# RELIANCE INDUSTRIES LTD. & ORS v. UNION OF INDIA

- **Citation:** [2014] 14 S.C.R. 187
- **Court:** Supreme Court of India
- **Decided:** 2014-03-31
- **Case number:** Arbitration Petition No. 27 of2013
- **Bench:** Surinder Singh Nijjar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/reliance-industries-ltd-ors-v-union-of-india-29723
- **Pages:** 48

## Headnote

Arbitration and Conciliation Act, 1996:
A
B
s. 11(6) - Petition under - For appointment of third
arbitrator- Maintainability of- Contract between one Indian
and two foreign companies on one side and Government of c
India on the other side - The Indian company acted as
· 'Operator' on behalf of the two foreign companies - Initiation
of arbitral proceedings by the Indian Company - Whether
the arbitration would amount to an arbitration between two
Indian parties or whether it was an International Commercial . D
Arbitration - Held: The arbitration was an International
Commercial Arbitration because two of the four parties to the
arbitration were not based in India and the initiation of arbitral
proceedings by the Indian company was also on behalf of
the foreign companies.
E
ss. 11(1), 11(6) and 11(9) - Appointment of third
Arbitrator - Criteria for - Held: The appointment of the third
arbitrator has to be guide'1 by the provisions contained u/s.
11(9) - The concern of the Court is to ensure neutrality
impartiality and independence - It is entirely upto the Chief F .
Justice of India or his nominee to accept any of the
preferences of the parties for appointment of third arbitrator
- In making such choice, the Chief Justice shall be guided
by the relevant provisions of the Act, UNCITRAL Model Laws
and UNCITRAL Rules - *In the peculiar facts of the case, G
*By order dated 2.4.2014, the Court observed that the third arbitrator i.e.
Hon'ble James Spingcharan ACQC. former Chief Justice and Lieutenant
General of New South Wales, Australia happened to be on the list of
arbitrators submitted by the petitioner. Thereafter, by order dated
29.4.2014, Hon'ble Michael Hudson McHugh, ACQC, former Judge of the
High Court of Australia and former non-permanent Justice of the Court of H
Final Appeal, in Hong Kong was appointed as third arbitrator.
187
188
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A
such an individual is appointed as third arbitrator; whose
name has not been proposed by either of the parties.
Petitioner No. 1 (an Indian Company) and petitioner
Nos. 2 and 3 (the foreign companies), on one side,
entered into an agreement with the respondent (Union
B of India), which was in the nature of Production Sharing
Contract (PSC). Article 33 of the Contract was the
Arbitration Agreement. .After some differences relating
to the scope and interpretation of the provisions of the
contract arose between ,the petitioners and the
C respondent, Petitioner No. 1 sent a notice to the
respondent Invoking arbitration. In the cou.rse of
correspondence with the respondent, petitioner No.1 .
also informed the respondent th~t it has nominated Mr ..
Justice S.P. Bharucha, former Chief Justice of India as
D · their arbitrator. Despite the request of the petitioners, .
when the respondent did not appoint any arbitrator,
petitioner Nos. 1 and 2 filed Arbitration Petition No. 8 of
2012 u/s. 11(6) of Arbitration Act, for app_ointment of
second arbitrator in terms of Article 33.5 of the contract.
'
I;
:
\"
•
E Subsequent thereto, the respondent nominated .Mr.
Justice V.N. Khare, the former Chief Justice of India as
second arbitrator. In view thereof, the arbitration petition
was disposed of. Thereafter, when the two arqitrators
nominated on behalf of both the parties, Were not able
F to reach a consensus as regards the name of the third
arbitrator, the present arbitration petition u/s. 11 (6) and ·
11(9) of the Act was filed seeking appointment of third
arbitrator.
' ..
The petitioner took the plea that the arbitral
G proceedings related to an International Commercial
Arbitration, as two of the four parties to the arbitration
were based outside India; that petitioner No.1 as
'operator' as stated in the Joint Operating Agreement was
entitled to initiate the arbitration proceedings on.behalf
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
189
of all the constituents of the contract; that the Supreme A
Court has jurisdiction to entertain the petition; and that
the third arbit

## Text

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[2014] 14 S.C.R. 187.
RELIANCE INDUSTRIES LTD. & ORS.
v.
UNION OF INDIA
(Arbitration Petition No. 27 of2013)
MARCH 31, 2014
[SURINDER SINGH NIJJAR, J.]
Arbitration and Conciliation Act, 1996:
A
B
s. 11(6) - Petition under - For appointment of third
arbitrator- Maintainability of- Contract between one Indian
and two foreign companies on one side and Government of c
India on the other side - The Indian company acted as
· 'Operator' on behalf of the two foreign companies - Initiation
of arbitral proceedings by the Indian Company - Whether
the arbitration would amount to an arbitration between two
Indian parties or whether it was an International Commercial . D
Arbitration - Held: The arbitration was an International
Commercial Arbitration because two of the four parties to the
arbitration were not based in India and the initiation of arbitral
proceedings by the Indian company was also on behalf of
the foreign companies.
