“We feel that the interpretation taken by the tribunal is a plausible view, and the challenge on this ground (calculation) cannot be sustained, to refuse enforcement of the award,” the court said.
In a setback to the government, which has in recent years challenged a few prominent international arbitral awards concerning Indian projects with not much success, the Supreme Court on Wednesday allowed Vedanta and Videocon Industries to recover $476 million, instead of $198 million capped by the petroleum ministry, for their joint development of the Ravva oil and gas fields off the Andhra Pradesh coast between 2000 and 2007.
A Bench comprising justice SA Nazeer, Indu Malhotra and Aniruddha Bose upheld the Delhi High Court’s February judgment that allowed Vedanta’s predecessor Cairn India to implement the foreign arbitration award of January 18, 2011, for the higher recovery. The tribunal had held that the companies were entitled to costs of $278 million, in excess of the $198 million. The counter-claim of the ministry to the extent of $22 million was also allowed by the tribunal.
“We feel that the interpretation taken by the tribunal is a plausible view, and the challenge on this ground (calculation) cannot be sustained, to refuse enforcement of the award,” the court said.
It made the statement while rejecting the petroleum and natural ministry’s claim that the Vedanta-Videocon Industries combine can recover only $198 million.
It is not open for the government to impeach the award on merits before the enforcement court, which “cannot reassess or reappreciate the evidence led in the arbitration”, the SC said. Justice Malhotra, writing the judgment for the Bench, said the Malaysian Courts being the seat courts were justified in applying the Malaysian Act to the public policy challenge raised by the government of India.
Rejecting the petroleum ministry’s stand that the PSCs are “special contracts” which concern the public policy of India, the apex court noted that the term of the PSC, which was initially for 25 years from October 1994 to October 2019, had been extended mutually for another 10 years. “This itself would reflect that the performance of the obligations under the PSC were not contrary to the interests of India…we conclude that the enforcement of the foreign award does not contravene the public policy of India, or that it is contrary to the basic notions of justice,” the judges said.
The arbitration tribunal’s rewriting of the contract apart from violating the constitutional policy had resulted in unjust enrichment of the contractor at the cost of public money, Attorney General KK Venugopal had argued.
The government further stated that the contract expressly stipulated that Cairn (now Vedanta) should carry out the enlisted works which included drilling of 21 wells at the capped cost of $188.98 million plus 5%. After winning the contract in a competitive bidding, the contractor unilaterally recovered $499.6 million for executing the enlisted work on spurious grounds, it added.
The companies contended that the cap of $198.43 million was applicable only to such facilities as were required to achieve the production capacity of 35,000 BOPD, which in this case was achieved by the drilling of 14 wells by 1999-2000. They were not required to develop the 21 wells enlisted in Article 15.5(c) of the PSC within the cap.
Senior counsels CA Sundaram and Akhil Sibal, appearing for the companies, argued that under Section 49 of the 1996 Act, the foreign award becomes a decree of an Indian court after the objections to the award were decided. Vedanta had to incur more cost of exploration than what was calculated in the PSC between the company and government in 1994 and the revised contract in 1999, Sundaram contended.
Opposing the government’s stand that execution of the foreign award was barred by limitation, they argued that the foreign award was passed in January 2011 and the companies had a period of 12 years to seek enforcement of the award, thus the execution petition was, therefore, filed within the period of limitation.
“The SC judgment has brought in the much-needed respite as it aligns with the endeavour of the country of becoming an investo-friendly nation, promoting a conducive environment for ease of doing business and minimal interference with arbitral awards and enforcement thereof,” Ajay Bhargava, partner, Khaitan and Co, said.
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