Gujarat State Petroleum Corporation ... vs Oilex Limited on 1 November, 2018

[Cites 33, Cited by 0]

Gujarat High Court

Gujarat State Petroleum Corporation ... vs Oilex Limited on 1 November, 2018

Bench: R.M.Chhaya

        C/IAAP/130/2018                                             ORDER



           IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

      R/PETN. UNDER ARBITRATION ACT NO. 130 of 2018
                           With
              CIVIL APPLICATION NO. 1 of 2018
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       GUJARAT STATE PETROLEUM CORPORATION LIMITED
                          Versus
                      OILEX LIMITED
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Appearance:
MR ASPI M KAPADIA(1865) for the PETITIONER(s) No. 1
GUPTA LAW ASSOCIATES(9818) for the RESPONDENT(s) No. 1,2
MAHIM J SHARMA(9337) for the RESPONDENT(s) No. 1,2
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 CORAM: HONOURABLE MR.JUSTICE R.M.CHHAYA

                             Date : 01/11/2018

                                  ORAL ORDER

1. The applicant has filed this application under section 9 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the "Act" for the sake of brevity).

2. The applicant and one Niko Resources entered into a Production Sharing Contract with Government of India in respect of Cambay Field on 23.09.1994. As the record indicates, the respondents entered into a Joint Operating Agreement with the applicant on 05.11.2008 defining their participating interests in the Cambay Field for Production Sharing Contract.

3. The present application arises on account of a default notice dated 29.05.2018 and communication dated 29.07.2018, whereby the Page 1 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER respondents informed Directorate General of Hydrocarbons and Ministry of Petroleum and Natural Gas seeking their guidance on process for withdrawal and transfer of participating interest of the applicant. It is basically the say of the applicant that as per Article 18 of the agreement dated 05.11.2008 between the applicant and the respondents, the dispute is to be resolved through arbitration and it is the say of the applicant in this application under section 9 of the Act that before the applicant could initiate arbitration proceedings against the respondents as per the provisions of Article 18 of the Joint Operating Agreement dated 05.11.2008, the default notice has been issued and therefore, for interim measure as provided under section 9, the present application is filed. This Court relying upon Article 18.2 of the Joint Operating Agreement issued notice to the respondents and by interim relief, the respondents were directed not to take any coercive steps against the applicant pursuant to the default notice dated 29.05.2018 and the letter dated 29.07.2018.

4. As per the averments made in the application, the applicant executed a Production Sharing Contract (hereinafter referred to as the "contract" for the sake of brevity) for Cambay Field wherein Government of India, applicant and NIKO were parties and as per the said contract, Page 2 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER the applicant held 66.67% Participating Interest while NIKO held 33.33% Participating Interest in Cambay Field. As the record unfolds, NIKI assigned Participating Interest in favour of the respondents herein and the said agreement provides that Participating Interest of applicant would be 55% whereas Participating Interest of respondent no.1 would be 30% and respondent no.2 would be 15%.

5. As mentioned hereinabove, the applicant and respondents entered into a Joint Operating Agreement (hereinafter referred to as the "agreement") for Cambay Field wherein interse rights and obligations with respect to the conduct of Petroleum Operations in the Cambay Field has been provided. Broadly speaking, respondent no.1 was designated as operator of Cambay Field and the applicant remained non operator. The applicant has relied upon various articles of the agreement such as Articles 3.3

(c), 4.1(a), 4.2(b)(i), 4.10, 5.2, 6.7, 6.7(a), 6.7(b), 8.1(a) 8.4(d), 18, 18.2, and 18.4. Relying upon the aforementioned provisions of the agreement, the applicant has contended that as per the agreement, the applicant is obliged to pay any amount claimedby respondent no.1 in form of cash calls only if such amounts are approved by the Operating Committee as part of the work program and budget for each year and additionally as a part of the AFE for specific Page 3 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER activities.

6. The applicant has also contended that right from December 2012 onwards, various meetings have been held between the applicant and the respondents on basis of the contract as well as agreement and correspondences have been exchanged and has alleged that there was dismal performance of respondent no.1 in operating the Cambay Field. It is also averred that a further agreement was entered into on 13.10.2016 for operating Well C78, however, respondents never carried out any operation in furtherance of the agreement between the parties. The applicant has also relied upon the Work Program and Budget approvals for the year 2017 as well as 20182019. It is the say of the applicant that inspite of such correspondences between the parties, the respondent no.1 continued to raise cash calls comprising of amounts in excess of the budgets approved by the Operating Committee and the applicant therefore withheld such payments. The applicant has also referred to letter addressed by respondent no.1 to Hon'ble Chief Minister of Gujarat to contend that in the said letter, the respondent no.1 has admitted that substantial amounts towards Work Program and budget were not approved by the Operating Committee. It is contended by the applicant that meanwhile, respondent no.1 issued a default notice purported to have been issued as provided Page 4 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER under Article 8.1 of the agreement and has claimed USD 3,054,832 which according to the applicant comes to approximately Rs.20 crores. The applicant has replied to the said default notice by its communication dated 13.07.2018 and has taken same contention which are taken in the present application. The record indicates that the said reply was again reiterated in form of communication dated 19.07.2018 by the respondent no.1 and it is the say of the applicant that no details were provided by the respondent no.1, however, respondent no.1 agreed to hold reconciliation meeting with the applicant.

7. The applicant has also further relied upon email correspondences dated 23.07.2018 requesting for holding reconciliation meeting without prejudice and also a further communication dated 25.07.2018 informing about the contradiction in the amounts mentioned in the default notice as well as the letter addressed to the Hon'ble Chief Minister of Gujarat dated 31.01.2018. The applicant has also stated that the applicant on its own undertook reconciliation calculation and paid an amount of Rs.1,17,91,306/ which was found to be payable according to the applicant on 25.07.2018. The applicant has also contended that the same has been adjusted against cash calls number 110, 111 and 112 even though the time to pay such cash call was not over. It is the say of the applicant that before the Page 5 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER applicant could resort to arbitration proceedings as provided under Article 18, a communication dated 29.07.2018 was addressed by the respondent no.1 for withdrawal of the contract as well as transfer of Participating Interest of the applicant to nondefaulting parties. The applicant also stated that respondents no.1 and 2 have by separate communication dated 29.07.2018 have informed the Directorate General of Hydrocarbons and Ministry of Petroleum and Natural Gas intimating of the option as aforesaid exercised by them as non defaulting parties and requesting the Directorate General of Hydrocarbons and concerned department to advise the procedure to be followed and such announcement is given by respondent no.1 in Australian Stock Exchange also.

8. In light of the aforesaid, it is therefore contended by the applicant that the applicant is required to make payment of cash call raised by respondent no.1 only when the cash call are within the approved Work Program and Budget and AFE. It is also contended that nonpayment of cash calls are on account of the same being in excess of the approved Work Program & AFE and the same does not constitute any default under the provisions of the agreement and as there is no default, there was no occasion to issue any default notice. It is also contended by the Page 6 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER applicant that the payment sought for by way of default notice has never become due and payable. Referring to Article 8.1(a) of the agreement, it is contended by the applicant that the same would apply only if a party fails to pay its Participating Interest share of the Joint Account expenses when it falls due and it is also further contended by the applicant that the applicant is obliged to pay cash calls with respect to Joint Account expenses which has been legitimately incurred by the operator within the approved Work Program and Budget and AFE. Referring to Article 6.6(a) of the agreement, it is contended by the applicant that as per the said article, no commitment or expenditure of Joint Account may be incurred unless it is contained in an approved Work Program and Budget and if any amount is debited, the same would be in contravention to the provisions of the agreement. Referring to the provisions of Article 8.1(a) of the agreement, it is also contended that the monetary claims made by the respondent no.1 in the default notice dated 29.05.2018 relate back to the year 20112012 and onwards, whereas said article provides that it should be given as and when due. It is therefore contended that such notice is given after 7 years without any good cause and therefore, it is alleged that the said action completely lacks good faith. It is also contended by the applicant that the default Page 7 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER notice is bad as no such amount is due and payable to the respondent no.1 for the agreement and it is also alleged that the default notice is issued with oblique motive to forfeit the Participating Interest of the applicant and then to simply transfer entire 100% Participating Interest in Cambay Field to third parties from whom respondent no.1 claims to have received informal expressions. It is also alleged that default notice is highly vague and does not give particulars of the amounts claimed and that the respondent no.1 has failed to provide any details of its claim and even though a reconciliatory meeting was suggested by the applicant, the same is not positively responded by the respondent no.1. On the aforesaid grounds, it is alleged by the applicant that the motives of respondent no.1 are not honest and its actions, lack good faith and is intended to adversely prejudice the applicant by having applicant's participating interest transferred to respondents.

9. Referring to the provisions of the agreement regarding complete withdrawal and transfer of entire participating interest irrespective of quantum of any alleged default, it is contended that such default is a provision in terrorem and in the nature of an unconscionable penalty. The applicant has also contended that the applicant has invested approximately USD 72 million, which Page 8 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER comes to Rs.480 crores as per the exchange rate on the date of filing of this application in Cambay Field as contribution towards its share of 55% participating interest and for a meager amount of alleged default of USD 3.05 million, which approximately comes to Rs.22 crores, such provision is in terrorem and in the nature of unconscionable penalty affording disproportionate remedy and therefore, it is contended that such a provision is bad in Indian law and it is also therefore contended that same must be read down to restrict remedies which are commensurate to the quantum of default even if it is assumed without admitting that there is a default. It is therefore contended by the applicant that respondents are already in process of taking further coercive actions in furtherance to illegal and invalid default notice which shall seriously prejudice the interest of the applicant. The applicant has also contended that the applicant is in process of invoking arbitration proceedings and it is therefore necessary for the applicant to obtain necessary interim measures to protect its interest so that the arbitration proceedings do not become infructuous. It is also contended that the applicant has made out a prima case and balance of convenience is also in favour of the applicant and if the interim measure is not granted, the applicant is likely to suffer irreparable loss and injury and the respondents Page 9 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER would be able to illegally transfer the applicant's participating interest. On the aforesaid, it is therefore prayed that the application be allowed as prayed for in para 7.