E
ss. 11(1), 11(6) and 11(9) - Appointment of third
Arbitrator - Criteria for - Held: The appointment of the third
arbitrator has to be guide'1 by the provisions contained u/s.
11(9) - The concern of the Court is to ensure neutrality
impartiality and independence - It is entirely upto the Chief F .
Justice of India or his nominee to accept any of the
preferences of the parties for appointment of third arbitrator
- In making such choice, the Chief Justice shall be guided
by the relevant provisions of the Act, UNCITRAL Model Laws
and UNCITRAL Rules - *In the peculiar facts of the case, G
*By order dated 2.4.2014, the Court observed that the third arbitrator i.e.
Hon'ble James Spingcharan ACQC. former Chief Justice and Lieutenant
General of New South Wales, Australia happened to be on the list of
arbitrators submitted by the petitioner. Thereafter, by order dated
29.4.2014, Hon'ble Michael Hudson McHugh, ACQC, former Judge of the
High Court of Australia and former non-permanent Justice of the Court of H
Final Appeal, in Hong Kong was appointed as third arbitrator.
187
188
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A
such an individual is appointed as third arbitrator; whose
name has not been proposed by either of the parties.
Petitioner No. 1 (an Indian Company) and petitioner
Nos. 2 and 3 (the foreign companies), on one side,
entered into an agreement with the respondent (Union
B of India), which was in the nature of Production Sharing
Contract (PSC). Article 33 of the Contract was the
Arbitration Agreement. .After some differences relating
to the scope and interpretation of the provisions of the
contract arose between ,the petitioners and the
C respondent, Petitioner No. 1 sent a notice to the
respondent Invoking arbitration. In the cou.rse of
correspondence with the respondent, petitioner No.1 .
also informed the respondent th~t it has nominated Mr ..
Justice S.P. Bharucha, former Chief Justice of India as
D · their arbitrator. Despite the request of the petitioners, .
when the respondent did not appoint any arbitrator,
petitioner Nos. 1 and 2 filed Arbitration Petition No. 8 of
2012 u/s. 11(6) of Arbitration Act, for app_ointment of
second arbitrator in terms of Article 33.5 of the contract.
'
I;
:
\"
•
E Subsequent thereto, the respondent nominated .Mr.
Justice V.N. Khare, the former Chief Justice of India as
second arbitrator. In view thereof, the arbitration petition
was disposed of. Thereafter, when the two arqitrators
nominated on behalf of both the parties, Were not able
F to reach a consensus as regards the name of the third
arbitrator, the present arbitration petition u/s. 11 (6) and ·
11(9) of the Act was filed seeking appointment of third
arbitrator.
' ..
The petitioner took the plea that the arbitral
G proceedings related to an International Commercial
Arbitration, as two of the four parties to the arbitration
were based outside India; that petitioner No.1 as
'operator' as stated in the Joint Operating Agreement was
entitled to initiate the arbitration proceedings on.behalf
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
189
of all the constituents of the contract; that the Supreme A
Court has jurisdiction to entertain the petition; and that
the third arbitrator should be from the neutral nationality.
·Allowing the Arbitration Petition, the Court
HELD: 1.1. Initially, Arbitration Petition for B
appointment of second arbitrator was filed by Petitioner
Nos.1 and 2. Therefore, it is apparent that reference to
arbitration was sought on behalf of the three partners to
the Production Sharing Contract (PSC). The Arbitration
Petition was disposed of as both the parties had no c
objection to the arbitrator nominated by each other.
Therefore, the matter was left to the two arbitrators to
nominate the third arbitrator who shall be the Chairman
of the Arbitral Tribunal. [Paras 47 and 48][211!-A-D]
1.2. The other reason for not accepting the plea D
that the Petitioner is not acting on behalf of all the three
Contractors, is that the notice was served by petitioner
No. 1 in the capacity of Operator, which included all the
three Contractors. The correspondence between the
parties clearly indicates that the' Respondent recognised E
that the Petitioner No.1 is the Operator on behalf of all
the Contractors.
The provisions of the PSC clearly
identified the parties to the PSC. The disputes that have
arisen between the parties are also clearly identified in
the correspondence exchanged between the parties. It F
is not correct to say that the two foreign companies are
not operators under the PSC and, therefore, have
forfeited any right to operations under the PSC. [Paras
49 50 and 52][216-F-H; 217-D-F]
1.3. It cannot be said that even if it is accepted that G
the disputes raised by the Petitioner would also include
the disputes of Petitioner Nos. 2 and 3, the arbitration
still essentially remains an Indian arbitration. The
Respondents have not at any stage earlier raised an
H
190
SUPREME COURT REPORTS
(2014] 14 S.C.R.
A objection that the disputes had been raised by Petitioner
. No.1 only on its own behalf and did not relate to the
disputes of Petitioner No.2 and 3 also. The three
petitioners are all parties to the PSC. They are all
contractors under the PSC. The PSC recognizes that the
B operator would act on behalf of the contractor. All
investments are funded by not just the Petitioner No.1
but also by the other parties, and they are equally entitled
to the c~sts recovered and the profits earned. ·For the
sake of ope~ational efficiency, the Operator acts for and
C on behalf of the other ·parties. Therefore, the disputes
raised in the correspondence addressed by Petitioner
lilo.1 not just on its own behalf but on behalf of all the
parties. Therefore, ifthe Petitioner No.1 was to succeed
in the arbitration, the award would enure not only to the
o benefit of Petitioner No.1, but to all the parties to the PSC.
