The Supreme Court on Wednesday asked Vedanta to explain why it should be allowed to recover $499 million, instead of $198 million capped by the government, for development of the Ravva oil and gas fields off the Andhra Pradesh coast between 2000 and 2007.
A bench led by Justice SA Nazeer sought response from Vedanta on an appeal by the ministry of petroleum & natural gas against a foreign arbitration award that allowed Vedanta and Videocon Industries to recover $499 million for the development of the oil and gas fields.
While asking the ministry and Vedanta to “maintain status quo existing as on today,” it posted the matter for further hearing on July 22.
Challenging the Delhi High Court’s February judgment that allowed Vedanta’s predecessor Cairn India to implement the 2011 foreign arbitration award for higher recovery, the government argued that the HC had failed to look into “the colossal misconduct on the part of the tribunal” itself and had refused to interfere on the ground that the tribunal “has the right to make both right and wrong decisions as these are errors which fall within their jurisdiction”.
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 argued on behalf of the government.
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 $499.609 million for executing the enlisted work on spurious grounds, it added.
Vedanta’s senior counsel CA Sundaram, while opposing the appeal, argued that the company had to incur more cost of exploration than what was calculated in the production-sharing contract between the company and the government in 1994 and the revised contract in 1999.
While there is a general deference to foreign arbitral awards, such a principle of deference to foreign arbitral awards cannot supersede or override the public policy of India, the ministry told the apex court.
The dispute arises out of the production sharing contract between Cairn India and the government over exploration of the Ravva oil fields in the shallow offshore area of the Krishna-Godavari basin on the eastern coast of India, between 2000 and 2007.
When the dispute first arose in 2008, both the sides referred the case to an international arbitration panel based in Malaysia. The arbitration panel ruled in favour of the company in 2011. Subsequently, the government challenged the arbitration panel’s decision in the Malaysian courts, but was unsuccessful in all the three different Malaysian courts. In 2018, Cairn moved the HC seeking enforcement of the award.