Two of the richest people in the world, brothers Mukesh Ambani of Reliance Industries (RIL) and Anil Ambani of Reliance Natural Resources (RNRL) took a disagreement over gas supply to the Indian Supreme Court. The judgement was delivered on Friday 7th May 2010, with far-reaching consequences for energy supply in India and the share price of the companies involved.
Mukesh’s Reliance Industries was supplying Anil’s Reliance Natural Resources with gas from the Krishna-Godavari basin, Bay of Bengal. The brothers took separate ownership of the companies following a demerger after the death of their father. A Memorandum of Understanding among the family had set a price of $US2.34 per million units for 17 years.
In 2006 the Government of India set a price of $US4.20 per million units for the gas-buying industry as a whole, and this was the new price which Mukesh’s Reliance Industries wished to enforce.
The judges found that a Memorandum of Understanding between the family was not binding on Reliance Industries, that the Government of India pricing for gas would be binding, that gas is a national asset owned by the Government of India and ordered the brothers to come to a new agreement within fourteen weeks.
Reliance Industries released the following statement on 7th May 2010:
RIL sincerely hopes that the clarity of findings of the judgement brings to a
permanent closure the incessant distortion of facts and malicious allegations which were being leveled against the Government’s policies of regulating and developing the natural gas sector for the greater good of the people of India and in the interest of nation’s energy security.
RIL will renegotiate the gas supply agreements with RNRL in the manner and within the time frame stipulated by the Hon’ble Supreme Court.
Mukesh Ambani is the fourth richest person in the world with a personal fortune of USD$29 billion, according to Forbe’s “Billionaires of the World Report”, whilst Anil Ambani is number 36 with a personal fortune of USD$13.7 billion.
The conclusions of the judgement are below:
163. In the result, we hold that:
(i) both the learned Single Judge and the Division Bench
committed a serious error in exercising jurisdiction in
the manner they did under Section 392 of the
Companies Act, 1956, for such interference has
resulted in the provisions of a document (MoU) which
was not before the shareholders supersede the
Scheme of Arrangement. