Reliance Industries Limited and Anr v. Union of India, (2014) 7 SCC 603

RELIANCE INDUSTRIES LTD. V. UOI

ISSUE:

Whether the disputes concerning royalties, cess, service tax, and the Comptroller and Auditor General’s (CAG) audit are arbitrable under the relevant laws and contractual agreements, or do they challenge the validity of the Oilfields (Regulation and Development) Act, 1948, rendering any agreement to arbitrate void under Section 23 of the Indian Contract Act, 1872?
Whether the Arbitral Tribunal has the authority to make decisions on disputes involving royalties, cess, service tax, and the CAG audit, despite the cited rules and precedents, and whether its conclusions are enforceable in India, given the potential defense under Article V(2)(b) of the New York Convention based on public policy considerations?

RULE:

Disputes are arbitrated based on applicable laws, commercial agreements, and public policy considerations, and the enforceability of arbitral verdicts in India is subject to the requirements of the New York Convention, which provides for potential public policy defenses.

FACTS:

The lawsuit featured disagreements about Production Sharing Contracts (PSCs) for the exploration and production of petroleum from specified areas between the Union of India (Government of India), Reliance Industries Limited (RIL), and BG Exploration and Production India Limited (BG).
The parties signed two PSCs, one with RIL and one with BG.
Arbitration clauses in the PSCs selected London as the venue of arbitration.
Disputes ensued between the parties, and an arbitral tribunal was formed, with London serving as the venue.
The court was asked whether various allegations, including royalties, cess, service tax, and the Comptroller and Auditor General’s (CAG) audit were arbitrable under Indian law.

HELD:

The Court ruled that applicable laws, contractual agreements, and public policy considerations should establish the arbitrability of disputes.
The Court emphasized that agreements that violate Indian law, particularly those that call into question the constitutionality of Indian legislation, may be unlawful and unenforceable.
The Court recognized that awards may need to be enforced in India and that public policy factors may influence arbitral award enforcement.
The Court evaluated the potential defense to execution of any award under Article V(2)(b) of the New York Convention on Arbitration in considering the arbitrability of claims about royalties.
The Court referred to pertinent Indian law statutes, arbitration norms, and prior judgments (Nataraj Studios vs. Navarang Studios, Amrit Banaspati Co. Ltd. vs. State of Punjab, Mafatlal Industries Ltd. vs. Union of India).
Finally, the Court did not decide on the arbitrability of the claims in this judgment but instead posed two questions to be resolved in subsequent procedures.
The Court articulated issues to determine whether royalties and other claims were arbitrable and whether they could be resolved using public policy and Indian legal rules.
The Delhi High Court’s decision to apply Part I of the Arbitration Act because the substantive contract was governed by Indian law was overturned.
If required, the award’s enforceability in India can be challenged on public policy grounds.
Because the parties willingly agreed to English law regulating the arbitration agreement, the Indian party is not without recourse if the award is attempted to be enforced outside of India.
The appeal was granted, and the High Court’s decision was reversed.