The Supreme Court on Wednesday issued notice to Vedanta Limited, Ravva Oil Limited and Videocon Industries Limited on the plea seeking stay on Delhi High Court’s order allowing the enforcement of the arbitrations award allowing Vedanta Ltd and Videocon Industries Ltd to recover $499 million instead of $198 million capped by the government for development of Ravva Oil and gas fields in the state of Rajasthan.
The apex court bench headed by Justice S Abdul Nazeer observed in its order, “Until further orders, parties to maintain status quo, existing as on today.”
The petition has been filed by Government of India through Secretary of Ministry of Petroleum and Natural Gas against Vedanta Limited, Ravva Oil Limited and Videocon Industries Limited.
The bench also comprising Justices Indu Malhotra and Aniruddha Bose directed the replies to be filed before 15 July and the same to be exchanged between the parties. The case will be next heard on 22 July.
In the 144 page long petition, the origin of the dispute from 1993 to 2020 has been enumerated in detail. The petition states that a Production Sharing Contract (PSC) for extracting Oil and Gas from an offshore field discovered and partly developed by ONGC, the National Oil Company (“NOC”), was entered into between the Petitioner (Indian government) and the Respondent (Cairn Indian Ltd, predecessor of Vedanta) wherein it was expressly stipulated that the respondent should carry out the enlisted works which included drilling of 21 wells at the capped cost of USD 188.98 million plus 5%. which is known as the Base Development Cost (BDC).
Under PSCs, costs incurred by Contractors in Petroleum Operations are ordinarily and fully recoverable from production of petroleum. However, certain PSCs, such as the one signed between the two parties, provided a cap on the amount of costs recoverable.
The BDC was a prime biddable criterion on the basis of which the Respondents were awarded the Production Sharing Contract. 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 petitioner, the Contractor unilaterally recovered USD 499.609 million for executing the enlisted work on spurious grounds.
In light of the dispute between the two parties, arbitration proceedings took place. As per the Malaysian Arbitration Act, 2005, an award (the decision of the arbitration) was pronounced in favour of the respondents on 18 January, 2011.
As per the petitioner, “in complete disregard to the Constitutional mandate and the PSC, the Tribunal allowed recovery of costs much beyond the BDC on specious grounds, re-writing the PSC in the garb of contract interpretation, thereby causing substantial loss to public exchequer, to the tune of US$ 216 million (US$129 million towards the principal dues plus Interest of US$ 87 million thereon payable as on date of application) (Rs. 1600 crores approximately).”
Post a series of appeals and challenges by the petitioner in various court of Malaysia the case came before the Delhi High court in 2018. The High court passing its final order on 19 February refused to interfere 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 has challenged the 19 February order of Delhi High Court in the Apex court.
The petitioner in its petition, also claims that the Contractor appropriated the entire amount of USD 198 million for drilling 14 Wells instead of 21 wells undertaken under the said fixed price. On top of it, the arbitration tribunal awarded USD 212 million additionally for the remaining 7 wells.
The Government also claims that the enforcement of such an Award would be contrary to (a) fundamental policy of India law; or (b) interest of India; or (c) justice or mortality.