10. In response to the order dated 09.08.2018, the respondents no.1 and 2 have filed its reply. The respondents have contended that the present petition is filed by the applicant as a further attempt to delay the payment due and payable to the respondents. It is alleged by the respondents that the applicant has misrepresented the facts and the applicant has taken advantage of a situation of operational standstill that was brought out by the actions and manipulations of the applicant. It is contended by the respondents that the applicant has misled and misinterpreted material facts before this Court. Referring to the provisions of Article 8.1, Article 8.3(d) and Article 8.4, it is contended by the respondents that the applicant has completely failed to even attempt to cure its default within 30 days and inspite of that, after a period of 45 days from the receiving date of default notice dated 29.05.2018, a rejection letter was sent by the applicant on false and frivolous grounds. It is also contended that as provided in Article 8.1 of the agreement, nondefaulting party is not supposed to give any breakup of the amount claimed but were supposed to give default notice Page 10 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER upon nonpayment of recoverable amount. It is also contended that default notice contains amounts that have been admitted to be payable by the applicant at various instances and vide various letters and thus, it is alleged by the respondents that the applicant has breached the terms and conditions of the agreement and have moved this Court to protect its various breaches. It is also contended by the respondents that the applicant has failed to pay its participating interest which has been approved by it and has been admitted to be due and payable. It is reiterated that as per the provisions of Article 8.1 of the agreement, there is no need to go into the issue pertaining to the details of the amount claimed in the default notice as long as there is acknowledgment of even a part of the debt claimed to be due and payable. It is also contended by the respondents that by a communication dated 31.01.2018, a request was made to the Hon'ble Chief Minister of Gujarat to intervene in the issue of nonpayment by the applicant so that development of Cambay Field can be continued as per the schedule. (it is erroneously mentioned in para 2 of the affidavit at page 286 that "It is pertinent to note that applicant vide letter dated 31.01.2018". The letter is addressed by respondent no.1.). It is also contended that though the same letter was sent by the respondent no.1 to the applicant in Page 11 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER the month of March, 2018, the applicant has intentionally misrepresented the fact before this Court.

11. It is further alleged by the respondents that the applicant has suppressed and concealed material facts before this Court. It is contended by the respondents that it is totally contrary to the correct facts that the Work Program and Budget were not approved. The respondents have contended that respondents submitted audit report for such financial year to the applicant and queries were raised by the audit team of the applicant and the queries raised by the audit team of the applicant have been duly responded by the respondents but till date the applicant has not adopted the same and it is alleged that thus, has violated Article 6 of the accounting procedure, which is part of agreement as Schedule 1. It is also alleged by the respondents that even though requested by the respondents, the applicant has not approved the audited amount for the aforesaid financial year, which is due and payable by the applicant to the respondents and without assigning any reasons, the applicant has not bothered to comply with the provisions of the agreement and has failed to adopt the amount claimed for such financial years, which according to the respondents is legally recordable in terms of the agreement. It is also alleged that Page 12 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER applicant has suppressed material fact that it has invoked its right to conduct independent audit for the financial year 201415, 201516, however, even after several requests and reminders have been given by the respondents, the applicant has failed to reply or conduct the audit and thereby has totally ignored to pay the cash calls which are due and payable as per the terms of the agreement. It was therefore contended that applicant is intentionally trying to mislead this Court by playing fraud of suppression of material facts. Referring to the letter dated 14.08.2015, it is alleged by the respondents that the applicant has intentionally not annexed its reply dated 18.08.2015. It is also alleged that the applicant has repeatedly taken a false and frivolous plea that due to excess costs incurred by the respondent no.1, it has stopped payment of cash calls. It is further stated by the respondents that audit process for approving the cash calls is still not conducted by the applicant even though request was made to update the audit report. It is also alleged that the applicant has also suppressed the fact contrary to its claim that it has received cash calls number 111 and the respondents have further relied upon the email dated 19.06.2018 to show that the cash call number 111 was sent to the applicant. The respondents have further contended that the applicant has invoked its right to conduct audit Page 13 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER report for the financial year 201112, 201213 and 201314 and has conducted the audit and submitted the same. It is also alleged that there is breach of terms of accounting procedure and that the applicant has failed to adopt the account of the respondent inspite of lapse of long time, even though several request letters were sent by the respondents and thus, it is alleged by the respondents that there is a breach of terms of the agreement. It is also contended by the respondents that such facts have been concealed by the applicant and therefore, the applicant is not entitled to get any relief from this Court. It is also further alleged by the respondents that concealment of material facts is not an advocacy but is a jugglery, manipulation, maneuvering or misrepresentation, which has no place in equitable and prerogative jurisdiction and the same amounts to abuse of process and in such cases, the Court refuses to proceed further with the examination of the case on merits. It is therefore contended that respondents have thus established that they have issued the default notice, as all other options for obtaining funds towards operation in Cambay Field were being blocked by the applicant and the same is adopted as a last resort.

12. The respondents have contended that the default amount claimed in default notice has been Page 14 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER approved by the applicant and have referred to the letter sent by respondent no.1 in March 2018, the communication dated 06.08.2018 addressed by the applicant. The respondents have also further contended that the quantum of investment made by the respondents would be a germane consideration while considering whether or not to grant an injunction against the default notice as well as notice for withdrawal. It is contended that prima facie, the default notice cannot be said to be illegal at this stage. It is further contended that the level of investment has to be viewed in context of the transaction to which it pertains and the applicant has failed to release the approved cash calls and also failed to conduct audit if the cash calls is in defect. It is contended by the respondents that the respondents have invested huge amount of money in the said projects and if the injunction is granted, it will suffer irreparable loss and damage. It is further alleged that the applicant has defaulted and breached the terms of the agreement and has filed the instant application on the basis of false and frivolous grounds. Again referring to the terms of the agreement, it is contended that it is stipulated in the agreement that the default notice calling upon the claim either it is admitted nor the defaulting party has completely cured the defects. It was contended that the applicant has not cured the complete Page 15 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER defects and the instant application is filed which is not maintainable in law as well as facts. It is reiterated that applicant is delaying, in making payment of the cash calls by adopting delay tactics, but the true facts is that the amount claimed in the default notice is valid and legally payable in terms of the agreement and therefore the letter of withdrawal dated 29.07.2018 is valid in terms of the agreement.

13. It is also contended by the respondents that the instant application is not maintainable and the same is an abuse of process of law since respondent no.1 had issued default notice dated 29.05.2018 and letter dated 29.07.2018 is issued as per the terms and conditions of the agreement dated 05.11.2008 and has reiterated that as per Article 8.1(a) and (b), Article 8.4(d) and Article 8.6 of the agreement, the same cannot be specifically enforced by virtue of the provisions given under the Specific Relief Act and consequently, no injunction can be granted to prevent its breach. Again referring to the said Articles, it is contended by the respondents that the agreement has determined the rights of the parties and the respondents have acted accordingly after granting time, above and beyond that is stipulated in the agreement and the applicant has failed to cure the said defects. Referring to Article 8.6 of Page 16 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER the agreement and section 14(d) of the Specific Relief Act, 1963, it is contended by the respondents that no injunction can be granted to prevent its breach. It is also contended that the Hon'ble Courts have repeatedly held that if a contract is determinable, the same cannot be specifically enforced by virtue of the provisions given under the Specific Relief Act and therefore, no injunction can be granted to prevent its breach. It is also contended that the present application is not maintainable for nonjoinder of party as Union of India is not joined as party and therefore the present application suffers from the vice of non impleadment of necessary party and therefore, it is contended that the present application is not maintainable as provided under Order 1 Rule 10 of the Code of Civil Procedure.

14. The respondents have also further given parawise remarks to the application and has infact reiterated the contentions which are raised and has dealt with the facts and evidence from the year 2011 onwards and even the facts after the order was passed and also as mentioned above, the action taken by the respondents and has contended that the applicant has clearly in default of the Articles of the agreement. It is also contended that the audit provision has been invoked by the applicant for the year 20142015, 20152016. It is also further contended that all Page 17 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER expenses were within the approved budget and AFE for the financial year 20162017, 20172018, still however, the respondents have failed to pay the same and it is alleged that the respondents have mislead this Court and has obtained ex parte order on frivolous grounds. It is also contended that the material facts have been concealed. The respondents have also referred to the relevant Articles of the agreement as well as the accounting system and has contended that the application filed under section 9 of the Act is false and misconceived and deserves to be dismissed with exemplary cost.

15. The respondents have further relied upon letter dated 31.01.2018 addressed by respondent no.1 to the Hon'ble Chief Minister of Gujarat and similar letter written in March 2018 to the Chief Secretary & Chairman & Managing Director of the applicant Company, the letter addressed by the applicant dated 31.03.2015, the audit report dated 14.10.2015, communications dated 02.05.2016, 17.11.2015, approval of audited account for the financial year 20112012 dated 17.11.2015, email dated 18.01.2017, Cambay Field Audit replies for financial year 20122013 and 20132014, communications dated 31.03.2017, 30.06.2017, email letters dated 08.11.2017, 09.12.2017, email along with its attachment dated 19.06.2018, letter of the respondent to Page 18 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER applicant for payment of pending cash calls dated 01.02.2013, letter dated 06.08.2018, publication in newspaper, letter dated 18.11.2015, letter dated 18.08.2015.

16. The applicant has filed its rejoinder and has denied the contention raised by the respondents in the affidavitinreply and has also relied upon the email dated 17.09.2018 and communication addressed to respondent no.1 by applicant dated 15.09.2018 and letter by the respondent no.1 dated 28.08.2018.

17. Heard Mr. Mihir J. Thakore, learned senior advocate assisted by Mr. Aspi Kapadia, learned advocate for the applicant, Mr. Mihir Joshi, learned senior advocate assisted by Mr. Mahim J. Sharma, learned advocate for Gupta Law Associates for the respondents.

