Delhi HC Rules Against Reliance Ind in $1.7B KG Basin Gas Dispute

In a setback to Reliance Industries and its international partners, the Delhi High Court on Friday set aside an arbitration order in a decades-old gas dispute with the Indian government. The two-judge bench, led by Justices Rekha Palli and Saurabh Banerjee, also overruled a single-judge order that had favoured the 2018 arbitral award. 

The case revolves around gas production at the Krishna-Godavari (KG) basin, operated by a Reliance Industries-led consortium that includes UK-based BP Plc and Canada’s Niko Resources. In 2013, state-owned oil major ONGC claimed that the Reliance-led consortium had illegally benefited from its adjacent gas block in the KG basin. 

Later, the government demanded $1.729 billion from the consortium, accusing it of “insidious fraud” and “unjust enrichment.” 

What is Reliance's Consortium Accused Of? 

ONGC operated the Godavari PML and KG-DWN-98/2 blocks, which are adjacent to the KG-D6 block operated by the Reliance-led consortium. In 2013, ONGC submitted a complaint to regulators stating that there was natural gas continuity between its gas blocks and Reliance’s blocks. This meant that gas was flowing freely and uninterrupted between two separate underground reservoirs. 

ONGC filed a petition in the Delhi High Court in 2014 against Reliance Industries, alleging that it had extracted gas from ONGC’s blocks. ONGC requested the government and the Directorate General of Hydrocarbons (DGH) to appoint an independent agency to investigate the connectivity of gas reservoirs between the two companies' blocks and ensure fair gas balancing. 

Both ONGC and Reliance agreed to appoint DeGolyer and MacNaughton (D&M) as an independent third party to assess the issue. D&M's report confirmed the connectivity and migration of gas. To evaluate the findings and recommend actions, the government appointed a one-member committee led by former Supreme Court Justice A.P. Shah. 

The Shah Committee concluded that Reliance had unjustly benefited by extracting gas from ONGC's blocks. However, the committee ruled that ONGC had no ownership or legal claim over the gas, as per the Production Sharing Contract (PSC), which states that the Indian government is the sole owner of petroleum resources. 

Based on the committee's recommendations, the government directed Reliance to pay $1.55 billion (plus interest) in restitution and an additional $174.9 million in revised profit petroleum by November 2016. However, Reliance disputed the claim and initiated arbitration proceedings on 11 November 2016. 

The international arbitral tribunal ruled in favour of Reliance in 2018, rejecting the government’s claims. The ruling was later upheld by Delhi High Court's Justice Anup Bhambhani in 2023. However, the government challenged the ruling before a higher bench, which has now set it aside.