The Delhi High Court dismissed the Union of India’s appeal against an arbitral tribunal’s interim order which had refused to restrain Vedanta Ltd. from making financial adjustments pursuant to a Final Partial Award (FPA) in an arbitration concerning the Rajasthan oil block.
The Section 37 appeal challenged an interim order under Section 17 of the Act passed by an arbitral tribunal in an international commercial arbitration, relating to recovery of costs under a Production Sharing Contract (PSC) for the Rajasthan Oil Block.
Justice Jasmeet Singh, while dismissing the appeal, held that the arbitral tribunal’s interpretation of the Production Sharing Contract (PSC) was binding and enforceable, noting that the FPA, although declaratory in nature, had immediate effect unless stayed. The Court emphasized that pending quantification does not suspend Vedanta’s obligations under the PSC, including preparation of quarterly estimates and recovery of permissible costs.
Submissions by the Centre:
Senior Advocate Sanjay Jain argued that Vedanta had made unilateral, self-serving deductions amounting to over USD 377 million from profit petroleum shares due to the government, despite the FPA not quantifying any financial liabilities. He stressed that the FPA was merely declaratory and the financial impact required either mutual agreement or further tribunal direction. He also relied on a Grant Thornton report suggesting that the government was instead entitled to recover USD 223.76 million from Vedanta.
Submissions by Vedanta:
Appearing for Vedanta, Senior Advocate Harish Salve contended that the company’s actions were consistent with the PSC and the FPA, which had clarified that exploration costs incurred after the exploration period could be recovered. Salve highlighted that under Article 15.3 of the PSC, the operator is duty-bound to submit provisional quarterly accounts, and the adjustments in question were made accordingly based on the arbitration award. He also pointed out that the government had accepted Vedanta’s obligation to render quarterly accounts.
Court’s Reasoning:
The Delhi High Court held that the Final Partial Award (FPA) issued by the arbitral tribunal was binding on the parties and that its declaratory findings took immediate effect, even though the final quantification of amounts was pending. The Court found that Vedanta’s adjustments were not in violation of the award but were instead aligned with its obligations under the Production Sharing Contract (PSC), as interpreted by the tribunal. It emphasized that the tribunal had not restrained the continuation of contractual obligations, including cost recovery, and that Vedanta’s preparation of provisional quarterly accounts under Article 15.3 of the PSC was in accordance with the governing framework.
Refusing to interfere with the tribunal’s well-reasoned order, the Court reiterated the limited scope of appellate interference under Section 37(2)(b), which only allows review of arbitral orders if they are perverse, arbitrary, or manifestly illegal.
The appeal was dismissed, and pending applications were disposed of, with the Court emphasizing that the tribunal remains the appropriate forum for determining final quantification and re-adjustments if required.
Appearances in the case:
Petitioners: Mr. Sanjay Jain and Mr. Ritin Rai, Sr. Advs. with Ms. Rimali Batra, Mr. Abhishek Lalwani, Ms. Rajul Jain, Mr. Krishan Kumar, Advs.
Respondents: Mr. Harish Salve, Sr. Adv. with Ms. Anuradha Dutt, Mr. Anish Kapur, Ms. Priyanka, Mr. Chaitanya Kaushik, Mr. Kunal Dutt, Mr. Raghav Dutt, Ms. Payal Nayak, Mr. Arkaprava Dass, Advs.