18. Mr. Mihir Thakore, learned senior advocate appearing for the applicant has taken this Court through the facts relating to the contract as well as the agreement and the circumstances under which the Cambay Field was explored by ONGC which resulted into discovery of hydrocarbons and has referred to the basic facts leading to the execution of the contract and execution of the agreement. Referring to Article 5.6(a) of the contract, it was submitted by Mr. Thakore that in fact work program and budgets relating to the development operations Page 19 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER and production operations are required to be approved unanimously as provided under Article 5.13 of the contract by the managing committee. Further, referring to the definition given in the agreement at 1.1, Mr. Thakore has relied upon the definition of accounting principles, AFE, discovery, joint account, joint operations, sole risk operation in particular. Mr. Thakore has also emphasised on Article 3.3(a), 3.3(b) and 3.3(c) of the agreement. Relying upon the definition of joint accounts and joint operations, Mr. Thakore submitted that cash advance or cash calls relate to the items which are part of the approved budget. Mr. Thakore also contended that as provided under Article 4(2) of the agreement and more particularly Article 4(2)(b)(i) and (iv), the operator, i.e., the respondent no.1 is required to carry out joint operations in accordance with the instructions of the operating committee and perform his duties under the directions and supervision of the operating committee. Mr. Thakore also further referred to Article 5.2 of the agreement and submitted that operating committee is constituted, which is a three member committee, one being representative of the applicant and two of the operators. Referring to voting procedure as provided under the agreement Article 5.10, Mr. Thakore submitted that the decisions of operating committee shall be taken by majority of 66% Page 20 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER participating interest with atleast two parties voting in favour. It was further submitted that as provided under Article 5.14 of the agreement, all decisions taken by operating committee shall be conclusive and binding on all the parties. Mr. Thakore further referred to Article 6 of the agreement in extenso and contended that the agreement clearly provides for the work program and budget, development, production, itemwise, etc. Mr. Thakore also referred to authorisation for expenditure (AFE) procedure as provided under Article 6.6 of the agreement. It was contended that no commitment or expenditure for the joint account can be incurred unless such commitment or expenditure is approved by operating committee as part of work program and budget. It was further contended that any expenses made over and above that is subject to the limitation as provided under Article 6.7 of the agreement. Referring to Article 6.6(b) of the agreement, it was contended on behalf of the applicant that as provided thereunder, capital expenditure valuing more than USD 100,000 an additional approval of operating committee is required in the form of authorisation for expenditure. Referring to Article 6.7 of the agreement, Mr. Thakore contended that it is an exception, which is provided under the agreement and it is a vital provision wherein the respondent no.1 as an operator can spend morein excess of approved work program and budget only Page 21 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER to the extent of 10% of amounts approved for each activity (line item) but not exceeding 5% of the overall annual (for all activities/line items) approved by the operating committee. Referring to subclause (b) of Article 6.7, it was contended on behalf of the applicant that in case if the expenditure is to exceed the limits as provided under Article 6.7(a), the operator is required to submit the amendment of the work program and budget containing proposal for such overexpenditure and to place before operating committee for its approval. Based upon the aforesaid two Articles, it was contended by Mr. Thakore that unless and until such expenditure are approved, the same cannot form part of joint account costs.

19. Thereafter, Mr. Thakore referred to and relied upon Article 8, which provides for remedy of default and consequences of default. According to Mr. Thakore, Article 8.1 can be resorted to by any party when there is failure on the part of any party to "pay when due" its participating interest share of joint account expenses including cash calls and interest and the same has to be resorted to by promptly giving notice to the defaulting party. It was further contended that such nonpayment can be considered to be default only and only if the same pertains to approved work program and budget and it was reiterated that any over Page 22 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER expenditure which is not approved as provided under Article 6.7(b) cannot form part of joint account expenses and it cannot be considered to be due as provided under Article 8.1. Mr. Thakore also contended that Article 8.3(d) permits a defaulting party to remedy its default any time prior to the transfer of its participating interest and as provided under Article 8.4(d), if the said default is not remedied within 60 days from the default notice, the nondefaulting party shall have option to require the defaulting party to completely withdraw and forfeit entire participating interest of the defaulting party under the agreement and contract. Referring to the facts of the default notice and the amount involved, Mr. Thakore contended that provision of Article 8.4(d) is thus ex facie penal in nature as default notice speaks of an amount of approximately Rs.22 crores whereas participating interest is to the tune of 55% for investment to the tune of Rs.480 crores of the applicant. Referring to Articles 7.2 , 7.3 , 7.4 , 7.5 and 7.12 of the agreement, it was contended on behalf of the applicant that under the said Articles, the agreement provides for even sole risk operation with the responsibility and consequences as provided under Article 7.3 and 7.4 of the agreement. It was submitted on behalf of the applicant that by a communication dated 14.08.2015, the applicant raised certain Page 23 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER issues regarding payment of cash calls for financial year 20152016 and indicated to the respondent no.1 that it has exceeded the approved budget substantially and has also not obtained necessary approvals from the applicant as well as Government of India and informed the respondent no.1 that such expenses are beyond the allowed deviation under Article 6.7 and the same must be placed before the operating committee. It was also indicated in the said letter that such excesses are related to flow back operation C77 and fracture stimulation and cleanup C77. Mr. Thakore further referred to the reply given to the said communication by the respondent no.1 dated 18.08.2015 and contended that the respondent no.1 has requested to stick to the already approved work program and budget for the financial year 20152016 and pay the outstanding cash calls and to ensure timely payment of future cash calls so that the agreed and approved work program and budget for the financial year 20152016 could be completed on time. Mr. Thakore also further emphasized that in the said communication, the respondent no.1 has also further requested to approve budget revision 1/audited account for financial year 20142015 so that the same could be submitted to Director General of Hydrocarbons for their consideration. Mr. Thakore submitted that the difference between the parties started from the said communication and that is why the default Page 24 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER notice is issued.

20. Mr. Thakore drew attention of this Court to the communication addressed by respondent no.1 to Hon'ble Chief Minister of Gujarat by a letter dated 31.01.2018 wherein the respondent no.1 has stated that Rs.8.25 crores is approved by the applicant and out of total alleged dues of Rs.38.50 crores, Rs.30.25 crores relate to pending approval. A smilar letter was written by respondent no.1 to the Chief Secretary and Chairman & Managing Director of the applicant Company. Mr. Thakore also drew attention to the communication addressed by respondents dated 23.04.2018 by applicant which relates to revised work program and budget of 20182019 for Cambay and Bandut Fields. It was contended that by the said communication it is reiterated by the applicant that the applicant has highlighted the dismal performance of respondent no.1 as operator. Mr. Thakore therefore contended that same is the starting point of dispute between the parties. Mr. Thakore also referred to default notice dated 29.05.2018 and response given by the applicant dated 13.07.2018. It was contended that by the said reply, the applicant has clearly taken a stand that the default notice is not valid default notice and no break up of the amount claimed in the default notice is provided and that the said notice fails to disclose the details of cash calls raised by Page 25 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER respondent no.1 under approved work program and budget and approved AFEs. It was also contended in the said reply by the applicant that the amounts claimed by the respondents in the default notice represent amount being in excess of budget approved by operating committee as part of Work Program and budget for each year and therefore, it was further contended in the said reply that the amount expended by the respondent is not approved by the operating committee and the same does not qualify as joint account costs and thus, cash calls made are not valid cash calls, as they could not have been charged to joint account. The learned counsel for the applicant also referred to the reply given by the applicant dated 19.07.2018 to the rejection letter dated 13.07.2018. Mr. Thakore also further referred to the letter written by the applicant dated 25.07.2018 to respondents and reiterated that default notice was not valid default notice and that on internal reconciliation by the applicant, an amount of Rs.1,17,91,306/ is already released in favour of respondent no.1. Referring to further communication dated 01.02.2015, 10.11.2015 and 18.08.2015, it was contended by Mr. Thakore that the demand raised is without any justification and the claim is highly questionable and unless and until it is approved, the same does not become payable and does not constitute a valid cash call. Mr. Thakore further submitted that Page 26 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER respondent no.1 by further communication dated 27.04.2016, 02.05.2016 and 03.06.2016 made same allegations, however the fact remains that AFE was not approved and hence, it was contended that the same is not payable as it is over expended by respondent no.1 as operator. Again referring to letter written by respondent no.1 to the Hon'ble Chief Minister of Gujarat dated 31.01.2018, it was contended that the approval pending cannot be called as cash calls. It was contended that as provided in the agreement, default notice can be issued only for the amounts due and payable. It was also contended that there is contradiction in the letter written to the Hon'ble Chief Minister and the default notice and hence, prima facie, the default notice is faulty. Mr. Thakore further referring to Article 8.4 of the Agreement contended that the said provision will come into play only if default notice is valid notice and in respect of valid claim. It was also contended that object of issuing default notice is to make the applicant agree to work program, which is not being agreed. Mr. Thakore also referred to the letter dated 06.08.2018 addressed by the applicant to the Director General of Hydrocarbons as well as to the respondents. Mr. Thakore submitted that prima facie, the default notice is questionable and today, as on record, it is not fully sustainable and therefore trigger point of 29.05.2018 will Page 27 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER not result into consequential withdrawal. It was further submitted that even without prejudice and assuming that there is a default and there is a valid notice, even though the provision in the contract itself, whereby 55% of the participating interest can be withdrawn is a penal provision and consequently, cannot be enforced. It was contended that the provisions in Article 8.4(d), which provides for withdrawal of participating interest and provisions of Article 8.6 are either penal and damages which are not reasonable and proportionate damages. It was submitted by Mr. Thakore that for alleged outstanding of Rs.22 crores cash call, the participating interest to the extent of 55% with an investment of Rs.480 crores cannot be taken away. It was contended that the respondents have to establish non payment of Rs.22 crores and unless and until it is established, the Tribunal will have to then assess the damage which should be reasonable for nonpayment of the said amount. Relying upon the judgment of the Supreme Court in the case of Kailashnath Associates vs. Delhi Development Authority & Anr. (2015) 4 SCC 136, it was contended that as provided under sections 73 and 74 of the Indian Contract Act, the respondents shall have to prove the same and such provision is therefore completely unreasonable and in executable and therefore, prima facie the applicant has good case of interim relief for Page 28 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER stay of notice default. Mr. Thakore further submitted that if the stay as prayed for is not granted, the applicant is likely to suffer irreparable loss and the respondents would be taking individual decision which may also affect the development of the field. It was submitted by Mr. Thakore that if ultimately the applicant succeeds before the arbitral tribunal or arbitration, all decisions taken meanwhile by the respondents will be thrust upon the applicant. It was also contended by Mr. Thakore that no indemnity will work and the same would not be fulfilable. It was also submitted that a lien would be created over the field. It was also further submitted that outstanding can be finalised by a third party in joint audit. Mr. Thakore further submitted that the applicant did not object to the sole risk operation by the respondents.

