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Thursday, 22 January 2015 10:31
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RIL's sad story is an illustrative one

 

While the government continues to woo investors, it needs to sit and examine why, as finance minister Arun Jaitley asked the other day, so many investors want a clause that asks for overseas arbitration. The problem, however, is that even when investors get overseas arbitration in cases that involve the government, the state plays the heavy and tries its best to scuttle the arbitration. Two reports in yesterday’s Financial Expess (FE) and Indian Express (IE) are interesting in this context. In the case of Reliance Industries Limited’s (RIL) Panna Mukta Tapti oilfields where there is a dispute over cost recoveries and other issues, as IE has reported, the petroleum ministry wants to get both RAW as well as the Serious Fraud Investigation Office (SFIO) involved in the case. While both RAW and SFIO will conduct their inquiries, it is important to keep in mind that the government has been challenging this arbitration on various grounds for a long time now—the last one was against the fact that the arbitration award could be challenged only in English courts, and was turned down by the Supreme Court last May.

And, as in the case of the RIL arbitration on cost-recovery in the KG Basin fields, the Panna Mukta Tapti case has also been dragging for over three years now. In the case of the KG Basin cost-recovery case, as FE reported, the government first put pressure on RIL to withdraw the arbitration and, later, simply refused to agree to appoint the presiding arbitrator. While this case has finally got resolved, in the sense that after 3 years, the arbitration is now ready to proceed, the case of the gas-pricing arbitration is equally curious. The case itself is only 8 months old—comparatively fresh when you look at the other arbitration cases—what is curious is the government’s position that the presiding arbitrator must be an Indian. Given that the Supreme Court itself appointed a foreigner in the cost-recovery arbitration case last year in March, you would think the issue had already been settled.

And after this part of the process is over, as FE has repeatedly been pointing out, there is the issue of actually getting an arbital award implemented. Section 9 of the Indian arbitration law that allows ‘interim’ protection to disputing parties even as they approach the arbitration panel—this, evidence shows, is routinely abused. And since, Section 34 of the arbitration law allows awards to be set aside on grounds of ‘public policy’ and ‘patent illegality’, this is another sticking point since even arbitration awards can mean little if they are not implemented. In the famous case of White Industries, White won its arbitration against Coal India in May 2002, but Coal India got this set aside by the Calcutta High Court—the case is still pending in the Supreme Court. If investors are going to get the impression the same delaying tactics employed by the UPA government are being repeated by the NDA one, the impact of this is going to be deleterious.

 

 

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