Set right

The Supreme Court verdict in the Reliance case goes beyond the immediate issues involved in the dispute between the Ambani brothers over the supply of natural gas and its pricing. The court has clearly laid down some principles of public policy which should hold good in other cases and in future. The most important is that the country’s natural resources belong to the people and their control is vested in the government in trust. Private parties have no claim to them and the government has to regulate their use for public welfare. That is why the court rightly rejected Anil Ambani’s claim to a good amount of KG basin gas at a price less than what was fixed by the government for sale to other consumers. The private agreement between the two brothers on the sharing of gas has no sanctity as it did not serve the public interest.

The judgment can serve as a guiding principle in the framing and implementation of government policy on extraction of other natural resources like coal, iron ore, minerals and water. Mining rights and licences to exploit these natural resources are often given away without respecting the principle. The people thus lose their wealth and governments lose revenues. Governments have no power to misallocate resources and individuals or companies, who have been given the right to extract them, cannot consider themselves owners of the resource. That is why the court found that the private MoU between the Ambani brothers on gas sharing is not legally valid. The agreement had to be in conformity with the production sharing agreement between Reliance and the government and the latter’s gas utilisation policy. The judgement also clarified that the status of the MoU has been adversely affected by the fact that it is an agreement between two individuals and not by two companies. However high the stakes of the individuals in the companies are, the agreement is not a deal between the two companies because it was reached without the knowledge and concurrence of shareholders and other stakeholders. The idea is important from the point of view of corporate governance.

Reliance has won the case on most issues but the court has felt that the legitimate rights of Anil Ambani’s companies should be protected. It has directed negotiations for this but they should be held within the parameters of legality and public interest. Anil Ambani has done well to accept the judgement.