Private Commercial Contracts and Public Accountability

A crucial arbitration award has been set aside by the Delhi High Court based on the finding that private entities carrying out state functions through commercial contracts must serve the public interest. In Union of India v Reliance Industries Ltd. and Ors, an arbitral award was set aside on the basis that private corporations entrusted with sovereign functions cannot avoid constitutional accountability, notwithstanding the commercial character of the contract.

The Union of India (“UoI”), Reliance Industries Limited, and Niko Limited entered into a production-sharing contract (PSC) in 2000 for gas extraction off the Andhra Pradesh coast. In 2003, Reliance received a report from one of its contractors, indicating a reservoir connectivity between its block and an adjoining ONGC block. Reliance failed to inform the UoI of this. A decade later, ONGC accused Reliance of unjust enrichment via the extraction of migrated gas. Though Reliance denied any such linkage, an independent study by the same contractor confirmed the likelihood of the connectivity. When the UoI demanded Reliance disgorge its profits from the migrated gas, Reliance invoked arbitration.