21. Mr. Thakore again referring to the facts arising in the application submitted that the applicant has a good prima facie case. As such, the default notice was required to be issued promptly, however, the default notice is issued on 29.05.2018 in relation to the claims date back to 201112. Mr. Thakore submitted that the default notice is defective and makes only bald and unsustainable claims without any details. It was contended that it is not even clarified in the default notice that the said amount is Page 29 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER due and payable or are joint account expenses as mandatorily required by Article 8.1(a) of the agreement. Referring to minutes of the meeting dated 11.01.2013 and more particularly item no.6, it was contended by Mr. Thakore that time and again the applicant has contended before the respondents that it has been incurring expenses in excess of approved work program and AFEs and that the applicant needs to be satisfied before any payment is released. Mr. Thakore again referring to letter dated 14.08.2015 addressed by applicant to respondent no.1 contended that by the said communication, the applicant has already informed the respondents that the amount was not paid because the amount expended are in excess of the approved work program and AFE and therefore, it was contended that the applicant cannot adopt accounts of any year that contains such unapproved excess expenditure. Mr. Thakore also referred to the letter dated 04.11.2015, which is on the same line. Mr. Thakore also referred to letter dated 07.12.2015 and contended that the applicant has informed the respondent no.1 that heavy losses have been incurred by the applicant owing to operator's dismal performance in operating the Cambay field. Mr. Thakore further contended that by further letter dated 21.12.2016, the applicant made it clear that no additional expenses other than those approved as part of budget shall be entertained by the applicant. It was further Page 30 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER contended by Mr. Thakore that even in reply filed before this Court in this proceedings, the respondents have clearly admitted that the expenditure exceeded the budget for 20132014. Similarly, even by letter dated 18.08.2015, it is clear that the expenditure exceeded the budget for 20142015. Relying upon the letter dated 18.11.2015, it was contended that the applicant has paid most of the cash calls upto 20142015 except those pertaining to RE#1 for 20142015. Mr. Thakore also further referred to the letter dated 02.05.2016 and contended that the same clearly shows that even in the year 20152016, overexpenditures were made than the approved budgets. Even further referring to letter dated 30.06.2017, Mr. Thakore contended that the respondents have acknowledged the said aspect as in the said letter, the respondents have sought regularisation of the cash calls worth USD 4.65 million, which pertains to work program and budgets not approved by operating committee. Mr. Thakore again referring to the letter addressed by respondent no.1 to the Hon'ble Chief Minister of Gujarat dated 31.01.2018, the letter addressed to the Chief Secretary, State of Gujarat in March 2018, contended that within a period of five months in 2018, clear contradiction exists in comparison th the amount mentioned in the default notice dated 29.05.2018. It was alleged by Mr. Thakore that this contradiction even remained Page 31 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER unexplained today and no explanation on how the amounts claimed in default notice are due and payable or how they pertain to joint account expenses though specific query was raised by the applicant by letter dated 13.07.2018. No explanation has been rendered by the respondents in relation to the contradiction and unsustainable demand raised in the default notice. Mr. Thakore, referring to the fact that the applicant has made payment of Rs.1.17 crores on 25.07.2018 by undertaking internal reconciliation submitted that what as was found due and payable have been already paid. It was therefore contended that prima facie, the default notice itself is defective. Mr. Thakore further contended that thus, the applicant has completely and satisfactorily proved that it has a prima facie case. It was contended that on the contrary, the respondents have interpreted the agreement in a perverse manner and it is the case of the respondents that irrespective of the fact that the expenditure made is as per the work program and budget or not, the non operators are required to pay first the amount of cash calls and then only raise the dispute under audit provisions and seek recovery from operator. It was contended that such interpretation of the provisions of the Articles 6.6(a) and 6.7(b) of the agreement would render the said provisions otiose Page 32 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER

22. It was also contended that balance of convenience is entirely in favour of the applicant and therefore, it was submitted that interim relief as prayed for be granted. It was contended by Mr. Thakore that however, the reality is that production is being drawn intermittently from 6 development/production wells already drilled in the field and the applicant has only asked the respondents to first improvise the performance of these wells before launching a new drilling campaign. Also referring to the agreement, it was contended on behalf of the applicant that respondents can carry out any operation as sole risk operations if the applicant does not agree to such operation being carried out as joint operation. Mr. Thakore reiterated that the applicant has no objection if such sole risk operations are carried out by the respondents. It was also contended that balance of convenience is in favour of the applicant more particularly in view of the provisions of Article 18.4 of the agreement which requires that parties continue to perform their obligations despite disputes being referred to arbitration and therefore, the applicant needs to be continued to be engaged in all the matters pertaining to the Cambay field.

23. It was also contended that irreparable injury would be caused to the applicant if the default notice dated 29.05.2018 and notice of withdrawal Page 33 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER dated 29.07.2018 are not stayed. It was contended that remedy of arbitration invoked by the applicant shall be rendered infructuous. Mr. Thakore reiterated that regular reconciliation has not taken place quarterly and hence, this situation has arisen inspite of repeated requests made by the applicant. It was thus submitted that application be allowed as prayed for.

24. Per contra, Mr. Mihir Joshi, learned senior advocate appearing for the respondents contended that the case of the applicant is that the amount is not due and that the demand raised by the respondents is unreasonable and it was further submitted by Mr. Joshi that essence is to show where equity lies. Mr. Joshi, learned counsel appearing for the respondents referring to the letter dated 19.07.2018 written by respondent no.1 in response to the reply of rejection letter given by the applicant contended that despite of issuing default notice, the respondents gave many invitation to enter into discussion with the representatives of the applicant and further contended that the rejection letter as such was issued after more than 45 days from the issuance of the default notice and it was contended that the contention raised by the applicant is nothing but an afterthought and to delay the remedial action. Mr. Joshi also referred to the contract dated Page 34 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER 23.09.1994 and tried to explain the scheme of working between the parties. Mr. Joshi contended that as provided under Article 9.1 and 9.2 of the contract what is essential is the development and production and it was contended that the mechanism is provided itself in the contract. Mr. Joshi also referred to the agreement dated 05.11.2008 referred to the definition of the word "discovery" given in the agreement and contended that discover of accumulation of petroleum whose existence until that moment was unproven by drilling. Mr. Joshi also referred to the definition of "Joint Account" and "Joint Operations" as well as other clauses which were referred to by Mr. Thakore from the said agreement. Mr. Joshi contended that withholding the amount jeopardises the mechanism. Mr. Joshi contended that as per the agreement, accounting procedure is set out as Schedule I. Mr. Joshi contended that as per Article 3(A) of the accounting principles, the operator has right to call for the cash requirement in advance on or before 15th day of any month and itemised estimate by budget categories of such requirements for succeeding month. It was also contended that as inter alia provided in the said Article, if a party fails to pay in full its share of any cash call by the due date as provided in the accounting principles, it shall be in default and Article 7.6 of the said agreement shall apply.

Page 35 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER

Referring to Articles 5 and 6 of the accounting principle, it was contended by Mr. Joshi that adjustment and audit is provided and even the schedule of calls is provided in the accounting principles. Mr. Joshi also referred to the communication dated 14.10.2015 addressed by the respondent no.1 to the applicant which relates to audit report for the financial year 20102011 and 20112012 and similarly, referring to the communication dated 02.05.2016, which relates to audit aspect for the financial year 20112012, 20122013 and 20132014 and submitted that the respondent no.1 has already given response to the audit objections raised by the applicant and even the further observations have been dealt with by the applicant for all the years 2011 2012, 20122013 and 20132014. It was submitted by Mr. Joshi that by communication dated 31.03.2017, the applicant has already resorted to audit as per Article 6 of the accounting procedure for the financial year 201415 and 201516 for Bhandut, Sabarmati and Cambay fields and even though reminder was given as can be seen from the marked correspondences which is forming part of the reply given by the respondents, nothing has been done. Mr. Joshi contended that as per the contract and agreement, a clear process is laid down in the agreement for payment of cash calls and the operator does not earn any profit nor incur loss on account of cash calls. It was submitted that Page 36 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER well laid procedure is provided to ensure that the operations are not stalled and obligations of the participating parties are met. It was contended by Mr. Joshi that cash call recovery is separately provided because of the nature of industry. Mr. Joshi also referring to the relevant provisions of the agreement contended that there is a clear provision that gives right to nonoperator to contest any cash call payment made by it via audit and in the event the non operator succeeds in its objection, the operator is liable to refund the cash call amount received by it. It was also submitted that work program and budget is approved in advance and the estimates are prepared for the succeeding year and therefore, it was submitted that commercially and logically, a contract cannot envisage a situation when an amount is incurred, no payments shall be made by the nonoperator as the same is objected and the same would result into nonperformance of the conditions of the contract as well as the agreement.

25. It was further contended that a commercial contract cannot be onesided or entered for raising cashcalls and make expenses and other party being given the liberty to deny/non approve the said cash call in a capital intensive operation like oil exploration. Mr. Joshi emphasised on the provisions of clause 3.3(c) of the agreement and contended that the Page 37 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER accounting principles as defined are to be adhered to while making payments. It was also submitted by Mr. Joshi that as provided in the said provision, time is the essence for payment owing under the agreement and the agreement inter alia provides that payment is to be made first with a liberty to the party to raise objections through audit thereafter. Mr. Joshi contended that such provision is provided for because of the nature of operation, i.e., oil exploration and therefore, it is provided that all amounts including cash calls are required to be paid by the applicant within the time and when due and in case of dispute of any amount, the same can be contested subsequently, irrespective of whether a party is contesting or not. It was also contended that accounting principles is part of the agreement and it inter alia provides for procedure for raising cash calls.

