KG-D6 Case: Oil Ministry Says it Challenged McHugh's Decision to Return

New Delhi: Former Australian judge Michael McHugh had to quit as chairman of an arbitral tribunal in the Reliance Industries' KG-D6 cost recovery dispute as the Oil Ministry challenged his decision to return after he initially withdrew from the post.

Oil Ministry in a Facebook post confirmed that Mr McHugh has "communicated his decision that he would cease to act as the Chairman of the Arbitral Tribunal".

The Supreme Court had on April 29 named Michael Hudson McHugh, former judge of the High Court of Australia, as the third arbitrator in the dispute over cost recovery in KG-D6 gas block.

Mr McHugh, however, on May 20, withdrew as the chairman of the tribunal to which RIL had named former Chief Justice of Supreme Court S P Bharucha as its arbitrator and government appointed former Chief Justice of the apex court and V N Khare its counsel. Mr McHugh had said he was not contacted before the appointment was made.

He, however, had a change of heart after counsels of the partners in KG-D6 block reportedly wrote to him.

The ministry, however, felt that an arbitrator appointed by the Supreme Court cannot re-appoint himself once he withdrew.

"This (the final withdrawal from the case) is in response to the Government's stand that he ceases to be the Chairman of the tribunal once he has declined to act as the Presiding Arbitrator," the ministry said in the Facebook post.

The ministry said Mr McHugh had initially "expressed his inability to continue as the Chairman of the tribunal in view of his prior engagements".

"However, later he had reconsidered his decision and had decided to continue as the Presiding Arbitrator, which was challenged by the Government under the provisions of Arbitration and Reconciliation Act 1996."

Had Mr McHugh not quit, the ministry would have approached the Supreme Court seeking appointment of another person in his place.

In November 2011, RIL had started arbitration proceedings against the government, seeking a decision on its entitlement to recover investments made in the KG-D6 gas field from sales.

The government had disallowed as much as $1.005 billion of its investment as KG-D6 output lagged targets. Production from main fields in the block was way short of 80 million standard cubic metres per day target. The cost disallowed was raised to $2.376 billion for output lagging targets in four years ending March 31, 2014.

RIL and its partners say the action is not as per the production sharing contract (PSC) and they are entitled to recover all costs of the block in the Bay of Bengal.