In a significant ruling that has important implications for both arbitration law and natural resource management in India, the Delhi High Court has set aside an arbitral award that was previously granted in favor of Reliance Industries Limited (RIL) in the Krishna-Godavari (KG) basin dispute with the Central government.
A Division Bench comprising Justices Rekha Palli and Saurabh Banerjee delivered this landmark judgment, which addresses two crucial aspects of arbitration law: the classification of arbitration proceedings and the grounds for setting aside arbitral awards.
Domestic vs. International Arbitration
The Court made a definitive ruling on the nature of the arbitration, overturning a previous single-judge decision. The Division Bench held that since RIL, the lead member in the arbitration proceeding, is an Indian entity, the arbitration must be classified as domestic rather than international commercial arbitration. This classification has significant procedural and legal implications for similar cases in the future.
Patent Illegality and Public Policy
Perhaps most notably, the Court found that the arbitral award suffered from “patent illegality” and violated both India’s public policy and the public trust doctrine. This finding was significant enough to warrant judicial interference under Section 37 of the Arbitration Act, leading to the award being set aside.
The Court’s emphasis on public policy and the public trust doctrine is particularly relevant given that the dispute concerned the KG basin, a crucial natural resource. This ruling reinforces the principle that arbitral awards involving public resources must align with broader public interest considerations.
Impact and Implications
This judgment serves as a crucial precedent in Indian arbitration law, particularly in cases involving:
- Classification of arbitration proceedings
- Grounds for setting aside arbitral awards
- Public resource disputes
- Application of the public trust doctrine in arbitration
The ruling underscores the courts’ role in safeguarding public interest, especially in matters involving natural resources, even within the arbitration framework.
Our firm continues to monitor developments in this area and is well-equipped to advise clients on complex arbitration matters, particularly those involving public policy considerations and resource management disputes.