Asks brothers to renegotiate the agreement within six weeks.
The Supreme Court today ruled in favour of Mukesh Ambani’s Reliance Industries Limited (RIL) in a gas pricing dispute with Reliance Natural Resources Ltd (RNRL), controlled by his estranged younger brother, Anil Ambani.
While rejecting RNRL’s plea of cheaper gas from RIL-operated Krishna Godavari basin’s D6 field (KG-D6) off the east coast, the apex court directed both the brothers to renegotiate the gas supply master agreement (GSMA) within six weeks.
It said the new agreement should be placed before the Bombay high court.
The court also struck down a Bombay high court order of June 2009 which had upheld a family memorandum of understanding (MoU) between the two brothers, on the basis of which Anil Ambani was seeking cheaper gas. The Supreme Court said an MoU between family members was “not legally binding” and the government had the sovereign right on fixing the price of the country’s resources.
More From This Section
Anil Ambani said the verdict had safeguarded the interest of over 2.5 million RNRL shareholders.
RIL, in a statement issued late in the evening, said the judgment has set at rest issues which had been raised in relation to the gas discovered and produced from the KG-D6 field. “RIL sincerely hopes that the clarity of findings of the judgment brings to a permanent closure the incessant distortion of facts and malicious allegations which were being levelled against the government’s policies of regulating and developing the natural gas sector,” the statement said.
The government, on its part, said the ruling had vindicated its stand. “The Supreme Court verdict upholds the fact that gas belongs to the government and the people,” Union petroleum minister Murli Deora said.
| ROLLER-COASTER RIDE | |||
| May 06, ‘10 | May 07, ‘10 | % chg | |
| Sensex | 16987.53 | 16769.11 | 1.29 |
| Reliance Ind | 1010.90 | 1033.85 | 2.27 |
| RNRL | 68.34 | 52.75 | 22.82 |
| Reliance Power | 153.90 | 140.10 | 8.97 |
| Reliance Infra | 1053.55 | 979.70 | 7.01 |
| Reliance Capital | 709.80 | 683.85 | 3.66 |
| Source: BSE | |||
| THE RULING |
| * Resources belong to the people |
| * Production sharing contracts above private arrangements |
| * Family MoUs not binding |
| * Renegotiate gas price, quantity in six weeks |
Shares of RIL and RNRL witnessed sharp movements through the day. While RIL touched a low of Rs 991 and a high of Rs 1,060, RNRL traded between Rs 50 and Rs 72.95. Following the ruling, however, RIL gained, closing up by 2.27 per cent, while RNRL lost 22.82 per cent. In fact, shares of all Anil Dhirubhai Ambani Group companies registered losses after the verdict came out.
Both the RIL and RNRL counters also witnessed a huge volume surge. While 20 million RIL shares changed hands today as against 6 million yesterday, 370 million RNRL shares were traded today against 23 million yesterday.
Earlier in the day, the three-judge bench, headed by Chief Justice K G Balakrishnan, said the two sides could renegotiate only within the framework of the production sharing contract and the government’s gas utilisation policy. The government had fixed a price of $4.2 per million British thermal units (mBtu) for gas produced from the KG-D6 gas field. This is higher than the price of $2.34 which RNRL has been claiming under the family MoU.
Interestingly, state-owned NTPC is also locked in a separate legal battle with RIL. NTPC is seeking gas at $2.34, which is the tendered price.
The court said the MoU between the brothers was “not legally binding”, but it could be considered as an aid for interpreting an agreement.
The majority judgment delivered by Chief Justice Balakrishnan and Justice P Sathasivam emphasized that the natural resources of the country belonged to the government till they were delivered to the ultimate consumer, and that RIL was only a contractor.
“Though the contractor (RIL) has the marketing freedom to sell the product from the contract area to other consumers, this freedom is not absolute. The price at which the produce will be sold to the consumer would be subject to government approval. The tenure of such contracts cannot be such that it vitiates the development plan as approved by the government. Therefore, the GSMA and the gas sales and purchase agreement (GSPA) entered into with RNRL should fix the price, quantity and tenure in accordance with the PSC,” the judgment said.
The court said the empowered group of ministers has already set the price of gas for the purpose of the PSC. The parties must abide by this, and other conditions placed by the government policy.
“The GSMA/GSPA deeply affects the interests of the shareholders of both the companies. These interests must be balanced. This balance cannot be struck by the court as the court does not have the power under the company law provisions to create new conditions under the scheme,” the court said.
The judgment quoted with approval a 2004 ruling in which it emphasized that “the people of the entire country have a stake in natural gas and its benefit has to be shared by the whole country.”
The separate judgment by Justice B Sudershan Reddy largely agreed with the main judgment except on a few points. In addition, he stated that it would be appropriate to “remind the government of India that it is high time it frames a comprehensive policy/suitable legislation with regard to energy security of India and supply of natural gas under production sharing contracts.”
The Supreme Court thus disposed of all the appeals and cross-appeals against the judgment of the Bombay high court.
When RNRL moved the Bombay high court seeking an order based on the MoU, the court had, in June last year, asked both parties to renegotiate and arrive at a suitable arrangement over the supply of 28 million standard cubic metres of gas to RNRL for 17 years. Dissatisfied with the high court order, both parties moved the Supreme Court. One of the main points of discord was the price. RNRL demanded it should be $ 2.34 per mBtu for its Dadri power plant while RIL insisted on $ 4.20.
The government intervened in the Supreme Court claiming that it had the right to fix the price, quantity and tenure of the contract as the resources belonged to it. This view has been unanimously upheld by the three judges.