Setback for Reliance: Delhi High Court quashes $1.7 Billion arbitral award in KG Basin gas dispute

New Delhi, Feb 14: In a major legal setback for Mukesh Ambani-led Reliance Industries Limited (RIL), the Delhi High Court on Friday set aside an arbitral award that had rejected the Indian government’s claims in the Krishna-Godavari (KG) basin migrated gas dispute as reported by Bar and Bench.

A division bench comprising Justices Rekha Palli and Saurabh Banerjee overturned the 2018 arbitral tribunal ruling, stating:

"In view of the above, we are setting aside the Impugned Order dated May 9, 2023 passed by the learned single judge, and the arbitral award passed by the learned arbitral tribunal dated 2018 being contrary to the settled position of law along the pending applications, if any, leaving the parties to bear their own costs."

A detailed copy of the order is awaited as reported by Bar and Bench,

Background of the dispute

The case traces back to April 2000, when a consortium led by RIL signed a production-sharing contract (PSC) with the Central government for gas exploration in the KG Basin, off the Andhra Pradesh coast. The dispute arose in 2013 after state-owned Oil and Natural Gas Corporation (ONGC) flagged potential lateral continuity of gas reservoirs between Reliance-operated fields and adjacent ONGC blocks, suggesting that gas migration had occurred.

Based on these findings, the Ministry of Petroleum and Natural Gas (MoPNG) demanded approximately $1.5 billion from Reliance, alleging it had unfairly benefited from extracting gas that may have migrated from ONGC’s fields. The claim was later reinforced by a 2016 expert report from former Delhi High Court Chief Justice AP Shah, which supported the possibility of gas migration.

Reliance challenged the demand, invoking arbitration under the PSC. In July 2018, an arbitral tribunal ruled largely in favor of Reliance, rejecting most of the government’s claims. The Delhi High Court's single-judge bench upheld the arbitral award in May 2023, stating that the tribunal's findings were not against India's public policy. However, the government appealed under Section 37 of the Arbitration and Conciliation Act, leading to Friday’s ruling by the division bench.

The Central government was represented in court by Attorney General R. Venkatramani and senior advocates K.K. Venugopal and Gopal Jain.

With the arbitral award now set aside, the ruling marks a major victory for the government and raises fresh legal challenges for Reliance in the ongoing KG Basin dispute.