26. Mr. Joshi contended that the applicant has suppressed the fact of audit option having been exercised by the applicant. Referring to clause 6 of the accounting principles, it was submitted by Mr. Joshi that said option inter alia provides that a nonoperator can exercise the right of audit within 24 months following the end of financial year. It was however contended that therefore, even though the applicant has asked for audit and the same has been adhered to Page 38 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER as per the accounting principles, however the same is not disclosed by the applicant and have in fact suppressed such material fact and therefore, they are not entitled for any reliefs prayed for in this application. It was contended that even though the respondents have responded to the queries raised by the applicant for the financial year 201112, 201213, 2013 14, the applicant has not acted upon it. Relying upon the letter dated 31.03.2017 addressed by the applicant, it was contended that the applicant also resorted to the audit for the financial year 20142015 and 20152016 and even though all the queries for the financial year 20112012, 20122013, 20132014 are completed and even duly addressed by the respondents, the applicant has not responded to the same. Lastly, it was also contended that time and again and lastly on 09.12.2017, such a request was made so that the same can be referred to the Director General of Hydrocarbons, the same is not adhered to by the applicant. Mr. Joshi contended that even though the applicant as non operator has invoked the procedure, even after two years, the amount has not been paid by the applicant and therefore, the applicant has no prima facie case.

27. Mr. Joshi contended that the default occurs when payment is not made. It was contended that once having adopted audit, the same is chargeable to Page 39 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER the joint account and it was contended that the expenses which operator undertakes are chargeable to the joint account and the same comes within the definition of joint operation and joint account. Mr. Joshi also further contended that the applicant has suppressed the audit having undertaken and have sat tight and have done nothing that the contract envisages. It was further contended that the contract is to be read reasonably and one party who incurs expenses cannot be dependent on other party from whom amount is due and payable and the contract cannot be unreasonably read. Mr. Joshi contended that the demand raised relates to the amount of expenses already incurred, but not paid. It was also contended by Mr. Joshi that during the period of 60 days, as provided in the agreement, nothing was done by the applicant and now, mandatory relief has been prayed for in the present application and in facts of this case, the applicant has not crossed threshold for a prima facie case that too for a mandatory relief. It was further contended that Article 8.1 and 8.2 of the agreement as well as article 8.4(d) in particularly clearly provides for remedy when such default notice is given and when this Court passed the first order dated 09.08.2018, the same had deemed to have been come into operation. It was contended that what is prayed for by the applicant is to reverse the situation on the ground that as the Page 40 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER participating interest is likely to be transferred and therefore protection and same serves the purpose of the applicant. It was contended by Mr. Joshi that public interest would be jeopardised and the operation of the agreement would be stagnated. At this stage, Mr. Joshi contended that the respondents shall not transfer the participating interest to any third party and will indemnify the applicant in case any such occasion arises in future. It was therefore contended that no prima facie case is made out by the applicant. It was submitted that the judgment of the Apex Court in the case of Kailashnath Associates (supra), relied upon by the learned counsel for the applicant is not applicable to the present case and prayer prayed for would render the operation of the agreement impossible and the same would paralyse the contract. Mr. Joshi also further relied upon the judgment of the Apex Court in the case of Adhunik Steels Ltd. Vs. Orissa Manganese and Minerals (P) Ltd. reported in (2007) 7 SCC 125, more particularly paras 21 to 27, which reads as under "21. It is true that the intention behind Section 9 of the Act is the issuance of an order for preservation of the subject matter of an arbitration agreement. According to learned counsel for Adhunik Steels, the subject matter of the arbitration agreement in the case on hand, is the mining and lifting of ore by it from the mines leased to O.M.M. Private Limited Page 41 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER for a period of 10 years and its attempted abrupt termination by O.M.M. Private Limited and the dispute before the arbitrator would be the effect of the agreement and the right of O.M.M. Private Limited to terminate it prematurely in the circumstances of the case. So viewed, it was open to the court to pass an order by way of an interim measure of protection that the existing arrangement under the contract should be continued pending the resolution of the dispute by the arbitrator. May be, there is some force in this submission made on behalf of the Adhunik Steels. But, at the same time, whether an interim measure permitting Adhunik Steels to carry on the mining operations, an extraordinary measure in itself in the face of the attempted termination of the contract by O.M.M. Private Limited or the termination of the contract by O.M.M. Private Limited, could be granted or not, would again lead the court to a consideration of the classical rules for the grant of such an interim measure. Whether an interim mandatory injunction could be granted directing the continuance of the working of the contract, had to be considered in the light of the wellsettled principles in that behalf.

Similarly, whether the attempted termination could be restrained leaving the consequences thereof vague would also be a question that might have to be considered in the context of well settled principles for the grant of an injunction. Therefore, on the whole, we feel that it would not be correct to say that the power under Section 9 of the Act is totally independent of the well known principles governing the grant of an interim injunction that generally govern the courts in this connection. So viewed, we have necessarily to see whether the High Court was justified in refusing the interim injunction on the facts and in the circumstances of the case.

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22. No doubt, there is considerable dispute as to whether Rule 37 of the Mineral Concession Rules, 1960 has application. The District Court and the High Court have prima facie come to the conclusion that the said Rule has no application. Whether the said Rule has application, is one of the aspects to be considered by the arbitrator or the Arbitral Tribunal that may be constituted in terms of the arbitration agreement between the parties. We do not think that it is proper for us at this stage to pronounce on the applicability or otherwise of Rule 37 of the Mineral Concession Rules, 1960 and its impact on the agreement entered into between the parties. We therefore leave open that question for being decided by the arbitrator. The attempt made by O.M.M. Private Limited to rely upon some other arbitral award in support of its claim that Rule 37 of the Mineral Concession Rules, 1960 would apply, is neither here nor there. We are concerned with what the arbitrator who may be appointed will hold in the present case and not what some other arbitrator held in some other arbitration and some other contract even if it be between the same parties. Moreover, in our adjudication, we cannot be bound by what an arbitrator might have held in an arbitration proceeding unless it be that the said award operates as a bar between the parties barring either of them from raising a plea in that behalf.

23. The question here is whether in the circumstances, an order of injunction could be granted restraining O.M.M. Private Limited from interfering with Adhunik Steels' working of the contract which O.M.M. Private Limited has sought to terminate. Whatever might be its reasons for termination, it is clear that a notice had been issued by the O.M.M. Private Limited terminating the arrangement entered Page 43 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER into between itself and Adhunik Steels. In terms of Order XXXIX Rule 2 of the Code of Civil Procedure, an interim injunction could be granted restraining the breach of a contract and to that extent Adhunik Steels may claim that it has a prima facie case for restraining O.M.M. Private Limited from breaching the contract and from preventing it from carrying on its work in terms of the contract. It is in that context that the High Court has held that this was not a case where the damages that may be suffered by Adhunik Steels by the alleged breach of contract by O.M.M. Private Limited could not be quantified at a future point of time in terms of money. There is only a mention of the minimum quantity of ore that Adhunik Steels is to lift and there is also uncertainty about the other minerals that may be available for being lifted on the mining operations being carried on. These are impoundables to some extent but at the same time it cannot be said that at the end of it, it will not be possible to assess the compensation that might be payable to Adhunik Steels in case the claim of Adhunik Steels is upheld by the arbitrator while passing the award.

24. But, in that context, we cannot brush aside the contention of the learned counsel for Adhunik Steels that if O.M.M. Private Limited is permitted to enter into other agreements with others for the same purpose, it would be unjust when the stand of O.M.M. Private Limited is that it was canceling the agreement mainly because it was hit by Rule 37 of the Mineral Concession Rules, 1960. Going by the stand adopted by O.M.M. Private Limited, it is clear that O.M.M. Private Limited cannot enter into a similar transaction with any other entity since that would also entail the apprehended violation of Rule 37 of the Mineral Concession Rules, 1960, as put forward by it. It therefore appears to be Page 44 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER just and proper to direct O.M.M. Private Limited not to enter into a contract for mining and lifting of minerals with any other entity until the conclusion of the arbitral proceedings.

25. At the same time, we see no justification in preventing O.M.M. Private Limited from carrying on the mining operations by itself. It has got a mining lease and subject to any award that may be passed by the arbitrator on the effect of the contract it had entered into with Adhunik Steels, it has the right to mine and lift the minerals therefrom. The carrying on of that activity by O.M.M. Private Limited cannot prejudice Adhunik Steels, since ultimately Adhunik Steels, if it succeeds, would be entitled to get, if not the main relief, compensation for the termination of the contract on the principles well settled in that behalf. Therefore, it is not possible to accede to the contention of learned counsel for Adhunik Steels that in any event O.M.M. Private Limited must be restrained from carrying on any mining operation in the mines concerned pending the arbitral proceedings.

26. We think that we should refrain from discussing the various issues at great length since we feel that any discussion by us in that behalf could prejudice either of the parties before the arbitrator or the arbitral tribunal. We have therefore confined ourselves to making such general observations as are necessary in the context of the elaborate arguments raised before us by learned counsel.

27. We therefore dismiss the appeal filed by O.M.M. Private Limited leaving open the questions raised by it for being decided by the arbitrator or Arbitral Tribunal in accordance with law. We also substantially dismiss the appeal filed by Adhunik Steels Page 45 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER except to the extent of granting it an order of injunction restraining O.M.M. Private Limited from entering into a transaction for mining and lifting of the ore with any other individual or concern making it clear that it can, on its own, carry on the mining operations in terms of the mining lease."

28. It was contended that even in case of section 9 of the Act, the three principles of prima facie case, balance of convenience and irreparable injury are to be considered. Mr. Joshi contended that as provided in Article 6 of the accounting principles, if any dispute arises with the audited item between the operator and nonoperator, the dispute shall be referred to arbitration, however, the applicant having resorted to the audit procedure has failed to invoke arbitration as provided under Article 6 till date and such important fact has been suppressed by the applicant.

