Anil loses battle to brother Mukesh

Government has last word on gas pricing, rules SC

Anil loses battle to brother Mukesh

The apex court’s ruling in a gas pricing dispute for supply of fuel to the proposed power plant at Dadri in Uttar Pradesh in effect went in favour of Mukesh Ambani’s Reliance Industries Ltd (RIL) which was pitted against brother Anil’s Reliance Natural Resources Ltd (RNRL).

The stock market responded swiftly to the judgment, with RIL shares shooting up by about 5 per cent to nearly Rs 1,050 and that of RNRL tanked close to 20 per cent at Rs 55.

Delivering its verdict on the four-year-old Ambani battle that was interspersed with a bitter public wrangling, a three-judge Supreme Court Bench headed by Chief Justice K G Balakrishnan said the Ambani family MoU dividing the gas was not binding, both legally as well as technically.

Holding that the government had the last word on gas pricing and utilisation of national assets, the Bench said that in a democracy, the people owned national assets and that gas could not be supplied to Reliance Natural Resources Ltd at 44 per cent lower price than the government-fixed rate.

Trust holding
The government holds such natural resources in trust. Legally, therefore, the government owned such assets for the purposes of developing them in the interests of the people. In Ambani case, the government owned the gas till it reached the ultimate consumer, the 268-page judgment said.

However, the apex court directed the RIL to initiate renegotiation with the RNRL within six weeks for supply of gas to its Dadri plant and submit the fresh agreement before the company court in Mumbai for approval.
The judges expressed concern over the dispute among private parties over huge assets belonging to the public.

: “We consider it appropriate to observe and remind the GoI (government) that it is high time it framed a comprehensive policy/suitable legislation with regard to energy security of India and supply of natural gas under production sharing contracts.” Concurring with RIL advocate Harish Salve’s argument, the Bench said the MoU between the Ambani brothers cannot take precedence over government policy which determines who can receive gas and at what price.

Even though all the three judges agreed on the points while deciding the ownership of gas, there were differences of opinion among them with Justice Reddy saying the ‘’MoU is a private pact between the members of the Ambani family which is not binding on the RIL.’’

Asking the brothers to go for renegotiation while referring to the MoU’s contents, the CJI and Justice Sathasivan said: ‘’Clearly, the MoU does not fall under the corporate domain—it was neither approved by the shareholders, nor was it attached to the scheme. Therefore, technically, the MoU is not legally binding.’’

The Bench said the decisions of the Empowered Group of Ministers on utilisation of natural gas and pricing formula do not suffer from any legal or constitutional infirmities. ‘’They shall apply to all supplies of natural gas under the Production Sharing Contract . The parties are bound by the governmental policy and approvals regarding price, quantity and tenure for supply of gas,’’ the judgment said.
The apex court made it clear that under the PSC, the RIL is a contractor and does not become the owner of natural gas. It  refuted the RNRL stand, according to which gas was being shared by the government and the company for exploration.
Anil, who attended the pronouncement of judgment, said: ‘The ’RNRL looks forward to an expeditious and successful renegotiation with the RIL within the stipulated period of six weeks to secure gas supply for the group’s power plants in line with the Supreme Court order.’’

Salve said ‘’the verdict vindicated our view that price and quantity are as per the PSC. Broadly the issues have been decided by the judgment.’’
RNRL advocate Ram Jethmalani said: “The judgment is on some socialist principle which is not law. It is against my ethics to comment on the judgment as I represented one of the parties in the case.’’ 

Commenting on the scope of negotiation, advocate Muhesh Agarwal of RNRL said ‘’the Supreme Court has asked the parties to go for renegotiation based on the MoU. There will be no further litigation. And that during renogotiation, the government will have to guide as it was a party to the case.

“We will have to negotiate as the per the directives of the Supreme Court. The price fixed by govt. $4.2 is for supply of gas for five years. When it is for 17 years and a larger quantity, there has to have a negotiation,’’ Agarwal said.
 In September 2007, the government set the price of gas from the Krishna Godavari field at $4.20 per million British thermal units when the price of crude oil is equal to or more than $60 a barrel. That’s 79 percent higher than the price agreed by the brothers.

Before the merger of the Reliance companies, both brothers had signed an MoU in 2005 for supplying gas to the Dadri project on the basis of the tender paper submitted to the NTPC for supply of gas 28 mmscmd of gas for 17 years at $ 2.34 mBtu.
DH News Service

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