NEW DELHI: The Supreme Court on Wednesday rejected a government statement challenging a Malaysian court’s $ 499 million arbitration award in favor of Vedanta Ltd and Videocon Industries in relation to the Ravva oil and gas fields.
The government had limited $ 198 million for the development of the oil and gas fields in Andhra Pradesh.
The government, through the Secretary for Petroleum, had challenged the Feb. 19 order of the Delhi High Court that had refused to interfere with the Malaysian court’s arbitration award.
The higher court, headed by Judge S Abdul Nazeer, upheld the higher court’s decision and said that the Malaysian court had properly examined the matter and that the award does not offend the public order of India. The court also composed of judges Indu Malhotra and Aniruddha Bose said that the execution court (Delhi High Court) cannot reassess the evidence.
The appeal filed in the higher court was against Vedanta Limited, Ravva Oil Limited and Videocon Industries Limited. The court had sent notifications to all three parties on June 17.
In the 144-page petition on the dispute, which began in 1993, the petitioner stated that the Indian government and Cairn Indian Ltd, Vedanta’s predecessor, had entered into a production sharing contract (PSC) to extract oil and gas from a field in high seas discovered and developed in part by ONGC. The contract stated that the defendant would have to carry out the enlisted works that included drilling 21 wells at a maximum cost of $ 188.98 million plus 5% of the base development cost (BDC).
Under the PSC, the costs incurred by contractors in oil operations are ordinary and fully recoverable from oil production. However, certain CPs, such as the one signed between the two parties, established a limit to the amount of recoverable costs.
The BDC was a primary bidding criterion on the basis of which the respondents were awarded the contract. The BDC was based on an estimate of the costs that the contractor would have incurred to perform the work mentioned in the PSC. As such, any cost recovery beyond the BDC cap would constitute an unfair loss to the public purse and would be contrary to the financial interests of India. According to the petitioner, the contractor unilaterally recovered $ 499,609 million for executing the enlisted work for spurious reasons.
In light of the dispute between the two parties, an arbitration procedure was conducted. According to the Malaysian Arbitration Act 2005, an award (the arbitration decision) was rendered in favor of the defendants on January 18, 2011.
According to the petitioner, “without taking into account the constitutional mandate and the PSC, the Court allowed cost recovery far beyond the BDC for deceptive reasons, rewriting the PSC in contract interpretation garb, thus causing substantial losses to the public purse , for a sum of US $ 216 million (US $ 129 million for the principal installment plus interest of US $ 87 million payable at the date of the application) “.
Following a series of appeals and challenges by the petitioner in various courts in Malaysia, the case reached the Delhi High Court in 2018. The high court approved its final order on February 19, refusing to interfere with the court order. The court said the court “has the right to make both correct and incorrect decisions, as these are errors that fall within its jurisdiction.”
The government alleged that the contractor appropriated the total amount of $ 198 million for the drilling of 14 wells instead of 21 wells, carried out under said fixed price. In addition, the arbitral tribunal awarded an additional $ 212 million for the remaining seven wells.
The government had also claimed that enforcement of such an award would be contrary to the fundamental policy of Indian law and to the interest of India.
(The story will update after the order is uploaded.)
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