Delhi High Court: In an appealfiled by Union of India (‘appellant’) under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 (‘the Act’), challenging the order dated 29-4-2024, wherein the Arbitral Tribunal rejected the government of India’s plea for stay on implementation of the Final Partial Award (‘FPA’) passed in an arbitration concerning the Rajasthan oil block, the Single Judge Bench of Jasmeet Singh, J., held that Vedanta’s cost recovery deductions were not unilateral but rather contractually obligated conduct. Therefore, the Court dismissed the appeal.
Background
The instant dispute arose out of a Product Sharing Contract (‘PSC’) and an Operating Agreement executed between Shell India Production Development (‘SIPD’) and Oil and Natural Gas Corporation (‘ONGC’) for exploration, discovery, development and production of petroleum resources in the Rajasthan onshore oil and gas block. SIPD’s interest in the PSC had been taken over by Respondent 2 (Cairn Energy Hydrocarbons Ltd.) that is a wholly owned subsidiary of Respondent 1 (Vedanta Ltd.). SIPD had notified Vedanta of certain audit exceptions for the Financial Year 2016-2017 and 2017-2018.
Subsequently Vedanta had invoked arbitration under terms of the PSC for recovery of costs wherein the government of India had contended that Vedanta had improperly reduced the share of profits payable to the appellant.
The Arbitral Tribunal had passed a declaratory award dated 22-8-2023 wherein some declarations had been made regarding interpretation of the parties’ contract and had stated that if the parties could not agree on precise figures, they were free to approach the Tribunal for further directions.
Through a classification application filed by Vedanta, the Tribunal approved the nomenclature of the award as FPA, confirming that it remained seized of any issues related to quantum and costs.
In late September 2023, Vedanta had submitted provisional estimates of profit oil and gas which had been rejected by the appellants. The appellants had claimed that the calculations and adjustments had been made unilaterally by Vedanta and demanded that Vedanta pay profit petroleum due to them in Q2 2023-2024. Consequently, Vedanta had provided its calculations supported by a report from an independent third-party evaluator, Price Waterhouse Cooper (‘PwC’).
Aggrieved by the unilateral deductions made by Vedanta, the appellant had filed an application under Section 17 of the Act seeking stay on implementation of FPA and to re-adjust the unilateral calculations submitted by Vedanta.
By an order dated 29-4-2024, the Arbitral Tribunal had rejected the appellant’s application for restraining the implementation of the FPA.
The instant petition had been filed requesting stay on the order dated 29-4-2024 as well as a stay on further unilateral deductions by Vedanta.
Decision
The Court noted that its jurisdiction under Section 37(2)(b) of the Act to interfere with orders passed under Section 17 of the Act is limited to where the orders so passed are vitiated by perversity, arbitrariness and manifest illegality.
With regards to the effects of the FPA, the Court noted that the FPA was declaratory in nature, resolving issues between parties regarding interpretation of the terms of the PSC including the cost recovery mechanism. The FPA did not provide any injunction or stay on the terms or obligations of parties in the PSC. The PSC was an ongoing contract and still subsisting between the parties. As such, the parties were mandated to follow the interpretations given in the FPA for further implementation of the PSC.
Taking note of the appellant’s argument that Vedanta had unilaterally deducted costs even before completing internal assessments, the Court observed that as per the PSC, Vedanta was obligated to recover exploration costs and provide provisional estimates for production to the appellant for each quarter which was subject to review and adjustment by the appellant in the subsequent quarter. Following the provisions of the PSC, Vedanta had made deductions for Q2 and Q3 of FY 2023-2024.
The Court held that the absence of mutual agreement between the parties on quantum did not suspend Vedanta’s obligations under the PSC as the PSC was still subsisting. Relying on declaratory findings given under the FPA was not ‘enforcement’ but rather fulfilment of contractual duties. The Court noted that in absence of any stay, the parties were bound to follow the FPA and as a result Vedanta’s actions were not unilateral but rather contractually obligated conduct.
The Court further noted that PSC clearly provides that the unrecovered portion of contract cost (including production, exploration and development costs) shall be recovered in subsequent years until the unrecovered costs have not been fully recovered. Hence, the recovery or deductions (as per the appellant) made by Vedanta stem from their obligations under the PSC read with the interpretation provided in the FPA to permit cost recovery for post exploration period expenses.
Thereafter, the Court held that the FPA and the order dated 29-4-2024 provided for adjustments subject to final quantification and therefore preserved the parties’ respective rights. Since re-adjustments could be made post-quantification by the Tribunal and restitution was possible under the terms of the FPA, there was no basis for allowing the appeal.
Accordingly, the Court dismissed the appeal.
[Union of India v. Vedanta Ltd., 2025 SCC OnLine Del 4808, decided on 11-7-2025]
Advocates who appeared in this case :
For the petitioner: Sanjay Jain, Ritin Rai (Senior Advocates), Rimali Batra, Abhishek Lalwani, Rajul Jain, Krishan Kumar, Advocates
For the respondent: Harish Salve (Senior Advocate), Anuradha Dutt, Anish Kapur, Priyanka, Chaitanya Kaushik, Kunal Dutt, Raghav Dutt, Payal Nayak, Arkaprava Dass, Advocates
Buy Arbitration and Conciliation Act, 1996 HERE
