O.M.P./192/2010 of UNION OF INDIA Vs NIKO RESOURCES LTD & ANR

IN THE HIGH COURT OF DELHI AT NEW DELHI

(Reportable)

O.M.P. 192 of 2010

Reserved on: 8[th]May, 2012Decided on: 2[nd]July, 2012

UNION OF INDIA

..... Petitioner

Through:Mr. A.S. Chandhiok, ASG withMr. R.G. Srivastava, Ms. Aakriti Jainand Ms. Monika Tyagi, Advocates

Versus

NIKO RESOURCES LTD & ANR..... RespondentsThrough:Mr. L. Nageshwar Rao and Mr.Sandeep Sethi, Sr. Advocates with Mr.Dhirendra Negi and Ms. Saba Grover,Advocates for R-1Mr. Aaspi Kapadia, Advocate for R-2

O.M.P. 944 of 2011

NIKO RESOURCES LTD..... Petitioner

Through:Mr. L. Nageshwar Rao and Mr.Sandeep Sethi, Sr. Advocates withMr. Dhirendra Negi and Ms. SabaGrover, Advocates for R-1Mr. Aaspi Kapadia, Advocate for R-2

Versus

UNION OF INDIA & ANR..... RespondentsThrough:Mr. A.S. Chandhiok, ASG withMr. R.G. Srivastava, Ms. Aakriti Jainand Ms. Monika Tyagi, Advocates forUOI.Mr. Aaspi Kapadia, Advocate for R-2

CORAM: JUSTICE S. MURALIDHAR

JUDGMENT

02.07.2012

Introduction

1. O.M.P. No.192 of 2012 under Section 34 of the Arbitration andConciliation Act, 1996 (‘Act’) has been filed by Union of India (‘UOI’)through the Ministry of Petroleum and Natural Gas (‘MoPNG’) challengingthe majority Award dated 23[rd]December 2009 passed by the ArbitralTribunal in the disputes between MoPNG, Respondent No.1 Niko ResourcesLtd. (‘Niko’), Canada and Respondent No.2 Gujarat State PetroleumCorporation Limited (‘GSPC’) arising out of Production Sharing Contract(‘PSC’) dated 23[rd]September 1994 entered into between the President ofIndia (referred to as ‘Government’ in the PSC) on the one hand and GSPCand Niko on the other hand for the exploration, development and marketingof petroleum resources from the Hazira Field in Gujarat, identified in thePSC as the Contract Area.

2. O.M.P. No.944 of 2011 has been filed by Niko under Section 9 of the Actpraying for direction to permit Niko to deposit in this Court MoPNG’sshare of unpaid profit petroleum or deposit it in an escrow account during thependency of O.M.P. No.192 of 2010.

3. The dispute between the parties concerns the cost of construction of 14km long 36” diameter pipeline from the Hazira Field to Mora village in thesum of Rs. 93.27 crores which Niko claims is part of ‘development cost’which it is entitled to recover from the UOI. Niko also seeks to recover Rs.44.76 crores towards production cost incurred in operating the said pipelineas well as reimbursement of the excess ‘profit petroleum’ paid to UOI. Thecase of the UOI is that the said pipeline cannot be granted ‘cost recovery’status as it is outside the scope of the PSC. In order to examine the dispute insome detail, reference may be first made to the provisions of the PSC.

The Production Sharing Contract

4. Pursuant to the bids invited by the MoPNG the aforementioned PSC wasentered into between the parties. The Contract Area described in Appendix Ato the PSC was to an extent of 50 sq.m specified by points A, B, and Dwith the latitudinal and the longitudinal points indicated. Associated NaturalGas (‘ANG’) was defined as natural gas occurring in association with crudeoil either as free gas or in solution, if such crude oil could by itself becommercially produced. Non-Associated Natural Gas (‘NANG’) was definedas natural gas which is produced either without association with crude oil orin association with crude oil which by itself cannot be commerciallyproduced.

5.In terms of the PSC, GSPC and Niko (collectively referred to as the‘Contractor’) were entitled to undertake ‘Petroleum Operations’ which wasdefined as requiring Development Operations or Production Operationsincluding construction and operation of facilities, plugging and abandonmentof wells or disposition of petroleum to the Delivery Point.

6. The Delivery Point under Article 1.20 was defined as Group GatheringStation (‘GGS’) of Oil & Natural Gas Corporation Ltd. (‘ONGC’) or as mayotherwise be agreed between the Contractor and ONGC. ‘Cost Petroleum’under Article 1.18 was defined as portion of the total volume of petroleumproduced and saved from the Contract Area which the Contractor is entitledto take in particular period for the recovery of contract costs i.e. thedevelopment costs and production costs.

7. The following terms, viz., ‘development area’, ‘development costs’,‘development operations’ and ‘development plan’ were defined under‘development operations’ and ‘development plan’ were defined under

Articles 1.21 to 1.24 of the PSC as under:

“1.21 ‘Development Area’, means that part of the Contract Areacorresponding to the area of an Oil Field or Gas Field delineatedin simple geometric shape, together with reasonable marginof, additional area surrounding the Field consistent withpetroleum industry practice and approved by the ManagementCommittee or the Government, as the case may be.

1.22 ‘Development Costs’ means those costs and expendituresincurred in carrying out Development Operations, as classifiedand defined in Section 2 of the Accounting Procedure andallowed to be recovered in terms of Section 3 thereof.

1.23 ‘Development Operations’ means operations conducted inaccordance with the Development Plan, and shall include thepurchase, shipment or storage of equipment and materials usedin developing Petroleum accumulations, the drilling, completionand testing of Development Wells, the drilling, completion ofWells for gas or water injection, the laying of gathering lines,the installation of separators, tankage, pumps, artificial lift andother producing and injection facilities required to produce,process and transport Petroleum into main oil storage or gasprocessing facilities, either onshore including the laying ofpipelines within or outside the Contract Area, storage andDelivery Point or Points, the installation of said storage or gasprocessing facilities, the installation of export and loadingfacilities and other facilities required for the development andproduction of the said Petroleum accumulations and for thedelivery of Crude Oil and / or Gas at the Delivery Point and alsoincluding incidental operations not specifically referred toherein as required for the most efficient and economicdevelopmentandproductionofthesaidPetroleumaccumulations in accordance with good petroleum industrypractices.

1.24 ‘Development Plan’ means plan submitted by thecontractor containing proposals required under Article 9 and / orArticle 20 for the development of Discovery.”

8. The terms ‘Petroleum Operations’, ‘Production Costs’, ‘ProductionOperations’ and ‘Profit Petroleum’, were defined under Articles 1.47, 1.48,

1.49 and 1.51 of the PSC as under:

“1.47 ‘Petroleum Operations’ means, as the context mayrequire, Development Operations or Production Operations orany combination of such operations, including construction,operation and maintenance of all necessary facilities, pluggingand abandonment of Wells, or disposition of Petroleum to theDelivery Point, Site Restoration and all other incidentaloperations or activities as may be necessary.

