In a relief to Reliance Industries, the Supreme Court on Wednesday allowed arbitration proceedings with the Centre to be held in London on the issue of payment of royalties and taxes relating to Panna, Mukta and Tapti oil and gas fields.

Giving this ruling, a Bench of Justices S. S. Nijjar and A. K. Sikri, however, made it clear that arbitration proceedings would be held as per the Indian law and not as per the United Nations Commission on International Trade Laws (UNCITRAL) as sought by Reliance.

Allowing appeal filed by Reliance Industries against a Delhi High Court verdict, the bench said that the High Court committed a jurisdictional error in agreeing to hear the government’s plea.

The Bench pointed out that in the production sharing contract, RIL and the Ministry of Petroleum and Natural Gas had consciously agreed for arbitration to be held in London in case of any dispute.

Reliance Industries had approached the Supreme Court for settlement of the dispute with the oil ministry over reimbursement of royalties and taxes in the Panna, Mukta and Tapti (PMT) fields through arbitration in London. The oil ministry had opposed arbitration in London and wanted the dispute to be settled by Indian courts.

The oil ministry on December 22, 1994, had entered into two production sharing contracts with Reliance and Enron Oil and Gas India (the predecessor to BG Exploration and Production India) and ONGC for the exploration and production of petroleum from the Tapti and Panna-Mukta fields. The two contracts were to be operative for a period of 25 years and would expire only in 2019.

In December 2010, differences arose on issues of payment and reimbursement of royalties, cess and service tax, and conduct of performance audit by the Comptroller and Auditor General of India, following which Reliance invoked foreign arbitration clause.

In December 2009, the arbitral tribunal rejected the Centre's objection to arbitrability of the disputes. The government then moved the Delhi High Court challenging the arbitral tribunal’s December 2012 order and got a favourable verdict. The present appeal is directed against this order.

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