29. It was further contended that the conduct of petroleum operation is expensive with significant risk and liabilities and therefore, the provisions of Article 8.4(d) of the agreement cannot be termed as penalty. It was further alleged that the respondent no.1 as an operator has undertaken operations as per the contract and agreement and has made huge capital expenses for its operation. It was further contended that the same is to be shared by the applicant and the respondents, however, the Page 46 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER applicant is enjoying the revenue generated from the oil exploration without bearing its proportionate share (55%) of the cost. It was also contended that the contention raised by the applicant in the present application that if participating interest of the applicant is transferred to the respondents, the same would create some lien or charge on the same is totally misconceived as no charge or lien can be created without consent of the Government of India. It was thus submitted that the application is misconceived and the same deserves to be dismissed.

30. Mr. Mihir J. Thakore, learned senior advocate in reply to the contention raised by the Mr. Joshi, learned senior advocate for the respondents, referring to Article 3(A) of the accounting principles contended that the said Article provides that the cash call can be called for in advance from the operator and as provided thereunder, on or prior to 15 days of any month and as payable within 15 days from the date of cash call, however, it was contended that even according to the accounting principles, the same is to be read with the other provisions of the agreement and therefore, it relates back to the joint account and joint operation as defined in the agreement and thus, any cash call beyond approved work program and budget would not constitute a cash call as provided under Article Page 47 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER 3(A) of the accounting principles and it was further submitted that the provisions of default notice provided under Article 8.1 of the agreement gets attracted only if valid cash calls are called for and not paid by the non operator. Similarly, referring to clause 6 of the accounting procedure, it was submitted that audit is provided thereunder, however, there is no provision in the said article to the effect that once an audit is conducted, all the amounts expended by the operator and audited by the non operator becomes payable irrespective of the provisions of Article 6.6(a) and 6.6(b) of the agreement. It was further contended that there is no provision in Article 6 of the accounting procedure to the effect that nonconducting of the audit by nonoperator shall amount to acceptance of amounts expended by the operator in complete disregard of article 6.6(a) read with article 6.7(b) of the main agreement. Further, referring to Article 6.6(a), it was contended by Mr. Thakore that the said provision inter alia provides that save and otherwise provided in this agreement or approved by the operating committee, no commitment or expenditure for the joint account may be incurred unless it is contained in an approved work program and budget and therefore, it was contended that the accounting principles cannot be read, isolated from the provisions of Articles 6.6 and 6.7 of the agreement. It was Page 48 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER further contended by Mr.Thakore that as such the leave way is provided in case if the operator exceeds the limits and for such overexpenditure than what is approved in the work program and budget, as provided under Article 6.7(b), the operator is obliged to place the amended work program and budget and shall provide the parties with full details of such overexpenditure incurred. It was therefore contended by Mr. Thakore, learned advocate for the applicant that provisions of Article 6.7(b) overrides the accounting principles and by such sacrosanct provision, a leave way is given. It was contended by Mr. Thakore that if the interpretation put forward by the respondents is considered, the provisions of Article 6.7 would become otiose and the same cannot be subject to audit calls. It was contended that both the options are available to the parties and share of joint operation and and adjustments are to be made, however, only when what is approved and not beyond it. It was contended that the budget is yearly and advance call is monthly, however, it cannot be beyond what is permitted. Referring to Articles 5 & 6 of the accounting principles, it was contended by Mr. Thakore that adjustment also relates to bill within limits and the other party is duty bound, if within the approved budget and not excess without approval. It was further submitted that the provisions of Article 6 of the accounting principle does not Page 49 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER permit excess expenditure, however, additional right is conferred on nonperforming party to contest accounts and within budget and other party cannot misappropriate the funds and there is no provision in the agreement or accounting principles which provides that a party can spend any amount. It was contended that if a party raises demand of 5 years, there is no such provision that nonoperator cannot question the same and the accounting principles does not give go by to Articles 6.6 and 6.7 of the agreement and the advance or post call must be within the budget and the operator has to give account and the nonoperating party has a right to have accounts and ask for audit, however, the same is not beyond what is approved. It was further contended that the asking of audit has no direct relevance to this matter as the same relates to already expanded report and it was contended that the audit has nothing to do with the disputes arisen.

31. Referring to the response given by the respondent no.1 to the audit for the financial years 20122013 and 20132014, it was contended that even in the said explanation rendered by the respondents that the expenses have been increased particularly because of exchange fluctuation and the respondents have also referred to the budget revision no.2. It was therefore contended that the amount mentioned in Page 50 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER the default notice is also erroneous. Again referring to the letter written by respondent to the Hon'ble Chief Minister of Gujarat, it was contended that in the said letter, the amount mentioned is Rs.8.25 crores whereas in the default notice, the amount mentioned is around Rs.22 crores. It was contended that amount which was actually due and payable has been already paid within 60 days. It was also contended that the audit for 20102011, 2011 2012, 20122013 and 20132014 clearly records that there was excess expenditure than the budgeted amount and the respondents have in fact in reply filed in this proceedings have admitted that the expenditure exceeded the budget in 20142015 and even in the letter dated 18.08.2015, addressed by respondent no.1, is beyond approved budget and reference to the budget revision no.1. It was contended that balance of convenience is in favour of the applicant as the agreement provides that respondents can carry any operation as sole risk operations and therefore, the contention that the operation would become stagnant is without any substance. It was contended that even the contention taken by the respondents that if the respondents carry out sole risk operations and if earns, the applicant would give back, is also wrong as the agreement provides that in such event, the applicant will have to pay a large sum which is equal to almost five times and more Page 51 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER than the expenses incurred.

32. It was therefore reiterated by the learned counsel for the applicant that the present application deserves to be allowed and if no interim measure is granted, the very proceedings of arbitration shall become infructuous and therefore, the prima facie case, balance of convenience is in favour of the applicant and if same is not granted, the applicant is likely to suffer irreparable loss and it was contended that the application be allowed.

33. Mr. Joshi, learned senior advocate appearing for the respondents further reiterated that the provisions of section 74 of the Contract Act would not apply and referring to Article 6.7 of the agreement and even the audit has been done and therefore it was contended that the amount mentioned in the default notice is due and payable and the respondents have therefore correctly mentioned the amount in the said notice and as the applicants failed to remedy the same as provided under Article 8.4 of the agreement, the applicant has rightly issued the withdrawal letter dated 29.07.2018. It was reiterated that the applicant has failed to prove prima facie case and balance of convenience is in favour of the respondents and therefore, the application deserves to be dismissed.

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34. Having heard the learned counsel appearing for the parties, it deserves to be noted at the outset that the present application is filed under Section 9 of the Act. Section 9 of the Act inter alia provides for an interim measure and for preservation of the subject matter of the agreement as held by the Apex Court in the case of Adhunik Steel Ltd. (supra).

35. Thus, the present application is filed at the threshold of the proposed initiation of arbitration proceedings which are yet to commence. Considering the provisions of section 9, this Court has jurisdiction to consider the plea of interim measure even at this stage. However, it also be noted that the jurisdiction under section 9 is very limited and this Court is not called upon to adjudicate the claims raised by both the parties.

36. As the facts indicate, the contract in question is a tripartite contract that is entered into between the President of India, acting through the Secretary, Petroleum and Natural Gas, the present applicant and NIKO resources from whom the respondents have got the rights assigned. As per the factual background arising in this application, the contract is based upon the exploration carried out by ONGC and the discovery made in the contract area. As per the facts of this case, NIKO Resources gave a bid Page 53 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER which came to be accepted by the authorities. It is a matter of fact that thereafter by a joint operation agreement dated 05.11.2018 came to be executed, the applicant and respondents defined their participating interest in the Cambay Field under the contract.

37. As such the present application arises out of a default notice issued by respondent under Article 8.1(a) of the Agreement. The demand raised by the respondent in the said default notice is on the ground that the applicant has failed to pay its share on joint account expenses to the tune of 3,054,832 USD for the Indian financial periods ending on March 2018 (page 262). It is also mentioned in the said notice as provided under default clause 8 of the agreement that the applicant has failed to pay the cash calls by the due date and has failed to remedy the same as provided under the agreement and thereafter, by a further communication dated 29.07.2018, the respondent has operated clause 8(4)(d) of the agreement and have issued notice of withdrawal. Considering the article 8 as a whole, the withdrawal notice is based upon clause 8(4)(d) of the agreement is based upon the default notice issued under Article 8.1 (a) of the agreement. In order to appreciate the default notice as well as withdrawal notice, it would be essential to refer to the relevant articles of the agreement, which in opinion of Page 54 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER this Court would be necessary for deciding the present application even for considering interim measure as provided under section 9 of the Act. Joint Account in the definition clause provides for various definitions and accordingly, joint account is defined as to mean the accounts maintained by operator in accordance with the provisions of the agreement including accounting principles for joint operation. Joint operation is defined to mean those operations and activities carried out by the operator pursuant to this agreement the cost of which are chargeable to all parties. Article 5 provides for managing committee of the contract which is a three member committee and as provided under article 5.3 of the agreement, such operating committee shall have power and duty to authorise and supervise joint operations that are necessary or desirable to fulfil the obligations arising under the agreement and to properly explore and exploit the contract area in accordance with the agreement. As a matter of corollary as provided under article 5.10 the voting pattern is correlated to the participating interest. Article 6 inter alia provides for Work Program and budgets. The said article inter alia provides that there have to be a preplanning in advance by the operator. And as provided there under on or before, 31st October of each year, the operator shall deliver to the parties the proposed work program and Page 55 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER budget detailing the joint operations to be performed for the following year - The said article also inter alia provides that the operating committee shall hold a meeting on or before 15th December of the said year and agree to a work program and budget and thereafter, it is submitted to managing committee in accordance with the relevant covenant of the contract. By provision of article 6.4 of the agreement, itemisation of expenditure is provided for. Similarly, Article 6.6 provides for authorisation for expenditure AFE procedure and article 6.7 is provided to take care of a situation wherein the operator overspends than what is approved by the work program and budgets. In opinion of this Court, the issue involved in this application centres around article 6.6 , 6.7 and article 8.1 and 8.4 and hence, it would be appropriate to quote the same-

6.6 Authorisation for Expenditure (AFE) Procedure

(a) Save as otherwise provided in this Agreement or approved by the Operating Committee, no commitment or expenditure for the Joint Account may be incurred unless it is contained in an approved Work Program and Budget.