1.48 ‘Production Costs’ means those costs and expendituresincurred in carrying out Production Operations as classified anddefined in Section 2 of the Accounting Procedure and allowedto be recovered in terms of Section 3 thereof.

1.49 ‘Production Operations’ means all operations conductedfor the purpose of producing Petroleum from the Contract Areaincluding the operation and maintenance of all necessaryfacilities therefor.

1.51 ‘Profit Petroleum’ means all Petroleum produced andsaved from the Contract Area in particular period as reducedby Cost Petroleum and calculated as provided in Article 14.”

9. The duration of the contract was for 25 years from the effective date,which has been defined to be the date on which the contract was executed i.e.23[rd]September 1994. It was provided that the contract could be extended bythe MoPNG for further period not exceeding five years and in the event ofcommercial production of NANG, the contract could be extended for aperiod up to but not exceeding thirty five years from the effective date.

10. In terms of Article 26.1 of the PSC, UOI was the sole owner ofpetroleum underlying the contract area. In terms of Article 26.2 of the PSC,title to Crude Oil and/or gas to which the Contractor was entitled and the titleto the Crude Oil and/or gas sold to Government or its nominee by theContractor shall pass to the Government or its nominee at the delivery point.

It was made clear that the Government or its nominee shall be responsiblefor all costs and risks in respect of the amount purchased after the DeliveryPoint, while the Contractor shall be responsible for all costs and risks prior tothe Delivery Point.

11. Under Article 5.6 of the PSC, Management Committee (‘MC’)consisting of four members, two members nominated by the Governmentand two members nominated by and representing Niko and GSPC, andchaired by nominee of the Government, was to inter alia approve thefollowing matters:

“(a)AnnualWorkProgrammeandbudgetsandanymodificationsorrevisionsthereto,asproposedbytheContractor,forDevelopmentOperationsandProductionsOperations;”

(b) proposals for the approval of Development Plans as may berequired under this Contract, or revisions or additions thereto;

(c) delineation of Field and Development Area;

(d) appointment of auditors;

(e) collaboration with Lessees or contractors of other areas;

(f) claims or settlement of claims for or on behalf of or againstthe Contractor in excess of limits fixed by the ManagementCommittee from time to time.

(g)anyproposedmortgage,chargeorencumbranceonpetroleumassets,petroleumreservesorproductionofPetroleum;

(h) any other matter required by the terms of this contract to besubmitted for the approval of the Management Committee;

(i) any other matter which the Contractor decides to submit toit.”

12. Article 5.7 stated that the MC was not to take any decision without theprior approval of the Government where such approval was mandated underthe PSC. Article 5.13 required the approval of the MC to be unanimous. TheContractor was to commence the petroleum operations within six monthsfrom the date of the contract subject to mining lease being granted by theGovernment. The Contactor was to submit working programme andbudgets relating to Petroleum Operations to be carried out during the ensuingfinancial year to the MC. Under Article 7.1 (a), the Contractor had the rightto carry out Petroleum Operations in the Contract Area and the right torecover the costs and expenses, and under Article 7.1 (c) to lay, build,construct and install pipelines roads etc. and other ancillary rights as may bereasonably necessary for the conduct of Petroleum Operations subject tosuch approvals as may be required and in terms of the law. Under Article 7.3(a), the Contractor was to conduct Petroleum Operations at its sole cost, riskand expenditure. Under Article 7.3 (b), the Contractor was to conductPetroleum Operations within the Contract Area in accordance with goodpetroleum industry practice pursuant to the approved work programme,which was defined to mean all formalities for the performance of thePetroleum Operations.

13. Under Article 9 of the PSC, within 90 days of the effective date, theContractor was to submit to the MC comprehensive plan for thedevelopment of the petroleum reservoir which had been discovered by theONGC before the effective date. Article 13 provided for recovery of costs ofoil and gas by the Contractor. Under Article 20.5.2, in case the DevelopmentPlan was not approved by the MC within 90 days of its submission, theContractor had right to submit the Plan directly to the Government forapproval within 60 days of the expiry of the time provided to the MC toapprove the Plan. In such event the Government shall respond to the Plan

O.M.P. Nos.192 of 2010 and 944 of 2011Page 7 of 31

within 90 days of the receipt thereof. Article 20.5.5 provided for the value tobe ascribed to natural gas for the purpose of calculating ‘cost gas’ and ‘profitgas’. The Accounting Procedure to be applied to the PSC was set out inAppendix C. As per Article 26.4 the Government had an option of requiringthe vesting of the full ownership of the assets in it either upon recovery ofthe costs of the assets or upon the expiry of or earlier termination of the PSC.

Joint Operation Agreement

14. In order to regulate inter party relations under the PSC, Joint OperationAgreement (‘JOA’) was entered into between the GSPC and Niko on 5[th]December 1995. The JOA defined their respective rights and obligationsunder the PSC. In terms of the JOA, Niko was defined as the Operator. Boththe PSC as well as the JOA contained an arbitration clause.

15. Under Article 13.2 of the PSC, the development costs incurred by theContractor in the Contract Area up to the date of commercial productionwere to be aggregated and the Contractor was entitled to recover out of thecost of petroleum, the aggregate of such development costs at the rate of100% per annum beginning from the date of such commercial productionfrom the Contract Area. The Contractor was also entitled to recover out ofthe cost petroleum, the development costs incurred after the date ofcommercial production at the rate of 100% per annum of such developmentcosts beginning from the date such development costs were incurred.

Events leading to the disputes

16.NANG was the only major petroleum product which resulted frompetroleum operations in the contract area although when the contract wasentered into it was not contemplated that only NANG would be found in theContract Area. On 3[rd]January 1998, an Operating Committee Meeting

O.M.P. Nos.192 of 2010 and 944 of 2011Page 8 of 31

(‘OCM’) took place between GSPC and Niko where the issue of laying 36”outer diameter (OD) pipe line from Hazira Gas Field to Hazira IndustrialPark for transporting NANG discovered at the field was discussed at length.

17. However, GSPC deferred the approval for to later date to enable theConsortium to have better understanding of the market and calculate thereturn on investment in the project based on proportionately higher price ofgas which would have to be charged from the perspective buyers ascompared to the well head price of gas realized at that time. The minutes ofthe OCM dated 22[nd]April 1998 referred inter alia to justify the stand of theGSPC that given the fact that the construction of such pipeline would requireseveral clearances from the State and Central Governments and otherstatutory bodies, it would be better if the GSPC undertook the job ofacquiring the Rights of User (‘ROU’) etc. for around 13 to 14 Km. pipelinefrom Hazira Gas Plant to Hazira Industrial Area. At the OCM meeting heldon 14[th]August 1998 it was noted that in relation to the proposed 36” pipelinea number of pertinent queries had been raised by the representatives of IRSand the Directorate General of Hydrocarbons (‘DGH’) regarding verificationof gas reserves. It was suggested that an additional evaluation should be doneto reconcile the different reserve estimates of the IRS and the NRL.

