Why is Modi govt demanding Rs 24,500 crore from India’s richest man, Mukesh Ambani?

Mukesh Ambani-led Reliance Industries Ltd. (RIL) and its partners have been served a staggering $2.81 billion (approximately Rs 24,500 crore) demand notice by the Ministry of Petroleum and Natural Gas. The notice follows a recent ruling by a division bench of the Delhi High Court, which overturned an earlier arbitration award in a long-standing dispute over natural gas migration from Oil and Natural Gas Corporation’s (ONGC) blocks to RIL’s KG-D6 field in the Krishna Godavari basin.

The gas migration dispute

The conflict dates back to 2013, when ONGC suspected that gas from its KG-DWN-98/2 (KG-D5) and G-4 blocks had seeped into Reliance's adjacent KG-D6 field. The state-owned firm claimed that at least four wells drilled by Reliance near the border with KG-D5 had allegedly extracted its resources. In May 2013, ONGC filed a writ in the Delhi High Court, demanding compensation for the alleged loss. A year later, the court directed the government to investigate after reviewing a report by an independent panel set up by both ONGC and RIL.

In 2016, based on these findings, the government sought $1.55 billion in compensation from Reliance and its partners—BP Exploration and NIKO (NECO) Limited—for the gas that had migrated into KG-D6 from adjoining ONGC fields in the Bay of Bengal. However, Reliance challenged the claim before an arbitral tribunal. In July 2018, the tribunal ruled in its favour, concluding that it was not liable for any payments.

Government challenges arbitration ruling

The government contested the arbitration ruling in the Delhi High Court, arguing that it "strikes at the heart of the public policy and has given a premium to a contractor (Reliance) that has amassed vast wealth by committing an insidious fraud as well as criminal offence.” In May 2023, a single-judge bench upheld the arbitration award, rejecting the government’s appeal.

Unwilling to back down, the central government took the matter to a division bench of the Delhi High Court, which ruled in its favour, setting aside the previous judgment that had dismissed the compensation claim. This paved the way for the latest demand notice of $2.81 billion issued to Reliance and its partners.

Reliance rejects the demand

On March 3, RIL disclosed in an exchange filing that it had received the notice. The company, however, dismissed the demand as legally unsustainable, stating: “The Company is legally advised that the Division Bench judgment and this provisional demand are unsustainable. The Company is taking steps to challenge the judgment of the Division Bench of the Hon’ble Delhi High Court. The Company does not expect any liability on this account.”

As news of the government’s action spread, RIL’s stock showed signs of pressure, trading flat at Rs 1,172 per share at 11:00 am on Tuesday.

Breakdown of the government’s demand

The Ministry of Petroleum and Natural Gas has sought disgorgement for 338.332 million British thermal units of gas allegedly extracted by Reliance and its partners from ONGC’s blocks over seven years, ending March 31, 2016. The government has demanded:

• $1.47 billion for the gas Reliance and its partners allegedly extracted from ONGC’s reserves
• An additional $174.9 million in profit petroleum due to disallowed costs after KG-D6’s output fell below target
• After deducting $71.71 million in royalty paid and adding interest calculated at LIBOR plus 2 per cent (totalling $149.86 million), the final demand reaches $2.81 billion

Ownership changes in KG-D6

Initially, Reliance held a 60 per cent stake in the KG-D6 block, with BP owning 30 per cent and Canada’s Niko Resources holding 10 per cent. However, BP and Reliance later acquired Niko’s share, adjusting their stakes to 66.66 per cent and 33.33 per cent, respectively.

(With inputs from PTI)