Delhi High Court: Cannot Execute Final Partial Award as Arbitral Tribunal has Not Determined all Issues to Ascertain Liability

Delhi High Court: Cannot Execute Final Partial Award as Arbitral Tribunal has Not Determined all Issues to Ascertain Liability

The Delhi High Court has rejected Union of India’s plea seeking enforcement of Final Partial Award passed against Reliance Industries Ltd., (RIL) in 2016 involving contracts permitting contractors to extract oil from Tapti & Panna-Mukta Oil Fields.

The single judge Justice C Hari Shankar observed that an execution petition under Section 48 of the Arbitration and Conciliation Act, 1996 could not lie for the execution of a partial award which decided only some of the issues and deferred the decision regarding the remaining issues for later.

In the present case, an application was filed by the Decree Holder/Petitioner- Union of India under Section 48 of the Arbitration and Conciliation Act, 1996 seeking enforcement of a Final Partial Award passed by the Arbitral Tribunal (2016 FPA).

Though the 2016 FPA had not specifically awarded any amount to the Decree Holder, the Execution Petition claimed that an amount of US $23,14,040,750 was payable to the Decree Holder by the Judgment Debtors/Respondents- RIL under the 2016 FPA, and sought recovery thereof.

The factual matrix of the case is that, the rights in petroleum situated below the surface of the earth, as a natural resource, vest in the Government. Two Production Sharing Contracts (PSCs) were, executed between the Petitioner and a conglomeration of the Respondents RIL, British Gas Exploration and Production India Ltd (BGEIPL) and Oil & Natural Gas Corporation Ltd (ONGC) (contractors), with participating interests of 30%, 30% and 40% as per Article 1.63.

These PSCs permitted the contractors to extract oil from the Tapti and Panna Mukta Oil Fields. The contractors were to extract the oil at their own cost, recoverable as ‘Cost Petroleum’ (CP), in the manner specified in the PSCs, from the Petitioner; subject, however, to a specified upper Cost Recovery Limit (CRL). Additionally, the contractors and the Petitioner were entitled to shares in the profit earned by sale of the extracted petroleum – referred to as ‘Profit Petroleum’ (PP).

Arbitral proceedings commenced with the tendering of Notice of Arbitration by RIL and BGEIPL, the Respondents on the petitioner, under Section 21.

The principal grievance of the Petitioner was that RIL failed to part with the Petitioner’s share in the PP and appropriated, to itself, a larger part of the share in the PP than was its due.

It was submitted that the respondents could not legitimately object, as the petitioner was merely enforcing the findings in para 74 of the 2016 FPA on the basis of the audited accounts of the respondents.

Per contra, respondents submitted that the 2016 FPA had not awarded any amount to the petitioner & the only two sums awarded were in favour of the respondents, not the petitioner. It was submitted that the Execution Petition was based on unilateral computations by the petitioner based on a self-serving interpretation of the 2016 FPA. The 2016 FPA neither asked, nor authorized, the petitioner to do so.

On perusal of the facts and submissions, the High Court noted that so long as the request for CRL increase, made in accordance with Article 13.1.4(c) of the PSCs, was pending, there could be no determination of the entitlements of the Petitioner or the Respondents in the CP or PP.

In this regard, the Judge observed, “The liability of the respondents to the petitioner being, at that stage, not therefore definitively quantifiable, it was obviously both illogical and illegal for the petitioners to contend that any specific amount was payable by the respondents to the petitioner merely on the basis of the findings in the 2016 FPA which were by themselves insufficient to work out liability, till the CRL was definitely known. The very basis of the present Execution Petition is, therefore, flawed.”

The Court highlighted the fact that the 2016 FPA was purely declaratory in nature, and does not specifically award a single farthing to the petitioner.

Therefore, the judge referred to Russell’s principle on Arbitration and said, “What would be required, therefore, for a purely declaratory award to be executed like a money decree is, therefore, that the award must, firstly, identify one of the parties to the dispute as entitled to receive a quantifiable sum of money from the other, and, secondly, to set out the principles on the basis of which such quantification is to be done, so that all that is required to be done by the executing Court is application of pure arithmetic.”

The Court further remarked that when adopting a judicial approach, or complying with the principles of natural justice, would justify refusing to execute a foreign arbitral award in the manner in which the execution petitioner desires it to be executed, the Court may, therefore, justifiably refuse to execute the award, applying Section 48(2)(b) read with Explanation 1(ii) of the Act.

Thus, it was held by the Court the 2016 FPA cannot be enforced where one of the issues of determination of the CRL to be applied was still under seisin before the AT which had yet to pronounce thereon.

Apropos to the issues regarding the maintainability of the execution petition and enforceability of the 2016 FPA, the Judge discerned, “Actual executability would require, as its sine qua non, determination, by the learned AT, of all the issues on the basis of which the liability of the parties towards each other can be fixed. Absent such determination, the award remains inchoate – as in the present case – and ex facie unenforceable.

The 2016 FPA cannot, therefore, be enforced in isolation, as the petitioner had desired. As a petition which seeks enforcement of an unenforceable award, the present Execution Petition would also, ipso facto, not be maintainable, clarified the Court.

Hence, while allowing the application seeking determination of the aspects of maintainability of the present execution proceedings and enforceability of the 2016 FPA, the Court avowed the petition was not maintainable.