Conversely, if the Government of India were to succeed
before the tribunal, ag·ain the· award would have to be
enforced against all the parties. In other words, each of
the Contractors would have to perform the obligations
i: cast upon them. Thus.lit cannot be·said that the
arbitration in the present case is not an international
arbitration. [Paras 53 and 54][217-G, H; 218-A-F]
1.4. It also cannot be said that petitioner Nos. 2
and 3 have not rai~ed any arbitrable dispute with Union
F of India. A perusal of some of the provisions of PSC
1il1ould make it cleilr that all three entities are part.ies to
the PSC. All three entities have rights and obligations
under_ the PSC. Where petitioner No. 1 acts under the
PSC, including by commencing arbitration, it does so
G not only on behalf of itself, but also "on behalf of all
constituents of the contractors" including petitioner
Nos. 2 and 3. There is a significant and broad ranging
dispute between petitioner Nos. 1, 2 and 3 on the one
hand and the uo1'·on the other hand, that goes to the
H heart of the main contractual rights and obligations
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
191
under the PSC. Therefore, it cannot be said that this is A
an arbitration between the two Indian parties only.
[Paras 55 and 56][218-G, H; 219-A-C & F]
1.5. The accounting procedure clearly provides that
petitioner No. 1 shall keep the accounts for the purposes
of cost recovery statement. Therefore, it cannot be said B
that the claims made by the Petitioner are only on behalf
of petitioner No.1. The Joint Operating Agreement
expressly provides that the operator "to initiate litigation
on behalf of all the parties." The fallacy of the stand taken
by UOI is patent. On the one hand, the respondent claims C
that the arbitral award would bind not only Petitioner No.1
but also Petitioner Nos. 2 and 3, but on the other hand,
is insisting that the arbitration proceedings are only
between Petitioner No.1 and UOI. [Para 57][219-G, H;
220-A]
2.1. In exercise of the jurisdiction under Section
11 (6), the CJI would usually appoint the third arbitrator
in accordance with the request. Even ifthe third arbitrator
D
is an Indian National, it would not be contrary to Article E
33.6 (arbitration Clause) of PSC. But it would not be
possible to say that only an Indian National can be
appointed, as there is an absence of a requirement of
appointing a foreign national as the third arbitrator.
Article 33.6 virtually leaves it to the Chief Justice of India F
to appoint the third arbitrator who would be neutral,
impartial and independent from anywhere in the world
including India. Just as India cannot be exCluded,
similarly, the countries where petitioner Nos. 2 and 3 are
domiciled, as an option from where the third arbitrator G
could be appointed, cannot be ruled out. [Para 58]
[220-H; 221-A-C]
· 2.2. When the CJI exercises his jurisdiction under
Section 11 (6) he is to be guided by the provisions
·contained in the Arbitration Act, 1996 and generally H
192
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A accepted practices in the other international jurisdictions.
CJI would also be anxious to ensure that no doubts are
cast on the neutrality, impartially and independence of
· the Arbitral Tribunal. In international arbitration, the
surest method of ensuring at/east the appearance of
. B neutrality would be to appoint the sole or the third
arbitrator from nationality other than the parties to the
arbitration. [Para 58)(221-D-F]
2.3. Section 11 of the Arbitration Act, 1996 uses
similar phraseology as Article 11 of the UNCITRAL Model
C Law. Therefore, it would not be possible to say that the
Court cannot look to Model Laws or the UNCITRAL Laws
as legitimate aids in giving the appropriate interpretation
to the provisions of Section 11, including Section 11(6).
[Para 67)(225-A-B]
D
2.4. The neutrality of an arbitrator is assured by
Section 11 ( 1) of the Arbitration Act, 1996, which provides
that a person of any nationality may be an arbitrator,
unless otherwise agreed by· the parties. There is no
agreement between the parties in the present case that
E even a third arbitrator must 'necessarily be an Indian
national. In fact, Section 11(9) of the Arbitration Act, 1996
specifically empowers the CJI to appoint an arbitrator of
a nationality other than the nationality of the parties
F involved in the litigation. Therefore, it is not correct to.
