Questions over Reliance arbitrator in KG gas row

Last Updated: Sun, Jul 13, 2014 12:36 hrs

Former economic affairs secretary E A S Sarma has questioned whether the prior association of S P Bharucha, former Chief Justice of India, with Reliance Industries Ltd (RIL) could result in a conflict of interest with his role as an independent arbitrator in the company's dispute with the Centre over cost recoveries in the KG-D6 gas block in the Krishna-Godavari basin.

In a letter to Bharucha and the Ministry of Petroleum and Natural Gas, Sarma called on the retired judge to disclose all prior association with RIL, particularly instances in which Bharucha could have offered legal opinion to the company for a fee. In a telephonic interview, Sarma questioned the resilience of regulatory frameworks to safeguard the independence of arbitrators at a time when the government was involved in an increasing number of high-stake arbitrations with companies such as RIL.

Bharucha declined to comment on the matter. "It would be improper for me to comment. Sorry," he said in reply to an emailed questionnaire from Business Standard.

An RIL spokesperson has refuted Sarma's allegations, while the petroleum ministry and the Indian Council of Arbitrators did not respond to emailed questionnaires.

"There is no conflict and no question of any doubt as to Justice Bharucha's independence or impartiality," said an RIL spokesperson, in an email. The spokesperson declined to respond to any specific query and refused to state whether Bharucha had done any paid work for RIL. "All relevant information required under the Arbitration Act and the rules made thereunder have been provided to the government's lawyers," he said.

In November 2011, RIL had served an arbitration notice to the Union government, seeking resolution to a dispute in which the government had disallowed about $1.8 billion of investment in the KG-D6 block, citing the drastic reduction in gas production from the field. RIL maintains it is entitled to seek investment recoveries from the government, according to a contract.

RIL nominated Bharucha as its arbitrator, while the government named former chief justice V N Khare as its arbitrator. The Supreme Court appointed (retd) judge Michael Hudson McHugh as the chair of the arbitration panel.

This week, Sarma called on Bharucha to disclose his financial engagements with RIL, in accordance with the provisions of the Arbitration and Conciliation Act of 1996. Section 12 (1) of the Act requires an arbitrator to "disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality". Further, the International Bar Association's guidelines on conflict of interests in international arbitration recommend an arbitrator recuse himself in situations in which "reasonable and informed third party would reach the conclusion that there was a likelihood that the arbitrator might be influenced by factors other than the merits of the case".

In his letter to the petroleum ministry, Sarma questioned whether Bharucha's previous dealings with RIL could give rise to a possible conflict of interest with his role as an independent and impartial arbitrator. In October 2000, for instance, Bharucha was part of a three-member Supreme Court Bench that ruled in favour of RIL in a public interest litigation (Appeal 2,485 of 1999), argued by Supreme Court advocate Shanti Bhushan. The litigation sough the court annul the allotment of the Panna and Mukta oilfields to an RIL-led consortium.

In 2007, Bharucha, who retired in 2002, appeared as RIL's arbitrator in a dispute with GAIL over the cost of gas supplied by RIL to GAIL from the Panna Mukta Tapti fields.

Earlier, RIL had stated Bharucha offered legal opinion to the company, suggesting financial ties between the two entities.

In a widely reported statement in 2005, RIL's independent director, Y P Trivedi, had said the company had sought and received the legal opinion of former judges Bharucha and M L Pendse on the legality of its investments in Reliance Infocomm. Bharucha's opinion, Trivedi said, was the investments were in line with corporate governance norms. In 2004, RIL had also nominated Bharucha as an arbitrator for Reliance Infocomm's dispute with state-owned BSNL.

"Having decided cases of Reliance in their favour, it was not proper of Bharucha to accept the post of arbitrator for Reliance," said Supreme Court advocate Prashant Bhushan, who was also involved in the Panna Mukta case in 2000. Bhusan is also legal advisor to the Aam Admi Party, which has been publicly critical of the contracts awarded to RIL.

"By giving paid opinion to Reliance and being an arbitrator for the company, he has placed himself in a position where his impartiality vis-à-vis Reliance is open to question," Bhushan added.

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