(b) No AFE is required to be issued in respect of any expenditure or commitment that is in an approved Work Program and Budget except for costs of a capital nature which are in excess of $100 000.

Page 56 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER

(c) Any AFEs provided by the Operator to the Parties below the above amounts shall be for informational purposes only. Approval of an operation in the current Work Program and Budget below the above amounts shall authorise the Operator to conduct the operation without further authorisation from the Operating Committee.

(d) Prior to making any expenditures or incurring any commitments for work which is subject to the AFE procedure in Article 6.6(b), the Operator shall obtain the approval of the Operating Committee to an AFE. If the Operating Committee approves an AFE for the operation within the applicable time period under Article 5.13, the Operator shall be authorised to conduct the operation under the terms of this Agreement if the Operator:

(i) has not received the vote or determination of a Party; and

(ii) the subject matter is within an approved Work Program and Budget, then if such Party fails to submit its vote or determination within the applicable notice period, such Party will be deemed to have voted affirmatively and approved the AFE within the applicable notice period

(e) If the Operating Committee fails to approve an AFE for an operation for which approval is required under Article 6.6(b) within the applicable time period, the operation shall be deemed rejected. The Operator shall promptly notify the Parties if the operation has been rejected, and subject to Article 7, any Party may thereafter propose to conduct the operation as a Sole Risk Operation under Article 7. When an operation is rejected under this Article 6.6(e) or an operation is approved Page 57 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER for differing amounts than those provided for in the applicable line items of the approved Work Program and Budget, the Work Program and Budget shall be deemed to be revised accordingly.

(f) Each AFE proposed by the Operator pursuant to Article 6.6(b) shall:

(i) contain the Operator's best estimate of the total funds required to carry out such work and identify the operation by specific reference to the applicable line items in the Work Program and Budget;

(ii) describe the work in detail;

(iii) outline the proposed work schedule;

(iv) provide a timetable of expenditures, if known;

(v) be accompanied by such other supporting information as is necessary for an informed decision; and

(vi) specify the date by which approval of the AFE is to be conveyed.

6.7 OverExpenditures of Work Programs and Budgets

(a) With respect to any line item of an approved Work Program and Budget, the Operator shall be entitled to incur without further approval of the Operating Committee an overexpenditure for such line item up to 10% of the authorised amount for such line item, provided that the cumulative total of all overexpenditures for a Year shall not exceed 5% of the total Work Program and Budget in question.

(b) At such time that the Operator is certain that the limits of Article 6.7(a) will be exceed, the Operator shall furnish Page 58 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER an amended Work Program and Budget for the estimated overexpenditures to the Operating Committee for its approval and shall provide the Parties with full details of such overexpenditures. Th Operator shall promptly give notice of the amounts of overexpenditures when actually incurred.

The restrictions contained in this Article 6 shall be without prejudice to the Operator's rights to make emergency related expenditures as set out in this Agreement.

8.1 Default and Notice (3) Any Party that fails to pay when due its Participating Interest share of Joint Account expenses, including cash advances (Cash Calls) and interest, or which fails to fulfil its nonmonetary obligations under this Agreement, shall be in default under this Agreement (a Defaulting Party). The Operator, or any nondefaulting Party where the Operator is the Defaulting Party, shall promptly give notice of such default to the Defaulting Party and each of the nondefaulting Parties (the Default Notice). If a monetary default, the amount not paid by the Defaulting Party shall bear interest at the Agreed Interest Rate from the date due until paid in full.

(b) A Default Notice shall not have to be reissued if there is an error in the calculation of the amount due by the Defaulting Patty and shall be effective for the purposes of the amount not in error.

8.4 Remedies

(a) During the Default Period, the Defaulting Party shall no have a right to its Entitlement, which shall vest in and be the property of the nondefaulting Parties. The Operator(or the notifying Party if the Page 59 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER Operator is a Defaulting Party) shall be authorised to sell such Entitlement in an arm's length sale on terms that are commercially reasonable under the circumstances and, after deducting all costs, charges and expenses incurred in connection with such sale, pay the net proceeds to the nondefaulting Parties in proportion to the amounts they are owed by the Defaulting Party hereunder (and apply such net proceeds toward the establishment of a reserve fund under Article 8.4(c), if applicable) until all such amounts are recovered and such reserve fund is established. Any surplus remaining shall be paid to the Defaulting Party, and any deficiency shall remain a debt due from the Defaulting Party to the nondefaulting Parties. When making sales under this Article 8.4(a), the nondefaulting Parties shall have no obligation to share any existing market or obtain a price equal to the price at which their own production is sold.

(b) If the Operator disposes of any Joint Property or any other credit or adjustment is made to the Joint Account during the Default Period, the Operator (or the notifying Party if the Operator is a Defaulting Party) shall be entitled to apply the Defaulting Party's Participating Interest share of the proceeds of such disposal, credit or adjustment against all amounts owing by the Defaulting Party to the nondefaulting Parties hereunder (and toward the establishment of a reserve fund under Article 8.4(c), if applicable). Any surplus remaining shall be paid to the Defaulting Party, and any deficiency shall remain a debt due from the Defaulting Party to the nondefaulting Parties.

(c) The nondefaulting Parties shall be entitled to apply proceeds received under Page 60 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER Articles 8.4(a) and 8.4(b) toward the creation of a reserve fund in an amount equal to the Defaulting Party's Participating Interest share of:

(i) the estimated cost to abandon any wells and other property in which the Defaulting Party participated and in all applicable Decommissioning Security Agreements;

(ii) the estimated cost of severance benefits for local employees upon cessation of operations: and

(iii) any other identifiable costs that the nondefaulting Parties anticipate will be incurred in connection with the cessation of operations.

If a Defaulting Party fails to remedy its default by the 60th Day following the date of the Default Notice, then, without prejudice to any other rights available to the nondefaulting Parties to recover amounts owing to them under this Agreement, a majority in interest of the non defaulting Parties (after excluding Affiliates of the Defaulting Party) shall have the option, exercisable at anytime thereafter until the Defaulting Party has completely cured its defaults, to require that the Defaulting Defaulting Party completely withdraw from this Agreement and the PSC. Such option shall be exercised by notice of the Defaulting Party and each nondefaulting Party. If such option is exercised, the Defaulting Party shall be deemed to have transferred pursuant to Article 13.6, effective on the date of the nondefaulting Party's notice, all of its right, title and beneficial interest in and under this Agreement and the PSC to the nondefaulting Parties. The Defaulting Party shall, without delay following any request from the nondefaulting Parties, do Page 61 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER any and all acts required to be done by applicable law or regulation in order to render such transfer legally valid, including, without limitation, obtaining all Government consents and approvals, and shall execute any and all documents and take such other actions as may be necessary in order to effect a prompt and valid transfer of the interest described above. The Defaulting Party shall be obligated to promptly remove any liens end encumbrances which may exist on such transferred interests. For purposes of this Article 8.4(d), each Party constitutes and appoints each other Party its true and lawful attorney to execute such instruments and make such filings and applications as may be necessary to make such transfer legally effective and to obtain any necessary consents of the Government. Actions under this power of attorney may be taken by any Party individually without the joinder of the others. This power of attorney is irrevocable for the term of this Agreement and is coupled with an interest. If requested, each Party shall execute a form prescribed by the Operating Committee setting forth this power of attorney in more detail. If all necessary Government approvals are not timely obtained, the Defaulting Party shall hold its Participating Interest in trust for the nondefaulting Parties who are entitled to receive the Defaulting Party's Participating Interest. Notwithstanding the terms of Article 13, in the absence of an agreement among the nondefaulting Parties to the contrary, any transfer to the non defaulting Parties following a withdrawal pursuant to this Article 8.4(d) shall be in proportion to the Participating Interests of the nondefaulting Parties. The acceptance by a nondefaulting Party of any portion of a Defaulting Party's Participating Interest shall not limit any rights or remedies that the nondefaulting Page 62 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER Party has to recover all amounts (including interest) owing under this Agreement by the Defaulting Patty. It is acknowledged and agreed that the conduct of Petroleum Operations is expensive with significant risks and liabilities, and that the withdrawal and transfer pursuant to this Article is a genuine preestimate of the consequences of default by a Party and does not constitute a penalty}

(e) Except as otherwise expressly provided in Article 4.6, each Party shall indemnify each of the other Parties from all claims, demands, actions, liability or loss resulting from or in connection with a breach or default by the indemnifying Party of any of its obligations under this Agreement.

(f) The nondefaulting Parties shall be entitled to recover from the Defaulting Party all reasonable attorneys' fees and all other reasonable costs sustained in the collection of amounts owing by the Defaulting Party.

(g) The rights and remedies granted to the nondefaulting Parties in this Agreement shall be cumulative, not exclusive, and shall be in addition to any other rights and remedies that may be available to the nondefaulting Parties, whether at law, in equity or otherwise. Each right and remedy available to the nondefaulting Parties may be exercised from time to time and so often and in such order as may be considered expedient by the nondefaulting Parties in their sole discretion."

38. Considering the submissions made by both the sides, it deserves to be noted that the agreement provides for work program and budgeting as discussed hereinabove. The clause Page 63 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER 6.7 of the agreement inter alia provides a way out for the operator to meet with the over expenditure. As can be read from article 6.7(a) of the agreement, the maximum limit of over expenditure for line item can be 10% in access than the authorised amount and the same should not be more than 5% of the total work program and budget in a year. Article 6.7(b) further provides that the operator shall furnish an amended work program and budget for the estimated over expenditures to operating committee for approval and full details of such over expenditure shall be provided to the parties. It is also further provided under the said article that the operator shall promptly give notice of amount of over expenditure when actually incurred. Thus, the article 6.7 as a whole permits the operator to over expand but to a limit provided under article 6.7(a) and with a further rider that the details of such over expenditure is to be brought before the operating agency and the work program and budget is to be accordingly amended and such details are to be provided to all the parties to the agreement. Thus, the said article though enables the operator to take a practical view of the actual operations, but in order to bring such operation within the realm of joint operations, and resultantly, such expenditure may be part of joint account, it has to undergo the procedure of amending/revision of work Page 64 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER program and budget approval before the operating committee. Thus, article 6.7 is very article of the agreement and both the learned counsels appearing for the parties have heavily relied upon the same.

