RIL Challenges Delhi High Court Ruling in $1.5 Billion KG Basin Gas Dispute
| 2025-05-20
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Reliance Industries has approached India's Supreme Court, contesting a Delhi High Court verdict that overturned a $1.5 billion arbitral award in a KG Basin gas dispute.
Reliance Industries Limited (RIL), led by Indian businessman Mukesh Ambani, has challenged a February ruling by the Delhi High Court which held that the company and its consortium partners had unjustly extracted natural gas from a neighbouring field operated by state-owned Oil and Natural Gas Corporation (ONGC) in the Krishna-Godavari (KG) Basin, located off India’s eastern coast.
The dispute dates back to 2013, when ONGC accused RIL of unlawfully drawing natural gas from its adjacent block, citing geological continuity between the two fields. A subsequent report by the United States-based petroleum consultancy DeGolyer & MacNaughton, commissioned by the Indian government, confirmed reservoir connectivity and suggested that RIL's production activities could deplete ONGC’s reserves.
Based on this finding, the Ministry of Petroleum and Natural Gas raised a financial claim against RIL in 2016, demanding approximately $1.55 billion for what it termed "unjust enrichment", along with an additional $175 million in interest.
RIL and its partners—UK-based BP Plc and Canada’s Niko Resources—disputed the claim and initiated international arbitration under the terms of their 2000 Production Sharing Contract (PSC) with the government. In 2018, a three-member arbitration tribunal, chaired by Singaporean arbitrator Lawrence Boo, ruled in favour of the consortium, holding that the PSC did not prohibit contractors from extracting gas located within their licensed area, regardless of its geological origin.
However, the Delhi High Court's division bench, comprising Justices Rekha Palli and Saurabh Banerjee, reversed this decision in February 2024. The court declared the arbitral award void, citing "patent illegality", breach of public policy, and violation of the public trust doctrine.
“The migrated gas alone was valued at about $1.5 billion as of June 30, 2016,” the Centre had argued in the case. The court held that allowing RIL to benefit from this without explicit government permission was inconsistent with the legal obligations under the PSC and India’s broader policy on managing natural resources.
Additionally, the court ruled that the arbitration was domestic—not international commercial arbitration—because RIL, the lead claimant, is an Indian entity. This finding effectively expanded the court's jurisdiction to review the merits of the case, a departure from the usual deference shown to international arbitration outcomes.
In its petition to the Supreme Court, RIL has contested this classification and argued that the Delhi High Court overstepped its authority by reassessing the tribunal's findings. RIL maintains that the arbitration was conducted in accordance with the PSC and that the tribunal's decision should be binding.
Legal experts say that under Indian arbitration law, courts generally do not examine the merits of a case once arbitration has been concluded. Their role is typically limited to ensuring the fairness and legality of the arbitration process itself.
RIL’s appeal also claims the High Court erred in interpreting the procedural aspects of the Arbitration and Conciliation Act, 1996. Specifically, it argues that the division bench conflated Sections 34 and 37 of the Act, which deal respectively with setting aside arbitral awards and appeals in arbitration matters.
The case has also seen individual legal filings from RIL’s consortium partners, BP and Niko Resources, each seeking to contest the High Court’s verdict that invalidated the arbitral ruling in their favour.
The Supreme Court is yet to list the matter for hearing.
Context:
The Krishna-Godavari Basin, located in the Bay of Bengal, is a key region for India's offshore natural gas production. The KG-D6 block, operated by RIL, was among India’s most prominent energy projects when commercial production began in 2009. However, production challenges and regulatory disputes have frequently clouded its operations.
The ongoing legal battle between RIL and the Indian government underscores the complex interface between private investment, resource management, and sovereign oversight in India's energy sector. It also raises questions about the enforceability of international arbitration in domestic courts, especially when significant public resources are involved.
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