18. On 24[th]August 1998, GSPC wrote to the DGH on the proposal of layinga 15 km. pipeline for allocation of gas. It was stated that the presentproduction of around 2.53 lakhs SCMD of gas was being sold to M/s GujaratGas Co. Ltd. (‘GGCL’), which had laid 30 km pipeline between Hazira andSurat and that in order to effectively market the gas the Consortium plannedto sell gas to number of buyers in and around Hazira/Surat area. It wasexplained that since Hazira was highly industrialized and since the corridorwas highly congested, there would be no space available for the pipeline in

O.M.P. Nos.192 of 2010 and 944 of 2011Page 9 of 31

near future. It was accordingly proposed that there should be DeliveryPoint to take care of the gas sold in future from the Hazira field. The cost ofthe entire laying of the 36” OD pipeline for 15 km. was estimated at Rs.35 to40 crores. Approval was, therefore, sought from the DGH.

19. On 30[th]August 1998, GSPC wrote to Niko in which it inter alia statedthat the pipeline project should not be treated as joint venture action and noaction should be taken by Niko. On 6[th]October 1998, GSPC informed Nikothat the work of the proposed 15 Km pipeline was in progress and that areference had been sent to the DGH seeking clarification for allowing of thepipeline by the Consortium and for recovery of the cost incurred but that theDGH had not responded till then. GSPC further informed Niko that “it isimperative we create our own pipeline system in order to enable expeditiousmarketing of our gas”. GSPC sought to know if Niko would be willing toparticipate in the project irrespective of the status of the project vis-à-viscosts recovery under the PSC.

20. In its letter dated 19[th]December 1998, GSPC insisted that the projectwould be GSPC/State Government project which would have the option ofallowing joint venture gas to be transported. On 21[st]December 1998, GSPCwrote to DGH stating that although no reply was received from the DGH,Niko had insisted on implementing the project in terms of the PSC and theJOA. On 4[th]January 1999, GSPC decided to lay down the pipeline fromHazira Gas Plant to Mora village on its own “as GSPC/State Governmentproject”.

21. By letter dated 6[th]January 1999, the DGH informed GSPC that thecosts for laying of 15 km. pipeline of 36” diameter as proposed by GSPCwas not eligible for cost recovery under the existing PSC provisions and that

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any action taken by the Contractor without requisite approval of theMC/Government shall be at the Contractor’s own risk. At an OCM held on8[th]January 1999, GSPC and Niko decided that in the absence of firmdirective from DGH, the Consortium would undertake the pipeline project asa Joint Venture Project. It was further agreed that the issue would be raisedin the forthcoming meeting with the DGH with the hope that DGH wouldgrant cost recovery status to the project. On 26[th]April 1999, GSPC wroteagain to the DGH requesting for an early decision as the imported items forconstruction of the pipeline had started arriving at customs. It sought help inthe Consortium clearing the goods without paying custom duty. On 19[th]May1999, GSPC requested the DGH to take decision on the fixation of theDelivery Point. The DHG on 20[th]May 1999 informed GSPC that the matterhad been referred to MoPNG for decision. GSPC was in the meanwhileasked to demonstrate the additional gas potential available from Hazira fieldover and above the gas already committed for sale.

22. On 6[th]August 1999 the DGH replied to GSPC declining grant ofapproval and cost recovery status in respect of the 36” pipeline. It was statedthat the laying of the pipeline up to Mora village and creating DeliveryPoint was policy issue which required the approval of the Government. Ifsubsequent drilling results justified the laying of an additional pipeline forsale from the Hazira field, the DGH would, after review of the updatedDevelopment Plan (based on new information), appropriately recommend tothe Government for consideration of separate Delivery Point for thoseadditional gas sales.

23. It appears that in the meanwhile GSPC went ahead with the constructionof the 36” pipeline. By its letter dated 9[th]August 1999 GSPC informed Nikothat that in view of the DGH not granting approval, the project of the 36” 14O.M.P. Nos.192 of 2010 and 944 of 2011Page 11 of 31

km. pipeline “would no longer remain GSPC-Niko joint venture project”. Itreiterated this on 31[st]August 1999. Niko in reply dated 8[th]September 1999informed GSPC of its decision to go in for arbitration.

24.On 1[st]January 2000, GSPC informed Niko about the reversal of thedebit note of Rs.25,65,92,809 dated 15[th]July 1999 that was raised by theGSPC on the joint venture for the 36” pipeline project. While requesting thatthe debit note to be treated as cancelled, GSPC informed Niko that it wouldreturn Niko’s contribution. By its letter dated 4[th]January 2000, Nikoexpressed surprise that GSPC had arbitrarily transferred the joint venture 36”pipeline to its other subsidiary, Gujarat State Petronet Limited (‘GSPL’) aspart of the Gujarat Gas Grid. On 7[th]January 2000, GSPC refunded to Nikoby way of demand drafts (‘DDs’) sum of Rs.8.55 crores. However, Nikoreturned the DDs to GSPC and objected to the reversal of the debit note.

25. Reference may also be made at this stage to the correspondence betweenDGH and the ONGC. By letter dated 7[th]May 1999 the DGH soughtclarification from the ONGC whether delivering gas at the end of 15 km.long pipeline was cheaper option as compared to delivering gas 22 km.away at the GGS of ONGC. By its letter dated 12[th]May 1999, ONGC statedthat it had no role in the gas delivery point since GSPC had planned tosupply gas directly by laying the 36” pipeline for sale to private consumersand the pipeline costs were to be recovered from such consumers. ONGCasked the DGH to take the final call.

Proceedings under Section 9

26. Aggrieved by the stand of the GSPC as expressed by its letters dated 7[th]June and 27[th]July 2000 that it would transfer the pipeline to third party,Niko filed O.M.P. No.200 of 2000 in this Court under Section 9 of the Act.O.M.P. Nos.192 of 2010 and 944 of 2011Page 12 of 31

Niko also filed O.M.P. No.201 of 2000 under Section 9 of the Act againstGSPC and the UOI. The said petitions were rejected by learned SingleJudge of this Court by detailed judgment dated 8[th]March 2000. Whileprima facie expressing the view that “laying of the pipeline beyond thedownstream flange of the gas/oil separation facility was clearly outside thescope of the PSC”, the Court observed that since in the meantime GSPC hadentered into Memorandum of Understanding (‘MoU’) with GSPL on 29[th]January 2000, “the Court cannot set the clock back so as to rescind thosethird party rights” and direct GSPC to hand over the pipeline to Niko. AlsoGSPL whose rights were likely to be affected by such order was not partyto the proceedings.