say that it would not be permissible under the Arbitration
Act, 1996 to appoint the third arbitrator of any nationality
other than Indian. Merely because the two arbitrators
nominated by the parties are Indian, would not . ipso
facto lead to the conclusion that the parties had ruled
G out the appointment of the third arbitrator from a neutral
. nationality. In the present case, both the arbitrators had
. been appointed by the parties, therefore, the condition
precedent for appointing an arbitrator, from amongst
persons, who are not nationals of the country of any of
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
193
the parties to the arbitration proceedings, had not even A
arisen. [Para 68][225-C-F]
2,5. A perusal of Article 33.5, PSC would also show
that it deals only with the situation where the other party
fails to appoint an arbitrator and a request is made to
the Chief Justice of India or a person authorised by him B
to appoint the second arbitrator. In such a situation, the
Chief Justice is required to choose the second arbitrator
from amongst the persons who are not nationals of a
country of any of. the parties to the arbitrator
proceedings. Article 33.6 is invoked when the two C
arbitrators appointed by the parties fail to nominate the
third arbitrator. In such circumstances, the Chief Justice
or the nominees of the Chief Justice is required to
appoint the third arbitrator in accordance with the
Arbitration and Conciliation Act, 1996. At t_hat stage, D
Section 11(9) of the Arbitration Act, 1996 would become
relevant. It would be necessary for the Chief Justice of
India to take into consideration the will of the Indian
Parliament expressed in Section ~1(9). The submission·
made by the Petitioners cannot be said to be without E
any merit. The Court is unable to read into Article, 33.6,
an embargo on the appointment of a foreign national as
the third arbitrator. It is not possible to say thatthe parties
have specifically decided to exclude the appointment of
a foreign arbitrator under Article 33.6, as no specific F
provision was made para materia to Article 33.5. Even in
the absence of a specific provision, the appointment of
the third arbitrator under Article 33.6 would have to be
guided by the provisions contained under Section 11(9)
of the Arbitration Act. [Para 69][225-G-H; 226-A~E]
G
Malaysian Airlines Systems BHD II vs. ST/C
Travels (P) Ltd. (2001) 1 sec 509; MSA
Necferland B. V. vs. Larsen & Toubro Ltd. (2005)
13 sec 719- referred to.
H
194
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A
2.6. Clause 33.5 of the PSC provides that on failure
of the second party to nominate its arbitrator, the Chief
Justice of India may be requested to appoint the second
arbitrator from amongst persons who· are not nationals
of the country of any of the parties to the arbitration
B proceeding.s. Therefore, in "principle, it becomes
apparent that the Respondents have accepted the
appointment of the second arbitrator from a neutral
country. Merely because, the seat of arbitration is in
India, the applicable law is Indian Law; it does not
C become incumbent on the Court to appoint the third
arbitrator, who is an Indian natio.nal. The concern of the
Court is to ensure neutrality, impartiality and
independence of the third arbitrator. Choice of the parties
has little, if anything, to do with the choice of the Chief
0
Justice of India or his nominee in appointing the third
arbitrator. [Para 72][228-F-H; 229-A-B]
2.7. Even atthe stage of exercising its jurisdiction
under Section 11 (6) at the final stage, the Chief Justice
of India or his nominee can informally enquire about the
E preference of the parties. But it is entirely upto the Chief
J.ustice of India, whether to accept any of the preferences
or to appoint the third arbitrator not mentioned by any
of the parties. In making such a choice, the Chief Justice
of India will be guided by the relevant provisions
contained in the Arbitration Act, UNCITRAL Model Laws
F and the UNCITRAL Rules, where the parties have
included the applicability of the UNCITRAL Model Laws/
UNCITRAL Rules by choice.[Para 72][229-C-D] .
2.8. The trend of the third arbitrator/presiding officer
G of a neutral nationality being appointed is now more or
less universally accepted under the Arbitration Acts
and Arbitration Rules in different jurisdictions.
[Para 73][229-E]
2.9. In the present case, Article 33(9) of the PSC
H adopts the UNCITRAL Rules for the arbitration
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
195
agreement under Article 39. The applicable UNCITRAL A
Rules at the time when the arbitration agreement was
signed, were the 1976 Rules. The aforesaid Rules have
been literally paraphrased in Section 11(9) of the
Arbitration Act, 1996. Rule 4 of UNCITRAL states that in
making the appointment, the appointing authority shall B
have regard to such consideration as are likely to secure
appointment of an independent and impartial arbitrator.
Superimposed on those two conditions is a provision
that the appointing authority shall take into account, as
well, the advisability of arbitrator of a nationality other C
than the nationalities of the parties. These rules are
almost parallel to Article 33(5) of the PSC. [Paras 74and
75][229-F-H; 230-A]
2.10. The apprehension of the respondent about
the impartiality of the third arbitrator due to the D
omnipresence of British Petroleum all over the world is
imaginary and illusory. Such a proposition cannot
possibly be accepted as a general practice for the
appointment of Chairman/Presiding Officer/Third
Arbitrator guided by the principle consideration that there E
must not only be the neutrality, but appearance of
neutrality of the third arbitrator. In that view of the matter,
it is not correct that only an Indian National can be
appointed as the third arbitrator. The apprehension
about the influence/presence of British Petroleum in F
other jurisdictions would apply equally to the Union of
India, if the third arbitrator is an Indian national, within
the Indian jurisdiction.[Paras 76 and 78][230-B-C; 231-E]
2.11. The other apprehension of the respondentthat
if a foreign national is appointed as a third arbitrator, the G
Tribunal would be at a disadvantage as all applicable
laws are Indian, is also misplaced. The two arbitrators
already appointed are Former Chief Justices of India and
can be very safely relied upon to advise the third H
196
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A arbitrator of any legal position, which is peculiar to India.
[Para 79][231-F-G]
2.12. In the peculiar facts and circumstances of the
present case, it would be appropriate if an individual not
named by any of the parties is appointed as the third
B arbitrator. Honourable James Spigelman AC QC, former
Chief Justice and Lieutenant Governor of New South
Wales, Australia is appointed as the third Arbitrator who
shall act as the Chairman of the Arbitral Tribunal who is
.
