Union of India Vs Reliance Industries Ltd & Anr (Delhi High Court)
Delhi High Court held that the award can be regarded as enforceable only if it is actually executable. Accordingly, the Final Partial Award passed by the Arbitral Tribunal is unenforceable award.
Facts- This judgment adjudicates EA (OS) 583/2019, EA (OS) 1012/2020, EA (OS) 1411/2021, IA 3665/2019 and IA 3668/2019, in the present Execution Petition OMP (EFA) (Comm) 1/2019, preferred by the Union of India under Section 481 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”), seeking enforcement of a Final Partial Award passed by the learned Arbitral Tribunal (“the learned AT”) on 12th October 2016 (“the 2016 FPA”).
There is no dispute that the 2016 FPA does not specifically award any amount to the petitioner. The Execution Petition, nonetheless, claims, in para 7, that an amount of US $ 2314040750 is payable to the petitioner by the respondents-Judgment Debtors under the 2016 FPA, and seeks recovery thereof.
Conclusion- Though, superficially, an execution petition could be maintained for enforcement of any award, whether it is executable or not, the award can be regarded as enforceable only if it is actually executable. Actual executability would require, as its sine qua non, determination, by the learned AT, of all the issues on the basis of which the liability of the parties towards each other can be fixed. Absent such determination, the award remains inchoate – as in the present case – and ex facie unenforceable.
In the present case, the learned AT has itself held as much, on more than one occasion, most recently reiterating the position in the 2021 FPA by holding that the adjustment of the accounts was “an exercise to be undertaken after the Tribunal has determined all outstanding matters between the Parties, notably the Balance EPOD Agreements Case and the CRL Increase Applications.” The 2016 FPA cannot, therefore, be enforced in isolation at this stage, as the petitioner would desire. As a petition which seeks enforcement of an unenforceable award, the present Execution Petition would also, ipso facto, not be maintainable.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This judgment adjudicates EA (OS) 583/2019, EA (OS) 1012/2020, EA (OS) 1411/2021, IA 3665/2019 and IA 3668/2019, in the present Execution Petition OMP (EFA) (Comm) 1/2019, preferred by the Union of India under Section 481 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”), seeking enforcement of a Final Partial Award passed by the learned Arbitral Tribunal (“the learned AT”) on 12th October 2016 (“the 2016 FPA”).
2. There is no dispute that the 2016 FPA does not specifically award any amount to the petitioner. The Execution Petition, nonetheless, claims, in para 7, that an amount of US $ 2314040750 is payable to the petitioner by the respondents-Judgment Debtors under the 2016 FPA, and seeks recovery thereof.
3. The respondents contend that such an execution petition is unknown to law. Briefly stated, the respondents‘ contention is that the 2016 FPA is one in a series of FPAs rendered by the learned AT in the arbitral proceedings between the parties. A reading of the 2016 FPA, conjointly with prior and later FPAs rendered by the learned AT, submits the respondents, discloses that, even as on date, the amount finally payable by either party to the other, in the arbitral proceedings, is yet to be determined. The petitioner, according to the respondents, is seeking to capitalize on certain interim findings of the learned AT, which are, even under the 2016 FPA, subject to the decision to be rendered on other claims of the respondents against the petitioner, regarding which the learned AT has specifically reserved jurisdiction in the 2016 FPA itself. The petitioner cannot usurp this jurisdiction and work out, on its own basis, an intermediate amount allegedly payable by the respondents to it, and seek its recovery by execution. The exercise undertaken by the petitioner in the present Execution Petition is, therefore, according to the respondents, not only without authority of law, but is contrary to the terms of the 2016 FPA itself, read with subsequent FPAs issued by the learned AT.
4. I agree.
5. To me, too, it appears, on the face of it, that the present Execution Petition would not be maintainable for a variety of reasons, which I would elucidate presently. I also agree with the respondents that allowing the petitioner‘s prayer would be contrary to the 2016 FPA, as well as other FPAs and orders subsequently issued by the learned AT. The Execution Petition is also, therefore, in my considered opinion, premature.
6. In that view of the matter, I do not intend to enter into the intricacies of the disputes between the petitioner and the respondents, which are varied and involved. The recital of facts, hereinafter, would, therefore, be restricted to the extent necessary.