27. Niko filed two appeals being FAO (OS) No. 148 and 149 of 2001. By acommon order dated 1[st]June 2001 Division Bench of this Court modifiedthe order dated 8[th]March 2000 of the learned Single Judge by directing that aregular account would be maintained by GSPC in respect of the capitalexpenses for the pipeline and no third party interest would be created in thepipeline to the extent of 1/3[rd]share of Niko.

Constitution of the Arbitral Tribunal

28. By letter dated 30[th]August 2000, Niko requested for the appointmentof an Arbitral Tribunal in terms of Clause 13.1 of the JOA and also informedGSPC that it had appointed Mr. Justice P.N. Bhagwati, former Chief Justiceof India as its Arbitrator. GSPC in its reply dated 29[th]September 2000contended that the 36” pipeline from Hazira Gas field to village Mora wasnever part of the PSC and since JOA existed under the limited context of thePSC, the said dispute was not arbitrable.

29. On 12[th]October 2000, on the basis of the arbitration clause in the JOA,

Niko filed Arbitration Petition No.1 of 2001 against GSPC before the ChiefJustice of India (CJI) under Section 11 (9) of the Act. It filed separateArbitration Petition No.7 of 2001 on 2[nd]March 2001 against UOI and GSPCin terms of the arbitration clause under the PSC. Both Arbitration PetitionNos.1 of 2001 and 7 of 2001 were allowed by the Designate Judge of the CJIby order dated 18[th]July 2002 which read as under:

“After having heard learned counsel for the parties and perusedthe record, I am of the view that there exists dispute betweenthe parties and there is an arbitration clause in the agreement.Further I find that the Respondent company has failed toappoint an Arbitrator in compliance of the notice sent by theapplicant. It is not disputed that the applicant is bodycorporate situated outside India. I, therefore, find that there is anarbitration agreement between the parties under the category ofinternational commercial agreement.

I, therefore, allow these two petitions and appoint Mr. JusticeD.P. Wadhwa former Judge of Supreme Court of India as anArbitrator jointly on behalf of GSPC and Union of India inArbitration Petition No.7 of 2001 and also in ArbitrationPetition No.1 of 2001 on behalf of GSPC. The cost ofarbitration shall be fixed as provided in Clause (8) of Section 31of the Act.

The arbitration would be governed by the provision of the Act,although the arbitration agreement was entered into prior toenforcement of the Act. It is made clear that it would be open tothe Respondent to raise such objections which are permissibleunder law before the Arbitrators.”

30. The Arbitral Tribunal thus comprised Mr. Justice P.N. Bhagwati whowas nominated by Niko and Mr. Justice D.P. Wadhwa appointed by theDesignate Judge of the CJI by the aforementioned order jointly on behalf ofGSPC and Union of India. The said two Arbitrators appointed Mr. JusticeM.H. Kania, former Chief Justice of India, as the third and PresidingArbitrator. The Arbitral Tribunal held its first sitting on 2[nd]September 2002.

O.M.P. Nos.192 of 2010 and 944 of 2011

Proceedings before the Arbitral Tribunal

31. On 31[st]October 2002, Niko filed an application under Section 32(2) ofthe Act before the Arbitral Tribunal, seeking termination of the arbitrationproceedings against GSPC stating that the inter se disputes between Nikoand GSPC had been settled. In its reply GSPC confirmed that the inter sedisputes between it and Niko had been settled by memorandum ofunderstanding (MoU) dated 3[rd]October 2002. GSPC, therefore, prayed that itshould be treated as co-claimant along with Niko against the UOI. On 3[rd]May 2003, the Arbitral Tribunal recorded this change in stand and directedthat in future the sitting fee would be equally shared by Niko and the UOI.

32. Niko’s stand before the Arbitral Tribunal in the statement of claim wasthat the laying of the 36” diameter pipeline was part of the DevelopmentOperations under the PSC. The 36” diameter pipeline had been laid andmade operational and, therefore, the dispute related only to cost recoverywhich Niko quantified as Rs.99.8 crores. It further prayed in Clauses (f) to(h) as under:

“f.Granting cost recovery of production cost incurred inoperating the said pipeline for the period upto the date ofthis claim in the amount being quantified.operating the said pipeline for the period upto the date ofthis claim in the amount being quantified.

g.Declaring and directing that the Investment MultipleRatio and the accounting of Profit Petroleum shall berevised with retrospective effect after taking into accountthe cost Recovery status granted to the said 36 inchpipeline and accordingly, the excess Profit Petroleumpayments made to the Government of India, amounting toRs.44.76 crores, be reimbursed.Ratio and the accounting of Profit Petroleum shall berevised with retrospective effect after taking into accountthe cost Recovery status granted to the said 36 inchpipeline and accordingly, the excess Profit Petroleumpayments made to the Government of India, amounting toRs.44.76 crores, be reimbursed.

h.Declare and Award interest @ 18% on the amountawarded by this Arbitral Tribunal under prayers (e), (f)and (g) above.”awarded by this Arbitral Tribunal under prayers (e), (f)and (g) above.”

33. GSPC supported Niko’s claim. The stand of the UOI was that theconstitution of the Arbitral Tribunal was pre-mature as channels of disputesettlement mechanism provided under Article 31 of the PSC had not beenexhausted. The dispute in the present case had not been raised jointly byGSPC and Niko. GSPC had opposed the appointment of Arbitrator requestedby Niko throughout in the proceedings before the High Court and theSupreme Court. It was further contended that the construction of the 36”pipeline had no approval of the MC; the Arbitral Tribunal had no jurisdictionto examine the correctness of the non-approval of the pipeline by the DGHand that the creation of further Delivery Point was not within the domain ofNiko. The UOI submitted that if despite making it clear to Niko that theconstruction of pipeline was at its risk and cost, GSPC and Niko went aheadwith its construction they could not seek to extract that cost from the UOI.Once the gas was delivered at the downstream flange at the Delivery Point,the transportation of the gas thereafter was not matter within the scope ofthe PSC and the liability was of the buyer.