'
not a National of any of the parties involved in the dispute.
C [Paras 8.0 and 81][232-B-D]
·
D
E
F
G
Northern Railway Administration, Ministry of
Railway, New Delhi vs. Patel Engineering
Company Limited (2008) 10 SCC 240 - relied
on.
Antrix Corporation Limited vs. Devas Multimedia ·
Private Ltd. 2013 (7) SCALE 216 - referred to.
Redfern and Hunter on International Afbitration,
Fifth Edition (2009) Para 4.59; Gary 8. Born in
International Commercial Arbitration, Volume I
(2009); Redfern and Hunter on International
Arbitration, Fifth Edition (2009) at Page 263 -
referred to.
CASE LAW REFERENCE
2013 (7) SCALE 216
referred to
Para 27 ·
'"(2001) 1 sec 509
referred to ·•Para 71
(2005) 13 sec 719
referred to Para 71
(2008) 10 sec 240
relied on
Para 77
CIVIL ORIGINAL JURISDICTION: Arbitration Petition No.
27bf2013)
Harish N. Salve and Milin Sathe, Sr.Advocates, Sameer
H Parekh, Ms. Sonali Basu Parekh, Lalit S. Chauhan, Nitin
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
197
Thukral and Utsav Trivedi (for Mis Parekh & Co.),Advs.forthe A
Petitioners.
Anil B. Divan and DushyantA. Dave, Sr. Advocates, Ms.
Bindu Saxena, Shailendra Swarup, Ms. Aparajit Swarup,
Ran11ir Singh and K. K. Patra, Advs. for the Respondent.
The Judgment and Orders of the Court were
delivered by
·
B
SURINDER SINGH NIJJAR, J. 1. This petition has
been filed under Section 11 (6) of the Arbitration Act, 1996,
with a prayer for appointment of the third and the presiding C
arbitrator, as the two arbitrators nominated by the parties have
failed to reach a consensus on the appointment of the third
arbitrator.
2. Petition.er No.1 is a company incorporated and
registered under the provisions of the Companies Act, 1956;
D
·Petitioner No.2 is a company incorporated in Cayman Islands,
British Virgin Islands; Petitioner No.3 is a company
incorporated according to the laws of England & Wales. The ·
Respondent herein is Union of India (hereinafter referred to
as "UOI"), represented by the Joint Secretary, Ministry of E
Petroleum and Natural Gas.
3. Briefly stated, the relevant facts are as under:
4. In 1999, UOI announced a policy-New Exploration and
Licensing Policy (hereinafter referred to as "NELP"). Under F
NELP, certain blocks of hydrocarbon reserves were .offered
for exploration, development and production to private
contractors under the agreements which were in the nature of
Production Sharing Contract. One of the said blocks was Block
KG-DWN-98/3 ("Block Kq-D6"). The joint bid made by the . G
Petitioners Nci.1 and 2 for the Block KG-D6 was accepted by ·
the UOI. Thereafter on 12'" April, 2000, Production Sharing
Contract (hereinafter referred to as 'PSC') was executed
between the Petitioners No.1 and 2 as Contractor on one side
and UOI on the other. The Arbitration Agre~ment in the PSC is H
198
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A contained in Article 33. Relevant facts thereof, is in the
following words:
"ARTICLE33
SOLE EXPERT, CONCILIATIONANDARBITRATION
B
33.1 * * *
c
D
E:
F
G
H
33.2 * * *
33.3 Subject to the provisions of this Contract, the Parties
hereby agree that any cont~9versy, difference,
disagreement or claim for damages, compensation or
otherwise (hereinafter in this Clause referred to as a
"dispute") arising between the Parties, which cannot be
settled amicably within ninety (90) days afterthe dispute
arises, may (except for those referred to in Article 33.2,
"which may be referred to a sole expert) be submitted to
an arbitral tribunal for final decision as hereinafter
provided.·
33.4 The arbitral tribunal shall consist of three arbitrators.
Each Party to the dispute shall appoint one arbitrator and
the Party or Parties shall so advise the other Parties.
The two arbitrators appointed by the Parties shall appoint
the third arbitrator.
33.SAny Party may, after appointing an arbitrator, request
the other Party(ies) in writing to appoint the second·
arbitrator. If such other Parfy fails to appoint an arbitrator
within thirty (30) days of receipt of the written request to
do so, such arbitrator may, atthe request of the first Party,
be appointed by the Chief Justice of India or by a person
authorised by him within thirty (30) .days of the date of
receipt of such request, from amongst persons who are
not nationals of the country of any of the Parties to the
arbitration proceedings.
33.6 If the two arbitrators appointed by or on behalf of
the Parties fail to agree on the appointment of the third
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
199
[SURINDER SINGH NIJJAR, J.]
arbitrator within thirty (30) days of the appointment of the A
second arbitrator and if the Parties do not otherwise
agree, at the request of either Party, the third arbitrator
shall be appointed in accordance with Arbitration and
Conciliation Act, 1996.
