The government has challenged before an English high court an arbitration award over a cost recovery dispute in the western offshore Panna-Mukta and Tapti oil and gas fields of Shell and Reliance Industries Ltd.

An arbitration “tribunal gave a favourable award on January 29, 2021”, Reliance said in its latest annual report.

Reliance and Shell had through the arbitration sought raising of the limit of cost that could be recovered from the sale of oil and gas before profits are shared with the government. The award came this year.

Both sides filed clarification applications before the tribunal.

“On April 9, 2021, the tribunal issued its decision on the clarification applications of both the parties. It granted the minor correction requested by the claimants (Reliance and Shell) and has rejected all of the Government of India’s clarification requests,” it said without giving details. Subsequent to that, the government of India (GoI) has challenged the award before the English high court, it said.

Reliance and Shell-owned BG Exploration & Production India Ltd had on December 16, 2010, dragged the government to arbitration over cost recovery provisions, profit due to the State and amount of statutory dues including royalty payable.

The Indian government also raised counter claims over expenditure incurred, inflated sales, excess cost recovery, and short accounting.

The three-member arbitration panel headed by Singapore-based lawyer Christopher Lau by majority issued a final partial award (FPA) on October 12, 2016.

It upheld the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33 per cent and not the 50 per cent rate that existed earlier. It also upheld that the cost recovery in the contract is fixed at $545 million in the Tapti gasfield and $577.5 million in the Panna-Mukta oil and gasfield. The two firms wanted that cost provision be raised by $365 million in Tapti and $62.5 million in Panna-Mukta.

Royalty, it said, had to be calculated after the inclusion of marketing margin charged over and above the wellhead price of natural gas.

The government used this award to seek $3.85 billion (about Rs 28,000 crore) in dues from Reliance and BGEPIL. The two firms challenged the 2016 FPA before the English high court, which on April 16, 2018, remitted one of the challenged issues back to the arbitral tribunal for reconsideration.

“The arbitral tribunal decided in favour of the claimants in large part vide its final partial award dated October 1, 2018. GoI and claimants filed an appeal before the English commercial court against this 2018 FPA.

“The English commercial court rejected the GoI’s challenges to 2018 final partial award and upheld the claimants’ challenge that the arbitration tribunal had jurisdiction over the limited issue and remitted the issue back to the arbitration tribunal,” the report said.

The final award on the issue came this year, it said.

The government had used the 2016 partial award not just to raise a $3.85 billion demand on Reliance and Shell but also sought to block Reliance’s proposed $15 billion deal with Saudi Aramco on grounds that the company owed money to it.

Following this, the court asked company directors to file affidavits listing assets. RIL and Shell had countered the government petition in the Delhi high court, saying the petition is an abuse of process as no arbitration award has fixed any final liability of dues on the company.

“The GoI has also filed an execution petition before the Delhi high court... seeking enforcement and execution of the 2016 FPA,” the annual report said.

“The claimants contend that the GoI’s execution petition is not maintainable,” it added. The matter will come up for hearing on July 13.