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In May 2023, the Delhi High Court and the Supreme Court of India handed down judgments declining to set aside two different commercial arbitration awards against the government.
The Delhi High Court judgment: narrowing the “public policy” challenge
This dispute arose under an offshore gas production sharing contract (the “Contract”) between the Indian government (Ministry of Petroleum and Natural Gas) and private contractors. The Ministry had demanded from the contractors a payment (approximately USD 1.7bn) for exploiting hydrocarbons which had migrated to the Contract area from an adjacent gas reservoir.
In 2018, a Delhi-seated arbitral tribunal held that the contractors were fully entitled to produce the migrated hydrocarbons.
The judgment
The Indian government applied to the Delhi High Court to set aside the award. It claimed that the dispute was non-arbitrable on the basis that the Ministry’s payment demand was in exercise of its sovereign constitutional powers so concerned matters in the “public law arena”. It also argued that the award violated India’s public policy by conferring an unrestricted right on private contractors to exploit India’s natural resources.
In the decision (Union of India v Reliance Industries Limited & Ors), the Delhi High Court rejected the government’s challenge.
It ruled that merely the subject matter of the dispute (natural gas) being a natural resource did not by itself make the dispute non-arbitrable. The Ministry’s demand notice concerned violation of the Contract’s provisions (not public law claims) and India’s statutory licensing for natural gas contemplated arbitration, which made the dispute arbitrable.
Highlighting that courts have a limited scope of review of arbitral awards, it also held that the award did not contravene India’s public policy. The tribunal had only upheld the limited rights of the contractors as licensees and the title over the natural resources never passed to the contractors and remained with India.
The Supreme Court judgment: restraining re-appreciation of evidence
This case concerned a Power Purchase Agreement (the “Agreement”) under which Reliance had commissioned and operated a power generation station and had subsequently agreed to supply the Goa state government with electricity. Reliance and Goa fell into a dispute over the basis upon which Reliance was entitled to be paid.
In 2018, a sole arbitrator made an award directing Goa to pay Reliance a sum of approximately USD 34mn (plus interest).
The judgment
Goa challenged the award first before the Commercial Court (which upheld the award) and then before the High Court of Bombay. The High Court found the award to be vitiated by “patent illegality” stating that the tribunal’s award was based on a flawed interpretation of key documentary evidence.
Reliance appealed to the Supreme Court of India. In its decision (Reliance Infrastructure Limited v State of Goa) it set aside the High Court’s judgment and upheld the award.
The Court ruled that for the award to have been vitiated by “patent illegality”, the illegality must have been apparent on the face of the award. It reprimanded the High Court for instead dissecting and re-assessing factual aspects of the dispute (such as reviewing the operation of immaterial parts of the Agreement and analysing documentary evidence) when a “possible view” had clearly been taken by the tribunal on that evidence.
The Supreme Court stressed that an arbitral award was not to be “lightly interfered with by the Courts” and clarified that the court’s review of (even a domestic) arbitral award should not entail a re-evaluation of evidence.
We continue to monitor developments in the Indian courts, in particular relating to arbitration-related enforcement and reliefs