33.12 The venue of the sole expert, conciliation or
arbitration proceedings pursuant to this Article, unless
the Parties agree otherwise, sha11 be New Delhi, India
and shall be conducted in the English language. Insofar c
as practicable, the Parties shall continue to implement
the terms of this Contract notwithstanding the initiation
of arbitral proceedings before a sole expert, conciliator
or arbitral tribunal and any pending claim or dispute.
33.13 * * *"
5. On 8'h August, 2011, UOI granted its approval to the
Petitioner No.1 to assign 30% of its participating interest in
D
the Block KG-06, under the PSC to Petitioner No.3. On the
same date, i.e. 8'h August, 2011, Petitioner No. 3 also entered
into PSC as a party. Further, Petitioner No.1 was appointed
E
as the' Operator' tor Block KG-D6, both under the terms of the
PSC, and the Joint Operating Agreement that was executed
between Petitioner No. 1 and Petitioners No. 2 & 3.
6. It appears that in the financial year 2010-2011,
F
differences relating to the scope and interpretation of the
provisions of the PSC arose between the Petitioners and
Respondent after the publication of some media reports.
These reports, according to the Petitioners, suggested that
the Respondent was planning tci disallow cost recovery of the G
expenditures incurred by the Contractorsince the productions
levels from the gas fields had fallen drastically. According to
the Petitioners, all the disagreements and differences that have
arisen between them and UOI will inevitably lead to serious
problems in the working of the PSC. To resolve this dispute,
H
200
SUPREME COURT REPORTS
[2014] 14S.C.R.
'A lengthy correspondence ensued between Petitioner No. 1 and
the officers/representatives of Respondent No.1.
7. On 16th September, 2011. RIL (Petitioner no, 1) wrote
to the Respondent and pointed out that any attempt to disallow
or to restrict cost recovery of expenditures incurred by the ' ·
8
Contractor since the production levels from .gas fields had
fallen, would be contrary to.the provisions of the PSC and,
requested that no such action should be taken. There was no
response to the aforesaid letter from the Respondent.
,,
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8. On 23"' November, 2011, Petitioner No.1 {RIL), through
its Advocates, served upon the Respondent a notice invoking
arbitration, in accordance with the arbitration agreement
contained in Article 33 of the PSC. In this letter, Petitioner no.1
also nominated Mr. Justice S. P. Bharucha, former Chief Justice
0
of India, as its arbitrator and called upon the Respondent to
nominate its arbitrator within 30 days of the receipt of this letter.
Respondent replied tci this letter on 21st December, 2011, and
intimated Petitioner NoJ. that the matter is under consideration
and that "the Ministry needs more time to respond and would
E
do so by 31st January, 2012." In its letter dated 2nd January,
2012, thePetitioners pointed out to the Respondentthat, "the
PSC, the UNCITRAL Rules and the Indian Arbitration and
Conciliation Act, 1996 - .set a period of thirty days for your
making appointment of an Arbitrator." Nevertheless, as a matter.
F of good faith, time for nomination of an arbitrator by the ·
Respondent was extended until 31st January, 2012.
9. The Respondent, however, by a letter dated 25th
January, 2012 addressed to Petitioner No.1 called upon the
Petitioner to withdraw the Notice of Arbitration on the ground
G that the same was premature, "for the reason that no 'dispute'
has arisen between the parties to the Production Sharing
Contract." It is noteworthy that no objection was taken with
regard to Petitioner No.1 being the only party under thePSC
that seems to be.raising the disputes.
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RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
201
[SURINDER SINGH NIJJAR, J.]
10. Thereafter on znd February, 2012, Petitioner No.1
A
replied to the Respondent, by a letter through its advocates,
wherein it was reiterated that .there have been a long standing
controversy, differences and/or disagreement as to whether
the contractor's right to recover its contract cost is capable of
being limited by the Government, in the manner and on the B
. grounds as is sought to be done under the PSC. It was also
stated that: "Our client treats and construes your letter under
reply as your refusal and failure to appoint an arbitrator."
11. On 17'" February, 2012, Respondent wrote a letter to
Petitioner No.1, wherein it was reiterated that no dispute C
concerning the cost recovery under the PSC has arisen
between the parties to the PSC. The Respondent once again
called upon the Petitioners to withdraw the notice of arbitration
dated 23rd November, 2011.
D
12. In response to the aforesaid letter, Petitioner No.1,
· through its Advocates, addr~ssed a letter dated 9'h March,
. 2012 to the Respondent, wherein the demand made in the.
notice of arbitration dated 23"' November, 2011 was reiterated.
The letter inter alia stated as under:
"We are instructed to state that the assertion that disputes
and differences have not arisen between the Government
and the Contractor overlooks the previous
correspondence that the ensured (sic: ensued) between
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the parties"
F
•••
"The underlying reason for all this appears to be disputes
that have arisen between the Contractor and the DGH ... "
•••
"The DGH, on its part has disagreed with the contractor
inter alia on whether the factual; assertion that drilling of
more wells would not augment the rate of production"
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Annexure-1 to the aforesaid letter listed some of the issues
that have already arisen between the parties; which are as
under:
(I) Whether tlie FDP implies a commitment of the
contractor to produce particular or at a particular rat~?
