The Supreme Court on Monday issued notice to the Centre, Petroleum Minister M. Veerappa Moily and Reliance Industries Limited (RIL) on a public interest litigation petition challenging the government’s decision to double the price to $8.4 per million British thermal unit (mmBtu) for gas produced from the KG basin.

A Bench of Chief Justice P. Sathasivam and Justices Ranjana Desai and Ranjan Gogoi also issued notice to the Petroleum Ministry, NIKO Resources Ltd and BP Exploration (Alpha) Limited on the plea filed by CPI leader Gurudas Dasgupta and the former Power Secretary, E.A.S. Sarma.

Senior counsel Colin Gonsalves, appearing for the petitioners, said the decision to raise gas price should be reviewed as the Minister had overruled the opinion of senior officers of his ministry and his predecessor. When Justice Sathasivam wanted to know “why the parties can’t go for arbitration,” counsel pointed out that the Minister had given a statement that he wanted to junk arbitration and that the government would not proceed with the process.

Counsel alleged that the Minister “bats for Reliance” and had overruled the decision of the Director-General of Hydro Carbons to impose a fine on it.

Senior counsel Harish Salve, appearing for Reliance Industries, however, said, “We want arbitration to go on. We will file an application for appointment of the third arbitrator.”

Justice Sathasivam told counsel “It [PIL petition] requires examination. When a Member of Parliament comes and makes an assertion it cannot be decided at the admission stage. We are not expressing any opinion at this stage.”

“Illegal, mala fide’

The petitioners said the government had acted illegally, unreasonably, irrationally and with mala fide in granting excessive benefits to the respondents, thereby virtually bankrupting the exchequer and adversely affecting the Indian economy as a whole. The contractors allegedly incurred investment costs for the full capacity of 80 MMSCMD and recovered all these costs and perhaps more from the government through the sale of gas priced at $4.2 per mmbtu. Simultaneously, the contractors deliberately reduced production, thus holding the country to ransom at a time when gas demand far outstripped supply. By June 2013, only 9 out of 18 wells were in production and gas sales were only 18% of the target of 80 MMSCMD. The reduction was done in anticipation of a price rise and this was confirmed by government’s announcement that from April 2014 the price would be increased to $8.4 mmbtu.

“RIL, which had gone in for arbitration, had already recovered this amount from the sale of natural gas. They appointed Justice S.P. Bharucha as their arbitrator. The government appointed Justice V.N. Khare as its arbitrator. Both judges met and were in the process of appointing the third arbitrator in October 2012 but could not do so.” RIL would be sitting pretty if the arbitration was not proceeded with. “It is the government which stands to lose up to $ 2.4 billion by the end of the current year, by not proceeding with the arbitration. The Petroleum Ministry is deliberately not proceeding with arbitration to allow RIL to get away without paying penalties for the shortfall in production.”

The petitioners sought a direction to RIL and NIKO to forthwith relinquish those areas of the KG basin as recommended by CAG; to appoint a third arbitrator (umpire) and to proceed with arbitration expeditiously and complete it within six months; to fix the price of domestically produced gas in rupees, and not in dollars or any other currency, and to stay the doubling of the gas price.

Further hearing is posted to September 6.