34. After pleadings were completed, arguments were heard on the objectionsraised by the UOI, on 23[rd]March 2003, the Arbitral Tribunal passed thefollowing order:

“1.Mr. B. Sen, learned Senior Advocate appearing on behalfof the Union of India has raised number of preliminaryobjections. We have heard Mr. Sen on the preliminaryobjectionsraisedbyhimandalsoheardMr.P.Chidambaram, leaned Senior Advocate who appears forthe Claimant. We are of the view that there is no merit inthe preliminary objections. In our opinion, there are twoobjections which can be properly regarded as preliminaryobjections and the same are that the arbitration has notbeen validly invoked under Article 31 of the ProductionSharing Contract and that the Arbitral Tribunal has notbeen properly constituted.of the Union of India has raised number of preliminaryobjections. We have heard Mr. Sen on the preliminaryobjectionsraisedbyhimandalsoheardMr.P.Chidambaram, leaned Senior Advocate who appears forthe Claimant. We are of the view that there is no merit inthe preliminary objections. In our opinion, there are twoobjections which can be properly regarded as preliminaryobjections and the same are that the arbitration has notbeen validly invoked under Article 31 of the ProductionSharing Contract and that the Arbitral Tribunal has notbeen properly constituted.2.As far as the objections relating to the invocation of thearbitration is concerned, we do not find any merit in thesame in view of the documents shown to us. This isparticularly so as attempts to conciliation have alreadybeen made and failed.arbitration is concerned, we do not find any merit in thesame in view of the documents shown to us. This isparticularly so as attempts to conciliation have alreadybeen made and failed.

3.As far as the objection regarding the constitution of theArbitral Tribunal is concerned we are again of the viewthat the objection has no substance as Mr. JusticeWadhwa (retired) was appointed by an order of theSupreme Court of India at time when Gujarat StatePetroleum Corporation as well as the Union of India wereboth Respondents and we do not find any invalidity inthat appointment.Arbitral Tribunal is concerned we are again of the viewthat the objection has no substance as Mr. JusticeWadhwa (retired) was appointed by an order of theSupreme Court of India at time when Gujarat StatePetroleum Corporation as well as the Union of India wereboth Respondents and we do not find any invalidity inthat appointment.

4.As far as other preliminary objections are concerned, inour opinion, they are not proper preliminary objections atall but will have to be decided along with the merits ofthe case.our opinion, they are not proper preliminary objections atall but will have to be decided along with the merits ofthe case.

5.We propose to give detailed reasons for this in our awardif necessary.”if necessary.”

35. When the matter was heard next on 1[st]May 2003, the Tribunal passed

the following order:

“At the outset Mr. Sen, Senior Advocate appearing on behalf ofthe Union of India submitted that the Respondent’s inparticipating in these proceedings may not be taken to as havinggiven up its preliminary objections regarding to jurisdiction. Hesays there are other preliminary objections apart from the twopreliminary objections decided earlier for which he reserves hisright to urge the same at appropriate occasion.”

36. On 16[th]August 2005 final arguments were heard and the ArbitralTribunal reserved the Award. It appears that on 7[th]August 2006 Niko filedan application for directions on which arguments were heard by the Arbitraltribunal on 10[th]and 11[th]November 2006.

37. It is seen from the dissenting Award of Justice Wadhwa that hecirculated his draft Award to the other two learned Arbitrators soon after theconclusion of the final arguments in the arbitral proceedings. He states thathe never heard “any comments on the same from the other members of theArbitral Tribunal.” He further states that only on 11[th]August 2009 hereceived draft Award from the Presiding Arbitrator, “without even amention of the draft Award circulated by me. We exchanged letters in whichI expressed my disappointment and anguish about the process and delay,which is against the interest of arbitral process. It appeared that the draftAward sent to me had the approval of the other Arbitrators as well. I do notknow where and when both of them met to discuss the draft Award. If thatbeing so, it appears to me rather unusual.”

38. As far as the majority Award of Justice Kania and Justice Bhagwati is

concerned, they mention in the last paragraph as under:

“Before parting with this case, there is an explanation which weowe to the parties and to our co-arbitrator. It is true that thearguments of both parties were concluded on August 16[th]2005and we received their written submission within reasonabletime. Unfortunately, for several reasons we could not have ameeting with our esteemed colleague Justice D.P. Wadhwa forsometime although he was willing to have meeting. Wereceived his draft Award in good time but on reading it wefound that there were basic differences in our approach andreasoning and it could hardly be expected that we all would beable to agree upon common Award. Thereafter both of usdecided to write separate Award but unfortunately both of ussuffered health problems and on account of such healthproblems and other reasons there has been delay in declaringour Award.”owe to the parties and to our co-arbitrator. It is true that thearguments of both parties were concluded on August 16[th]2005and we received their written submission within reasonabletime. Unfortunately, for several reasons we could not have ameeting with our esteemed colleague Justice D.P. Wadhwa forsometime although he was willing to have meeting. Wereceived his draft Award in good time but on reading it wefound that there were basic differences in our approach andreasoning and it could hardly be expected that we all would beable to agree upon common Award. Thereafter both of usdecided to write separate Award but unfortunately both of ussuffered health problems and on account of such healthproblems and other reasons there has been delay in declaringour Award.”

The Majority and Dissenting Awards

39. The majority Award held that the decision of the Government that therecould be no pipeline outside the Contract Area was “arbitrary, unreasonableO.M.P. Nos.192 of 2010 and 944 of 2011Page 18 of 31

and clearly contrary to the object and intendment of the PSC.” It proceededto hold that in the background of the correspondence between the parties andother circumstances, the decision of the Contractor to lay 36” pipeline wasbonafide and was consistent with good petroleum practice; that Mora was themost suitable Delivery Point for NANG and that construction of the 36”pipeline “should have been included in the PSC” and that the PSC shouldhave been accordingly amended. As far as the changing stand of the GSPCthe majority Award held that GSPC could not be prevented from doing so ifthat was the correct stand. It held that since the question of recovery of costseven after the date of reference of the dispute to arbitration also arose fromthe contract, it was arbitrable.

40. The majority Award proceeded to allow the claims of Niko and interalia granted series of reliefs including the declaratory reliefs as prayed forby Niko and GSPC. It awarded them the cost recovery of the DevelopmentCost in the sum of Rs. 93.27 crores which was to be paid by the UOI. sumof Rs.14.02 crores towards cost recovery of operating costs as on 31[st]March2003 was to be paid by the UOI to Niko and GSPC. For cost recovery after1[st]April 2003 UOI was to pay the amount as would be determined by acertificate of M/s C.C. Chokshey & Co., reputed firm of CharteredAccountants from year to year; the UOI to reimburse and pay to theClaimants i.e. Niko and GSPC the excess profit petroleum in the sum ofRs.67.14 crores as on 31[st]March 2003 together with interest at 9% perannum from that date till payment; sharing of the transportation revenues inthe sum of Rs.17.80 crores as on 31[st]March 2003 was declared as alreadyadjusted. The UOI was asked to pay the Claimants Rs.5 lakhs as costs of thearbitral proceedings.