39. Prima facie examining the effect and impact of such a provision of the agreement, in facts of this case, it deserves to be noted that the respondent by a letter dated 31.01.2018 wrote a letter to the Hon'ble Chief Minister of Gujarat State wherein it is mentioned that amount of 8.25 crores is approved by the applicant whereas 30.25 crores is pending approval. Similar stand is reiterated by the respondent by a further communication of March 2018, addressed to the Chief Secretary and the Chairman and Managing Director of the applicant company wherein identical facts are stated. Taking into consideration both the communications and considering the impugned default notice under Article 8.1, the amount does not tally. However, from plethora of other documents which are forming part of the record of this application clearly establishes the fact that there is a dispute between the applicant and the respondents as regards the cash calls which are raised and over expenditure which is made by the operator. Therefore in facts of this case it cannot be gainsaid that the amount demanded in the default notice is without any dispute. On Page 65 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER one hand the respondent has represented before the highest authority of the State that the amount of 30.25 crores is pending approval and in default notice, other figure is mentioned. It is not the case of any party to this application that the rigors of article 6.7 of the agreement and the requirements of Article 6.6 of the agreement are not applicable and Article 6.7 is as such an exception provided in the agreement to take care of over expenditure. The respondent has not been able to even prima facie show that any revision is approved by the operating committee as envisaged under article 6.7(b) and the amount mentioned in the default notice is amount of cash calls within the limit prescribed under article 6.7(a) apart from the fact that the details are not available as far as the bifurcation of the years as mentioned in the default notice is concerned, whether it relates to joint operations or joint account can also not be culled out from the correspondence which are relied upon by both the parties in this application. The agreement clearly provides for dispute resolution by arbitration and in opinion of this Court such aspects are not within the jurisdiction of this Court while considering the application like present one under section 9 of the Act. However, considering these facts, it cannot be said that the applicant does not have a prima facie case. Unless and until the demand raised by the Page 66 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER default notice is threadbare examined as provided under the Agreement, it cannot be said at this stage that the demand raised in the default notice is in accordance with the provisions of the agreement prima facie and such issues are to be decided in the arbitration proceedings or by any remedy based upon evolution of full details. It is a matter of record that under the contract read with the agreement the applicant has made huge investment of INR 480 crores whereas according to the respondent no.1 they have also invested a huge amount of INR 330 crores by now. Thus, considering the relevant provisions of the agreement, the default notice and the further communication dated 29.07.2018, the aspect whether the amount mentioned in the default notice as a whole would fall under the joint account expenses for joint operations or not requires adjudication by the appropriate authority including arbitration tribunal or arbitrator as provided in the agreement itself. In facts of this case and considering the contentions raised by both the sides, and also prima facie considering the relevant provisions of the agreement as a whole, the applicant has been able to establish prima facie case. As observed hereinabove, both the parties have invested huge amount. As this court has come to the conclusion that the applicants have been able to establish prima facie case for Page 67 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER entitlement of interim measure as provided under section 9, it deserves to be considered that such a project of national importance as far as India is concerned, cannot be permitted to be jeopardised and the interest of both the parties is required to be protected. If the respondent is permitted to act in furtherance to Article 8 of the agreement, and the participating interest of the present applicant who has already invested a huge sum of Rs. 480 crores is permitted to be transferred or dealt with, the very purpose of arbitration proceedings would be lost. Even for preservation of the subject matter of the agreement, in facts of this case, the applicant is entitled to some interim measure. Similarly, if the interim measure is not granted, the applicant is likely to suffer irreparable loss and injury and the same would amount to ouster of the applicant from the activity of the parties and the arbitration proceedings would become meaningless and would be infructuous before it is initiated.

40. As far as balance of convenience is concerned, the demand raised by the respondents in the default notice is to the tune of Rs. 30 crores as on date (even if calculated even as almost current exchange rate). And for that amount, the participating interest of the applicant after investment of almost Rs. 480 crores is likely to be taken away and that factor itself Page 68 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER is vital to consider that the balance of convenience is in favour of the applicant.

41. It is also a matter of record that even the stand of the respondent is not consistent and even the figure of the amount of cash call due is differently demanded as discussed hereinabove. The relevant provisions of the agreement clearly provides that the operator also in his turn is required to follow the requirement as provided in the agreement before making any over expenditure and even after making such expenditure. From the record of this application, it cannot be said that the total amount which is mentioned in the default notice is an amount which is determined after going through the gamut as provided under article 6.7(a) and (b) of the agreement and such vital issue is to be decided based upon the evidence before the arbitral tribunal or arbitrator. The contention raised as regards accounting principles would need examination at the arbitral proceedings and prima facie, the accounting principles cannot be read in isolation and same has to be read in consonance with main Articles of the agreement and more particularly Articles 6.7(a) and (b).

42. The respondents have specifically contended that there is suppression of material facts as regards the option of audit having been Page 69 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER exercised by the applicant for the financial years 201112, 201213, 201314 and have therefore submitted that the applicants are not entitled for any reliefs by this Court. However from the facts which can be gathered from the present application, even after the audit and the explanation rendered by both the parties, it cannot be culled out that the amount raised/demanded by the respondent no.1 is an admitted amount or is due and payable as per the approved work program and budget. The option of audit which has been exercised by the applicant also is based on the fact that the respondent as an operator has over expended the amount. However, nondisclosure of such facts in opinion of this Court would not mean that there was suppression of material fact. On the contrary the facts reveals that both the parties were aware since long that the dispute of the amount claimed by the respondents is in relation to the over expenditure.

43. As far as the contention as regards section 73 and 74 of the Indian Contract Act raised by learned counsel for the applicant is concerned, the same has to be raised before appropriate forum or before arbitral proceedings as this Court is concerned at this stage only with the aspect whether the applicant is entitled to any interim measure pending initiation of the arbitration/pending arbitration as provided Page 70 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER under section 9 of the Act or not and therefore the said aspect in opinion of this Court does not require to be considered in this application at this stage and hence, in opinion of this Court, the judgment of the Apex Court in the case of Kailash Nath Associates (supra) relied upon by the learned counsel for the applicant is not required to be dealt with.

44. Even if the principles of prima facie case, balance of convenience and irreparable loss are considered, the fact remains that the project itself is of national importance wherein the applicant has invested about Rs.480 crores and the respondents have invested about Rs.313 crores and for a dispute of Rs.30 crores, such a huge investment cannot be put to jeopardy. The contract as well as the agreement provides for independent covenant and the purpose of the contract or agreement is not only drilling, but also exploration, drilling and production. As can be culled out prima facie from the record, the some wells are already operative and under such circumstances, if the participating interest of the applicant is permitted to be transferred or put to any hold for a disputed amount of Rs.30 crores, not only that the whole project would be jeopardised, but the investment of the applicant to the tune of Rs.480 crores would be in doldrums and the main aim and object of the contract and agreement would be lost. At Page 71 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER this stage, even this Court is conscious of the fact that this court has very limited jurisdiction under section 9 of the Act, still however, efforts were made by the Court that there is some reconciliation between two parties, however, as such attempts have failed, arbitration is the only way in opinion of this Court and till the same is decided, the participating interest of the applicant should be protected in some manner and the interest of the respondent also should be taken care of as the project is to run. It is also made clear that this order would apply only to the existing dispute by way of default notice and further communication dated 29.07.2018 and no stay is granted against the operation of any of the covenants of the contract or the agreement and therefore, even the windows provided in Order 39 of the Code of Civil Procedure are looked into while deciding the application under section 9 of the Act, the equities between the parties are to be balanced and in facts of this case, it cannot be said that those three windows, i.e., prima facie case, balance of convenience and irreparable loss does not exist in case of the applicant, however, at the same time, interest of respondents also needs to be protected.

45. In light of the aforesaid discussion therefore, it deserves to be noted that the default notice is of Rs.30 crores and as observed hereinabove, Page 72 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER the applicant has been able to prima facie establish that this is a fit case for grant of interim measure as provided under section 9 of the Act. The balance of convenience and irreparable loss is also in favour of the applicant as observed hereinabove. However, while granting interim measure, in order to protect the interest of the respondent as well, the applicant is required to be put to conditions. Consequently, while allowing the present application, by way of interim measure, the default notice dated 29.05.2018 and letter dated 29.07.2018 issued by respondent no.1 are stayed on condition that the applicant shall deposit a sum of Rs.8.25 crores before this Court in the name Registrar of the High Court latest by 15.11.2015 and the said amount shall be invested in a FDR with cumulative effect till the arbitral proceedings are over and shall further give bank guarantee for Rs.21.75 crores of a nationalised bank in the name of Registrar of High Court of Gujarat latest by 15.11.2015 valid till arbitration proceedings are over, which will cover the whole amount claimed in default notice. The deposit as well as the bank guarantee shall be subject to final outcome of the arbitral proceedings. It is further provided that this order by interim measure as envisaged under section 9 of the Act would be valid only if applicant initiates the arbitration proceeding within a period of one Page 73 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019 C/IAAP/130/2018 ORDER month from today. This order shall not effect the current operations under the contract and the agreement. The observations made in this order are only for the limited purpose of deciding the issue of interim measure as envisaged under section 9 of the Act only.

46. The application is allowed accordingly, however, there shall be no order as to costs.

47. In view of the order passed in the main matter, the Civil Application would not survive and same shall also stand disposed of accordingly.

(R.M.CHHAYA, J) BIJOY B. PILLAI Page 74 of 74 Downloaded on : Sun Oct 20 02:41:24 IST 2019

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