that the Malaysian court had rightly examined the issue and the award doesn’t offend India’s public policy. The bench, also comprising Justices Indu Malhotra and Aniruddha Bose, said the enforcement court (HC) cannot reassess the evidence.
The judgement is a culmination of a decade of litigation, after the 2011 arbitration award went in favour of the oilfield operators.
Following the HC decision not to interfere in the arbitration award, the government filed a 144-page petition in the SC against Vedanta Ltd, Ravva Oil Ltd and Videocon Industries Ltd. The SC issued notices to all three parties on 17 June.
The petition chronicles the events from 1993 to 2020, starting with a production-sharing contract (PSC) between the government and Cairn India Ltd (later acquired by Vedanta) to extract oil and gas from an offshore field discovered and partly developed by ONGC. According to the petition, the PSC stipulated that the respondent should carry out the specified works including drilling 21 wells at a maximum cost of $188.98 million plus 5%, called the base development cost (BDC).
Under PSCs, development costs incurred by contractors such as Cairn are ordinarily and fully recoverable from petroleum production. However, this PSC set a cap on the amount of costs recoverable.
The BDC was a prime criterion in the bidding, on the basis of which the respondents were awarded the PSC. The BDC was based on an estimate of the costs that would have been incurred by the contractor for performing the work as mentioned in the PSC. As such, any cost recovery beyond the limit of BDC would constitute a wrongful loss to the public exchequer and would be against the financial interests of India. As per the government, the contractor unilaterally recovered $499 million on spurious grounds.
The dispute went into international arbitration, which ended with a tribunal under the Malaysian Arbitration Act, 2005, ruling in favour of Vedanta and Videocon on 18 January 2011.
After a series of appeals and challenges by the Indian government in various courts of Malaysia, the case reached the Delhi HC in 2018. In its final order, the high court refused to interfere in the award on the ground that the arbitral tribunal “has the right to make both right and wrong decisions as these are errors which fall within their jurisdiction".
The government alleged that the contractor appropriated the entire amount of $198 million for drilling 14 wells instead of 21 wells undertaken under the agreed fixed price. On top of it, the arbitration tribunal awarded $212 million additionally for the remaining seven wells.
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