41.Justice Wadhwa in his dissenting Award dismissed the claims of the

Contractor. He held that laying of the 36” 14 km pipeline did not fall withinthe scope of the PSC and was in complete violation thereof. He adverted tothe shifting stand of GSPC. Before the High Court in an affidavit filed in theSection 9 proceedings, GSPC had categorically averred that the 36” pipelinehad not been accorded cost recovery status and was outside the purview ofthe PSC. It changed this stand only after the commencement of thearbitration proceedings, when in October 2002 it entered into an MoU withNiko. Importantly Justice Wadhwa noted that apart from giving an initialamount of about Rs. 8.55 crores to GSPC, Niko had remained outside thepipeline project. GSPC had proposed to take up the project as collaborativeventure with Niko but later decided to go alone. It sold the pipeline to GSPLand it was the latter which then spent money to complete the pipeline. It wasonly after the MoU dated 3[rd]October 2002 that the Consortium regainedcontrol of the pipeline.

42. Justice Wadhwa discussed the evidence of the witnesses in detail. Theevidence of Mr. Robert Ohlson on behalf of Niko showed that the DeliveryPoint for NANG was where GGCL had laid its 8” pipeline. The evidence ofMs. Pomila Jaspal for the DGH revealed that the expenditure shown ashaving been incurred by Niko on the pipeline did not tally with its ownaccounts. It had accounted only for sum of Rs. 25.7 crores and not Rs.93.27 crores as claimed. The construction of the pipeline was therefore notconsistent with the procedure outlined in the PSC and was outside thebudgetary control and supervision of the UOI. There was no approval ofeither the MC or the UOI to the pipeline; there was no amendment to theDevelopment Plan and clearly the Contractor was seeking to include thepipeline in the PSC after its construction in violation of the express terms ofthe PSC. Merely because the pipeline facilitated transmission of NANGwould not bring it within the purview of the PSC. The individual contracts

O.M.P. Nos.192 of 2010 and 944 of 2011Page 20 of 31

with the consumers of NANG showed that the Delivery Point was defined asthe downstream flange of the pipeline at the outlet of the gas metering stationof the seller at Hazira. The cost of transportation thereafter was the liabilityof the Contractor and not of the UOI. Therefore the dispute regarding costrecovery status of the pipeline was outside the scope of the PSC and notarbitrable. Justice Wadhwa was of the view that the Arbitral Tribunal couldnot re-write the terms of the contract.

Delay in pronouncement of the Award

43. One of the first objections raised by Mr. A.S. Chandhiok, learned ASGappearing for the UOI was that the undue delay in the majority inpronouncing its Award vitiated the Award. He placed reliance on thedecision of this Court in Harji Engg. Works Pvt. Ltd. v. Bharat HeavyElectricals Ltd. 153 (2008) DLT 489. He submitted that the explanationoffered regarding the health problems of the two Arbitrators, could notsatisfactorily account for the extraordinary delay of over four years inpronouncing the Award. Further, there was no satisfactory explanation fornot dealing with the findings of the third Arbitrator who had dissented. Herelied on the decision in M/s Subhash Chugh & Co. v. M/s Girnar FibresLtd. 2000 (3) RAJ 461 (P&H) to urge that it was incumbent for the twoArbitrators who delivered the majority Award to have discussed the draftAward of the third Arbitrator by holding meeting after conclusion of thefinal arguments. He also referred to the observation of the Supreme Court inP.H. Pandian v. P. Veldurai JT 2001 (9) SC 10.

44. In reply, it was submitted by Mr. Nageshwar Rao, learned Senior counselappearing for Respondent No.1 Niko that delay by itself did not vitiate theAward. Reliance was placed on the decision of this Court in PEAKChemical Corporation Inc. v. National Aluminium Co. Ltd. (2012) II AD

O.M.P. Nos.192 of 2010 and 944 of 2011

Page 21 of 31

(Delhi) 304.

45. In the present case, the delay of over four years in the majoritypronouncing its Award is indeed extraordinary. Even if one were to take intoaccount the fact that the Arbitral Tribunal heard arguments on Niko’sapplication for directions sometime in November 2006, the majority awardwas pronounced only on 23[rd]December 2009, three years thereafter. On theother hand the draft Award of the dissenting member was available shortlyafter conclusion of arguments on 16[th]August 2005.Justice Wadhwareceived the draft of the majority Award only on 11[th]August 2009. After thePresiding Arbitrator expressed his inability to travel to Delhi, the seat ofarbitration, Justice Wadhwa signed the dissenting Award in Mumbai on 23[rd]December 2009.

46. While under the Arbitration Act 1940 time limit was envisaged for thepronouncement of an Award, the Arbitration and Conciliation Act 1996 didnot. This was noted by the Supreme Court in Oil & Natural GasCorporation Ltd. v. SAW Pipes Ltd. (2003) 5 SCC 705, where it wasobserved as under (SCC, p.727):

“30. It is true that under the Act, there is no provision similar toSections 23 and 28 of the Arbitration Act, 1940, which specificallyprovided that the arbitrator shall pass award within reasonable time asfixed by the court. It is also true that on occasions, arbitrationproceedings are delayed for one or other reason, but it is for the partiesto take appropriate action of selecting proper arbitrator(s) who coulddispose of the matter within reasonable time fixed by them. It is forthem to indicate the time-limit for disposal of the arbitral proceedings.It is for them to decide whether they should continue with thearbitrator(s) who cannot dispose of the matter within reasonable time.However, non-providing of time-limit for deciding the dispute by thearbitrators could have no bearing on interpretation of Section 34.Further, for achieving the object of speedier disposal of dispute, justicein accordance with law cannot be sacrificed. In our view, givingSections 23 and 28 of the Arbitration Act, 1940, which specificallyprovided that the arbitrator shall pass award within reasonable time asfixed by the court. It is also true that on occasions, arbitrationproceedings are delayed for one or other reason, but it is for the partiesto take appropriate action of selecting proper arbitrator(s) who coulddispose of the matter within reasonable time fixed by them. It is forthem to indicate the time-limit for disposal of the arbitral proceedings.It is for them to decide whether they should continue with thearbitrator(s) who cannot dispose of the matter within reasonable time.However, non-providing of time-limit for deciding the dispute by thearbitrators could have no bearing on interpretation of Section 34.Further, for achieving the object of speedier disposal of dispute, justicein accordance with law cannot be sacrificed. In our view, giving

O.M.P. Nos.192 of 2010 and 944 of 2011Page 22 of 31

limited jurisdiction to the court for having finality to the award andresolving the dispute by speedier method would be much morefrustrated by permitting patently illegal award to operate. Patentlyillegal award is required to be set at naught, otherwise it wouldpromote injustice.”

47.It appears to the Court that one possible remedy available to partyaggrieved by the delay in pronouncing an Award is to first approach theTribunal itself with prayer for expediting the Award and thereafter if thatdoes not prove successful to invoke Section 14 of the Act. The relevantprovision reads thus:

“Section 14 - Failure or impossibility to act

(1) The mandate of an arbitrator shall terminate if—

(a) he becomes de jure or de facto unable to perform hisfunctions or for other reasons fails to act without unduedelay; and

(b) he withdraws from his office or the parties agree to thetermination of his mandate.termination of his mandate.