(II) Whether the FDP implies a commitment of the
contractor to do a series of development activities even
if there is a difference of opinion between the
Government and the Contractor as to the efficacy of
these activities?
(Ill) Whether the FDP is revised pro tanto by WP & B's
from time to time approved by MC?
(IV) Whether the variation between.the costs proposed
in the FDP and the actual cost can be a basis for
disallowing Capex?
(V) Is the recovery of cos't related in any manner to the
. estimates of production even if the costs are within
the sanctioned budgets?
(VI) Is the recovery of costs of facilities in any manner
related to the attainment of production estimates of
the FDP or the estimates of deposits or reservoir
characteristics?
(VII) Whether the FDP was a representation by the
contractor to produce at a particular rate or to produce
a particular quantity for a defined period, which by
conduct became a binding contract between the
parties?
(VIII) Would the drilling of additional wells result in
increased production rates/volumes.
(IX) Did the approval of the WP & B's [FY 2009-10 (RE)
and 2010-11 (BE)] result in a modification of FDP?
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
203
[SURINDER SINGH NIJJAR, J.]
(X) Were the reasons given by the MoPNG/DGH for A
declining approval to the WP & B's for FY 2010-11 (RE)
and 2011-12 valid?
(XI) If the answer to (IX) and (X) is in the negative, what is
the consequence?"
13. On 16th April, 2012, Petitioners No.1 & 2 filed
Arbitration Petition No. 8 of 2012 under Section 11 (6) of the
Arbitration Act, 1996 before this Court (hereinafter referred to
as "AP. No. 8'), seeking 9onstitution of Arbitral Tribunal in terms
B
of Article 33.5 of the PSC. After filing of this petition, c
corresponqence ensued between the Petitioners and the
Respondent, wherein the subject matter related to cost recovery
of expenditure incurred by the Contractor for the years 20102011 was discussed. This was done through letters/notice
dated 2nd May, 2012; 4th May, 2012 and 81h June, 2012. In the D
letter dated 2°0 May, 2012, the Respondent makes a reference
to the PSC dated 12th April, 2000 in the following terms:
"We write with reference to the Production Sharing
Contract ("PSC") dated April 12, 2000 between Ministry
of Petroleum and Natural Gas ("Government"), Reliance
E
Industries Limited (being the operator) and Niko
Resources Limited (collectively "Contractor"), in relation
to block KG-DWN-98-3. The expressions used and not
defined herf:!in and defined in the PSC, shall have the
meaning ascribed thereto in the PSC."
F
The letter claims that the Petitioners have failed: "to fulfil
your obligations and to adhere to the terms of the PSC and
. are in deliberate and wilful breach of PSC and have thereby
caused immense loss and prejudice to the Government. You
have also repeatedly failed to meet your targets under the G
PSC." Thereafter the specific instances of the breach have
been highlighted in detail. Finally, it is recorded as under:-
"ln this regard, we have been instructed to state that any
such purported attempt to unilaterally adjust any amounts
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as threatened or otherwise would be completely illegal -
and constitute a serious breach of the provisions of the
PSC and that our client reserves all its right under the
PSC, the Arbitration Act, and the UNCITRALArbitration
Rules if the Government attempts_ to proceed to
B
implement the purported decision threatened or
otherwise."
14. The Petitioners by an equally detailed letter denied
the claims made by the Respondent on 8th June, 2012. In
paragraph 31 of the aforesaid letter, ttie Petitioners again
C called upon the Respondent to appoint an arbitrator forthwith
(without raising ariy other procedural issues designed to delay
the dispute resolution process) so that the vital project
undertaken by the parties is not put in jeopardy on account of
D
the continuing uncertainty.
'
15. In its letter dated 5th July, 2012, the Respondent
makes a reference to the letter dated 2"d May, 2012 addressed
to Coritractors of the block KG-DWN-98/3 and to the l~tter ·
dated 8th June, 2012 written by the Solicitors ori behalf of
E Petitioner No.1 and stated that the Ministry had nominated Mr.
Justice V.N.Khare, former Chief Justice of India as the
arbitrator on behalf of the Government of India. The letter also
called upon the Petitioners to withdraw theA.P. No. 8. On 16th
July, 2012, the Petitioners, through its advocates, addressed
F a letter to the Registrar of this Court, wherein it was requested
. that theA.P: No. 8 may be disposed of. Accordingly, theA.P.
No. 8 was disposed of by this Court by an order dated 7th
August, 2012. It would be appropriate to notice here the
relevant extract of the order:
G
"Both the parties have no objection to the Arbitrators
nominated by each other. Under the arbitration clause,
the two nominated Arbitrators are to nominate the third
Arbitrator. In view of the above, in my opinion, no
further orders are required to be passed in this
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Arbitration Petition. The Arbitration Petition is disposed
of as such."
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
205
[SURINDER SINGH NIJJAR, J.]
