New Delhi: New exploration contracts will require Indian oil companies to resolve contractual disputes with the government through arbitration exclusively in India, while allowing foreign firms to opt for overseas arbitration, according to an official.
The oil ministry is currently framing new rules for the exploration sector and working on a new model contract for future winners of exploration licences in the country.
According to the draft rules, all disputes and claims related to petroleum leases or contracts are to be resolved through arbitration, either in India or overseas. “In case of a licensee, lessee or contractor which is an entity incorporated under the laws of a foreign jurisdiction, the seat of such arbitration must be of a neutral jurisdiction,” the draft states. However, it is less explicit about requirements for India-incorporated firms.
An official clarified that the option of overseas arbitration will not be available to Indian companies. Foreign oil firms have been vocal in demanding “neutral arbitration”-a seat of arbitration not located in either party’s home country. They consider this essential to protecting their investments, as it helps insulate the arbitration process from domestic government influence.
The new contracts will allow foreign players to choose from about half a dozen arbitration venues, excluding those in India and the foreign company’s home country. London, The Hague, Paris, Singapore and Hong Kong are among the leading international arbitration seats. Past disputes between oilfield developers and the Indian government show that the arbitration process can be lengthy and costly. Arbitral awards are often challenged in Indian courts, leading to years of delay.
For instance, arbitration over cost recovery in the Panna-Mukta-Tapti fields between the government and contractors-Reliance Industries and Shell-has dragged on for more than a decade.
Another legal battle between Reliance Industries and the government over gas extraction in the KG Basin field licensed to ONGC has also been ongoing for several years.