(2) If controversy remains concerning any of the groundsreferred to in clause (a) of sub-section (1), party may, unlessotherwise agreed by the parties, apply to the Court to decide onthe termination of the mandate.”

48. Under Section 14(2) of the Act party can seek the Court’s interferenceto terminate the mandate of the Arbitrator if the ‘controversy’ concerning theTribunal’s de jure or de facto inability to perform its functions “remains”.Therefore, if after being approached by either party with prayer to expeditethe pronouncement of the Award, the tribunal fails to do so, the Court can beapproached in terms of Section 14 (2). In the present case, when asked whythe UOI did not approach this Court under Section 14(2) of the Act, Mr.Chandhiok, referred to the decision of the Division Bench of this Court in

Progressive Career Academy Pvt. Ltd. v. FIIT JEE Ltd. 2011 (2) Arb.LR323 (Delhi) where it was held that the Court should refrain from interdictingarbitral proceedings under Section 14 of the Act where an attempt by theparty at getting the learned Arbitrator to recuse under Section 12 read withSection 13 failed. That decision does not deal with situation where thepronouncement of an award is unreasonably delayed and therefore does notcome in the way of party approaching the Court under Section 14 (2) forrelief. In the present the fact remains that neither party resorted to the saidremedy.

49.Given the scheme of the Act, it might be appropriate to exhaust theabove remedy before the stage of challenge to the Award. It hardly needs bestated that delay per se is not identified as one of the grounds under Section34 of the Act. It would have to be shown that the Award suffered from patentillegality on account of such delay. What also should weigh with the Courtwhen faced with situation where an Award is sought to be challenged onthe ground of delay is to consider the costs incurred and the time spent in thearbitral proceedings. If delay alone was to be the factor then, as is happeningnot infrequently these days, many an Award would be vulnerable toinvalidation on this ground alone. It would be the facts and circumstances ofa given case which would determine if the delay is so unconscionable as tovitiate the Award.

50. In PEAK Chemical Corporation Inc., this Court noticed the judgmentin Harji Engineering Works Pvt. Ltd. and pointed out that the said decisionwas distinguishable on facts. This Court observed in para 29 as under:

“29. The question whether the delay in the pronouncement of anAward after final arguments have concluded vitiates the Awardwill depend on the facts and circumstances of each case. Thedecisions relied upon by Mr. Ganguli turned on their peculiarAward after final arguments have concluded vitiates the Awardwill depend on the facts and circumstances of each case. Thedecisions relied upon by Mr. Ganguli turned on their peculiar

facts. No two cases are the same. Significantly, delay has notbeen specified as one of the grounds under Section 34 of the Actfor setting aside an Award. It would be straining the language ofthat provision to hold that delay in the pronouncement of anAward would by itself place it in “conflict with the publicpolicy of India” within the meaning of Section 34 (2) (b) (ii) ofthe Act. As will be discussed hereafter, the impugned Awardsets out comprehensively the facts as pleaded by the parties, theevidence, the submissions of counsel, the analysis of the factsand evidence, and the detailed reasons issue-wise. Anotherfactor that requires to be accounted for is that the disputebetween the parties has been pending since 1996. It would notbe in the interests of justice to set aside the impugned Awardonly on the ground of delay and remand it for freshdetermination. The learned Arbitrator who passed the impugnedAward has since expired. fresh arbitration before anotherarbitrator would not be justified considering the time and moneyalready spent in the arbitral proceedings thus far. Therefore, it isnot considered expedient to simply set aside the impugnedAward on the sole ground of delay in the pronouncement of theAward. This plea is accordingly rejected.”

51. Therefore, one factor that weighed with this Court in PEAK was thatnotwithstanding the delay, the impugned Award had comprehensively dealtwith all the submissions made by the parties and the issues that arose.However, in the present case on this aspect, for the reasons discussedhereafter, the majority Award does not inspire confidence. While it has dealtwith the submissions of the parties in detail, it did not deem it appropriate todeal with the findings of Justice Wadhwa in his dissenting Award. Themajority acknowledges that the draft Award of Justice Wadhwa was receivedby them in good time. They found that “there were basic differences in ourapproach and reasoning and it could hardly be expected that we all would beable to agree upon common Award”. Yet, the reasons given by the majorityfor not meeting with him “although he was willing to have meeting” arenot satisfactory. It was incumbent in such circumstances, for the majority tohave discussed the points raised by Justice Wadhwa in the dissenting Award.

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How the failure to do this has vitiated the majority Award is evident from thediscussion that follows. Consequently, while in the present case the delay inpronouncement of the Award per se does not vitiate it, the delay appears tohave led to the Award being vitiated by patent illegality for reasonsdiscussed hereafter.

Examination of the impugned majority Award on merits

52. The principal question that arose in the arbitral proceedings was whetherthe 36” pipeline was part of the PSC. There was no dispute that NANG wasnot one of the petroleum products contemplated as existing when the PSCwas entered into. The Delivery Point identified was relevant for crude oil andCondensate and not NANG. Yet, the evidence on record showed that GGCLwas monopoly buyer of gas and that it had laid an 8” pipeline for thatpurpose up to the downstream flange of the gas metering station at Hazira. Ifthere was to be Delivery point beyond the downstream flange, it wouldrequire the amendment to the Development Plan and its approval by the MC.Only then could it be made part of the PSC.

53. There is also no dispute that the DGH did not agree to the grant of costrecovery status to the 36” pipeline. This was decision that had to be takenby the UOI as it was matter of policy. Even if MC had approved, it wouldhave to be further cleared by the UOI. The letter dated 5[th]February 2000from GSPC to Niko correctly noted that change in Delivery Point being apolicy matter of the Government could not be decided by the Contractor oreven the MC. If this was the procedure envisaged by the PSC then it couldnot be deviated from. The majority appears to have overlooked thisimportant aspect and committed the error of stepping into the shoes of theUOI to determine whether 36” pipeline was consistent with “goodpetroleum practice.”