16. On 12'h July, 2013, PetitionerNo.1 addressed a letter A
· to Mr. Justice S.P. Bharucha and Mr. Justice V.N. Khare,
requesting them to nominate the third arbitrator. On 1 ••August,
2013, Mr. Justice Bharucha wrote a.letter to Petitioner No.1,
inter alia, as follows :
"Undoubtedly, there has been a delay in the appointment B
of a third arbitrator. I had made a suggestion to my fellow
arbitrator, which was not acceptable to him. I asked him
to make a counter suggestion which he said he would
do. I have not heard any counter suggestion as yet.
In the circumstances, you must consider whether the court
should be approached for the appointment of a third
arbitrator."
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17. It was in these circumstances that the present
arbitration petition came to be filed under Section 11 (6) of the D
Arbitration Act, 1996.
Submissions:
18. I have heard elaborate arguments, and perused the
written submissions submitted by the learned senior counsel
E
appearing for the parties.
19. Mr. Harish N. Salve, learned senior counsel,
appearing for the Petitioners has made the following
submissions:
!- Re: International Commercial Arbitration·
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20. It was submitted that the present arbitral proceedings
relate to an International Commercial Arbitration, as defined
under Section 2 (1) (f) of the Arbitration Act, 1996. Ld. senior
counsel pointed out that two out of the four parties to the G
arbitration agreement are based outside India; Petitioner No.
2·being a U.K. based company and Petitioner No.3 being
based in Canada. Substantiating this submission, it was
pointed out by Mr. Salve that each of the Petitioners is a party
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to the PSC, as defined under Article 28.1 of PSC; and each of
the Petitioners comprise a "Contractor", under Article 2 of PSC.
21. It was also submitted that Petitioner No. 1, as
"Operator," performs each and every function of the Contractor
under the PSC on behalf of all the constituents of the Contractor,
8
as defined under Articles 7.1 and 7.3 of the PSC. Mr. Salve
mentioned that the Appendix 'C' to the PSC provides
accounting procedure which is required to be followed by the
Contractor and the Government. Learned senior counsel also
brought to our attention the accounting procedure that is
C
required to be followed by the contractor and the Government.
Sections 1.4.2 and 1.4.4 of Appendix 'C' to the PSC indicate
that the accounts are to be maintained by the Operator on behalf
of the Contractors. On the basis of the aforesaid it was
submitted that for the purpose of cost recovery, only one set of
D accounts, as opposed to three sets of accounts, has to be
maintained. Thus, according to the submission, the award will
affect the cost recovery under the PSC and impact all the
parties, particularly Petitioners, equal!y. In the light of the
aforesaid, it WC!S submitted thatthe Operator was, therefore,
E obliged to raise a dispute on behalf of all the parties/Petitioners.
This was also made clear in theA.P. No. 8
22. Lastly it is submitted by Mr. Salve that the Respondent
itself has always understood and accepted that the substance
F
of the dispute is related to and has implications for all the
parties to PSC. It was also pointed out that the Notice dated
2n' May, 2012 was addressed by the UOI to all the three
Petitioners and thatthe nomination of the Arbitrator by the UOI
was with reference to notice dated 2n' May, 2012.
G
!1 Re: Jurisdiction of the Supreme Court:
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23. Mr. Salve submitted that the parties cannot confe.r
jurisdiction on the Supreme Court, it flows from the fact that
there is an international arbitration. He submits that the stand
of the UOI is inconsistent. On the one hand it has accepted
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA
207
[SURINDER SINGH NIJJAR, J.]
that this court has the jurisdiction to entertain the petition, and
A
on the other hand it questions the assertion that this petition
concerns an international arbitration. It is further submitted by
him that A. P. No. 8 was filed in 2012 on the premise that the
arbitration between the Petitioner and the UOI was an
international arbitration on account of the fact that Petition'er B
No.2 is a company incorporated outside India. It was pointed
out that no dispute, as to the maintainability of the petition,
was raised at that time. A.P. No. 8 was disposed of by this
Court on merits and not for the want of jurisdiction. No dispute
was raised to the effect that this Court has no jurisdiction to C
entertain the petition, which was filed under Sei:tion 11 (6) of
theArbitrationAct, 1996. On the basis of the above, he submits
that the objection was raised by the Respondents that Petitioner
No.1 is the only party raising disputes in relation to PSC, and
claiming reference to arbitration is an afterthought.
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24. Mr. Salve further submits that the contention of the
UOI that this Court has no jurisdiction to entertain the present
petition in view of Section 11 (2) oftheArbitration Act, 1996, is
misconceived. It is also submitted that Sub-section (2) qf
Section 11 is subject, expressly, to subsection (6) thereof.
E
Section 11 (6) provides that in case the appointment procedure
agreed upon by the parties is not complied with, a party may
request the Chief Justice to take the necessary measures. The
expression "Chief Justice" has been defined under sub-section
(12)(a) of Section 11 as the Chief Justice of India, in the case
F
of an international commercial arbitration. In other arbitrations
under Section 11 (12)(b), it would be the Chief Justice of the
High Court. It was then submitted that a procedure agreed to
by the parties for appointment of arbitrator(s) is subjectto Subsection (6); it cannot override sub-section (6) and provide that G
in respect of a domestic arbitration, not-withstanding subsection(12), the parties would only move the Chief Justice of
India, or vice versa in the case of an international arbitration.
On the basis of the aforesaid, it was submitted that the
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