Facts
The contractual backdrop, in brief
7. Rights in petroleum situated below the surface of the earth, as a natural resource, vest in the Government. Two Production Sharing Contracts (PSCs) were, however, executed between the petitioner and a conglomeration of the respondents RIL, British Gas Exploration and Production India Ltd (BGEIPL) [which acquired interest from Enron Oil & Gas India Ltd (EOGIL) in 2002] and Oil & Natural Gas Corporation Ltd (ONGC) (―the contractors”, collectively), with participating interests of 30%, 30% and 40% respectively, as per Article 1.632 of the PSCs. These PSCs permitted the contractors to extract oil from the Tapti and Panna Mukta Oil Fields. The contractors were to extract the oil at their own cost, recoverable as ―Cost Petroleum” (CP), in the manner specified in the PSCs, from the petitioner; subject, however, to a specified upper Cost Recovery Limit (CRL). Additionally, the contractors and the petitioner would be entitled to shares in the profit earned by sale of the extracted petroleum – referred to as ―Profit Petroleum” (PP). These shares were to be determined on the basis of an Investment Multiple (IM), to be calculated as per the formula provided in the PSCs.
Some relevant terms of the PSCs [Reference is made to the provisions of the Tapti PSC. The Panna Mukta PSC has similar provisions.]
Article 7.1(a) grants the contractors the exclusive right to carry out petroleum operations in the Contract Area and to recover costs and expenses as provided in the PSCs.
9. Article 13.1 entitled the contractors to recover Contract Costs in each Financial Year. ―Contract Costs” was defined, in Article 1.21 as meaning ―Exploration Costs, Development Costs, Production costs, and all other costs related to Petroleum Operations as set forth in Section 3 of the Accounting Procedure”. Of these, while Exploration Costs (EC) and Production Costs (PC) were permitted to be recovered in full, Article 13.1.13 capped the DC which the contractors could claim by the Cost Recovery Limit (CRL). CRL was defined in Article 13.1.24, and originally fixed, in the PSC, as US $ 545 million for the Tapti PSC and US $ 577.5 million for the Panna Mukta PSC. Article 13.1.35 enumerated the assumptions on the basis of which the CRL had been fixed. Importantly, Article 13.1.4(c) entitled the contractors to seek increase in the CRL ―in the event that the Contractor‘s Cost Recovery Limit is exceeded as a result of
(i) delays in carrying out the Development Operations referred to in Article 13.1.3(c) due to a delay in obtaining any necessary approval;
(ii) material changes to the Development Plan for the mid-and south-Tapti Fields necessitated by the Contractor‘s review of data provided, if any, to the Companies by the Government and/or ONGC after the Effective Date available prior to the Effective Date then the Companies, acting reasonably, would have included such changes in the Development Plan for the mid- and south- Tapti Fields;
(iii) a material change to the international market conditions referred to in Article 13.1.3(e),
(iv) a variation to the Development Plan for the mid and south-Tapti Fields approved by the Management Committee; or
(v) an event of force majeure as provided in Article 31.”
10. Article 13.1.5 envisaged reference of disputes to arbitration ―in the event that:
(a) there is any dispute between the Parties whether or to what extent a circumstance referred to in Article 13.1.4(c) has arisen or resulted in the Contractor‘s Cost Recovery Limit being exceeded; or
(b) the Management Committee is unable to agree whether an increase should be made to the Contractor‘s Cost Recovery Limit or is unable to agree on the amount of any such increase”.
11. Article 14 of the PSCs dealt with sharing of PP. Article 14.1 stipulated that the share of the Government and the contractors in the PP, in any Financial Year, would be calculated on the basis of the Investment Multiple (―IM”, hereinafter) actually achieved by the contractors at the end of the preceding financial year for the contract area, as provided in Appendix D. Appendix D provided the following formula for calculating the IM (hereinafter ―the IM equation”):
IM = Cumulative Net Cash Income (CNCI) 3
Cumulative Investment (CI)
where,
(i) as per Appendix D Clause 26 of the PSCs, the CNCI was calculated as the sum total of the respondents‘ share in the CP, PP and Incidental Income, less the respondents‘ share in the Production Costs and respondents‘ Notional Income Tax (NIT), in other words,
CNCI = (Respondent‘s share in CP) + (Respondents‘ share in PP) + (Respondents‘ share in Incidental Income) – (Respondents‘ share in Production Costs) – (Respondents‘ NIT), and
(ii) Appendix D Clause 37 worked out the CI as the sum of the Exploration Cost (EC) and the Development Cost (DC), of which the DC was capped by the CRL.
12. Clause 14.2 of the PSCs made the respective shares of the petitioner and the contractors in the PP was dependent on the IM at the end of the Financial Year, as per the following scheme:
