Why Govt Is Demanding $2.81 Billion From Mukesh Ambani’s Reliance

Following a Delhi High Court judgment, the Union Ministry of Petroleum and Natural Gas has asked a Reliance-led consortium to pay $2.81 billion in fines over a decades-old gas migration dispute. The consortium also includes British oil giant BP and Canada's Niko Ltd., which, along with Reliance, operates the KG-D6 block, an offshore oil and gas field in the Bay of Bengal, India.

In an exchange filing, Mukesh Ambani-led Reliance Industries said that it received the letter of demand from the government on March 3.

In 2013,the state-owned oil major ONGC claimed that the consortium had illegally benefited from its adjacent gas block in the KG basin. Subsequently, the government demanded $1.529 billion and interest from the consortium as restitution.

"The Company is legally advised that the Division Bench judgment and this provisional demand are unsustainable. The Company is taking steps to challenge the judgment of the Division Bench of the Hon’ble Delhi High Court. The Company does not expect any liability on this account," Reliance said in the exchange filing on March 4.

However, following the disclosure, Reliance's shares fell. They were trading flat at Rs 1,172 a share at 11:00 AM.

What Is the Dispute About?

The dispute between ONGC and Reliance Industries revolves around alleged gas migration from ONGC's blocks to Reliance's KG-D6 block. An independent report by DeGolyer and MacNaughton has confirmed gas migration, and the government-appointed Shah Committee has found that Reliance unjustly benefited from extracting gas from ONGC's blocks.

However, the committee also ruled that ONGC had no ownership or legal claim over the gas due to the Production Sharing Contract. The government directed Reliance to pay $1.55 billion in restitution, but Reliance disputed the claim and initiated arbitration proceedings. An international tribunal ruled in Reliance's favor in 2018, but the government challenged the ruling in the Delhi High Court, and a two-judge bench has now set it aside.

The Delhi High court said that Reliance's actions constituted "insidious fraud" and "unjust enrichment." Reliance plans to challenge the verdict in the Supreme Court.