54. The majority also conveniently overlooked the earlier stand of GSPC inthe proceedings under Section 9 of the Act. The GSPC had correctly noted inits affidavit in those proceedings that the 36” pipeline was not part of theDevelopment Plan. It had not been accorded cost recovery status by the MC.The existing Delivery Point was the downstream flange of the gas separatorat Hazira. This was also evident from the individual supply contracts enteredinto by the Contractor with buyers including GGCL, Gujarat State EnergyGeneration Limited (‘GSEGL’), Essar Steel etc. With the non-approval ofthe MC to the construction of the 36” pipeline by creating Delivery Pointbeyond the Contract Area, the said pipeline was not within the scope ofPetroleum Operations and therefore outside the scope of the PSC. In the GasSales Agreements with GGCL, GSEGL, Essar Steel, Essar Power, theDelivery Point was in fact the downstream flange of the gas metering stationof the seller at Hazira. separate agreement for transportation of the gasbeyond that point was entered into by each buyer with the pipeline companyi.e. GSPL. In terms of Section 3.2 (iii) of Appendix to the PSC, the cost ofmarketing and transporting NANG beyond the downstream flange was to beborne by the Contractor. Consequently the 36” pipeline was outside thescope of the PSC and not entitled to cost recovery. The above stand of theGSPC was based on correct interpretation of the provisions of the PSC.The Arbitral Tribunal ought to have drawn an adverse inference at the volteface of GSPC when it departed from the above stand and chose to supportNiko and get impleaded as co-claimant. It must be mentioned that beforethis Court GSPC appears to have reverted to its earlier stand. Be that as itmay, the fact remains that the Contractor, i.e. Niko andGSPC took aconscious decision, and calculated risk, in proceeding with the 36” pipelinedespite the MC not according its approval and the DGH communicating therefusalofpermissionbytheletterdated6[th]August1999.TheO.M.P. Nos.192 of 2010 and 944 of 2011Page 27 of 31

correspondence between GSPC and the DGH on the one hand and the GSPCand Niko and the other belies the change of stand by GSPC before theArbitral Tribunal and ought not to have been countenanced by it.

55. The majority Award suffers from patent illegality inasmuch as it seeks torewrite the PSC by deeming an amendment to the PSC to include the 36”pipeline as part of the Development Plan and deeming changed DeliveryPoint when there was no approval to such change. Also, the entireconstruction of the pipeline and its operation was without the procedureunder the PSC being followed. It was outside the budgetary control andsupervision of the UOI that was mandated by the PSC. The 36” pipeline wastherefore contrary to the PSC. The Arbitral Tribunal was mandated toexamine if the action of the Contractor in constructing and operating thepipeline was in conformity with the PSC. Only then the question of grantingit cost recovery status would arise. The Arbitral Tribunal could not haverewritten the PSC by reading into it clauses and provisions that were non-existent. The majority Award was therefore in clear violation of Section 28(3) of the Act.

56. The majority Award totally overlooked the facts stated in an affidavitdated 30[th]July 2003 filed by GSPC before the Arbitral Tribunal. In the saidaffidavit GSPC stated that it had sold the pipeline to GSPL on 1[st]February2000 for Rs.49.27 crores (including sales tax of Rs. 1.97 crores) and thatGSPPL had thereafter completed the pipeline by expending further Rs.43.99 crores. GSPL was not party to the arbitration agreement and therelief that Niko was seeking, viz.; grant of cost recovery status to the pipelinewhich would result in its ultimate transfer to the UOI was incapable of beinggranted. The MoU dated 3[rd]October 2002 between Niko and GSPC was anevent subsequent to the commencement of arbitral proceedings. It showed

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that till then the pipeline was in the control of and being operated by GSPL.In fact, apart from making an initial payment to GSPC of sum of Rs. 8.55crores, Niko neither spent any sum on the construction nor was in any wayinvolved in its completion and operation. The Contractor admittedly regainedcontrol of the pipeline from GSPL only after the MoU. Niko failed to provethat it had spent Rs. 93.27 crores on the pipeline. Further, the evidence ofMs. Jaspal on behalf of the DGH showed that even the accounts submittedby the Contractor did not support such claim. Till the Contractor regainedcontrol of the pipeline, the question of booking the costs of the pipeline tothe Consortium did not arise. In the circumstances, the majority committed apatent illegality in awarding Niko sum of Rs. 93.27 crores towardsrecovery of development cost of the pipeline.

57.Although under Article 26.4, the Government had the option ofrequiring the vesting in it of the assets purchased by the Contractor after theeffective date for use in petroleum operations, it could not be compelled totake over pipeline which it did not approve. The majority Award does noteven discuss the evidence of the witnesses of the parties which reveals thatthere was no approval by the MC or the Government to the construction ofthe 36” pipeline and that the Contractor still went ahead with it at their ownrisk and costs.

58. The Award by the majority in favour of the Claimants of reimbursementof excess profit petroleum supposedly paid to UOI was also misconceived. Itflowed from the erroneous determination regarding the grant of cost recoverystatus to the pipeline. In this regard the majority failed to deal with apertinent observation in the dissenting Award of Justice Wadhwa that from acollective reading of Appendix with Article 14 of the PSC it was evidentthat Government’s share of profit petroleum was dependent on the quantum

O.M.P. Nos.192 of 2010 and 944 of 2011

of investment by the Contractor; if the cost of construction of the pipelinewas shown as Contractor’s investment it would reduce the Government’sshare of profit petroleum. Clearly therefore the majority erred in buying intothe argument put forth by Niko that the Government had in any eventbenefited from the 36” pipeline.

59. The very approach of the majority to the issues for determination wasflawed. In asking whether the Delivery Point needed to be changed, whetherit was necessary to construct 36” pipeline; whether the Contractor’sdecision in that regard was “bonafide” in the first place, the majority appearsto have viewed its exercise as that of judicial review of an administrativedecision and whether the refusal by the Government to grant approval wasjustandreasonable.Thiserroneousapproachisevidentfromtheobservations of the majority in para 50 of their Award that the constructionof the pipeline “should have been included in the PSC and we must proceedon the footing that it was so included in the PSC” and in para 53 that the PSCshould have been amended by including therein the laying of the 36”pipeline. Apart from the fact that the majority was thereby rewriting the PSC,it erred in sitting in appeal over the decision of the DGH or the Governmentnot to grant approval or cost recovery status to the 36” pipeline. Theexplanation offered in the letter dated 6[th]August 1999 of the DGH was aplausible one. Even in writ jurisdiction the court has only to examine if thedecision making process has been adhered to and not whether the decisionitself is erroneous. If after following the procedure under the PSC there wasno approval granted by the MC or the Government, then the ArbitralTribunal could not have granted such approval and further orderedconsequent reliefs on that basis. The majority Award was therefore in excessof jurisdiction and suffered from patent illegality.

Conclusion

60. For the aforementioned reasons, the Court is unable to sustain theimpugned majority Award dated 23[rd]December 2009 of the ArbitralTribunal. It is hereby set aside with costs of Rs.1 lakh which will be sharedequally by Niko and GSPC and paid to the Petitioner UOI within period offour weeks. O.M.P. No.192 of 2010 is allowed in the above terms.

61. Consequently the question of granting Niko the reliefs prayed for inO.M.P. No.944 of 2011 does not arise. O.M.P. No. 944 of 2011 is herebydismissed.

July 2, 2012bs

S. MURALIDHAR, J.