In a major setback to the Centre, the Supreme Court on Wednesday, 16 September, said the requirement of procedural fairness constitutes a fundamental basis for the integrity of the arbitral process, as it upheld a foreign arbitration award in favour of Vedanta and Videocon.
The Ministry of Petroleum and Natural Gas had appealed against this foreign award allowing Vedanta and Videocon to recover $499 million, instead of $198 million capped by the government for the development of the Ravva oil and gas fields off Andhra Pradesh coast between 2000 and 2007.
A bench comprising Justices S Abdul Nazeer, Indu Malhotra and Aniruddha Bose said the government has contended the award may not be enforced, since it is contrary to the basic notions of justice, and the court is unable to accept this submission.
"The Appellants (government and ministry of petroleum and natural gas) have not made out a case of violation of procedural due process in the conduct of the arbitral proceedings".
The bench noted that fair and equal treatment of the parties is a non-derogable and mandatory provision, on which the entire edifice of the alternate dispute resolution mechanism is based.
The top court said the Malaysian court had rightly examined the issue.
The government had argued that under the Indian law, a foreign arbitration award can be challenged if it was against public policy.
The bench observed the government has not made out a case, how is the award in conflict with the basic notions of justice, or in violation of the substantive public policy of India.
“We feel that the interpretation taken by the tribunal is a plausible view, and the challenge on this ground cannot be sustained, to refuse enforcement of the Award,” said the bench.
The government had argued that the Production Sharing Contracts (PSCs) are "special contracts" pertaining to the exploration of natural resources, which concerns the public policy of India.
The bench said "we are of the view that the disputes raised by the claimants (Vedanta and Videocon) emanate from the rights and obligations of the parties under the PSC. The award is not contrary to the fundamental policy of Indian law, or in conflict with the notions of justice."
The apex court concluded that the enforcement of the foreign award does not contravene the public policy of India, nor is it contrary to the basic notions of justice. The Delhi High Court had declined to interfere with the arbitral award in favour of Vedanta.
In June, the Centre challenged this decision in the Supreme Court. The apex court affirmed the judgment of the Delhi High Court dated 19 February 2020, and vacated the status quo orders of 17 June and 22 July.
"The award dated 18 January 2011 passed by the tribunal is held to be enforceable in accordance with the provisions of Sections 47 and 49 of the Arbitration & Conciliation Act, 1996," said the top court.
Cairn India (now Vedanta) and Videocon were allowed to recover $198 million as per the contract, and in July 2014, the Malaysian Court of Appeals upheld the arbitral award allowing additional recoveries to Vedanta.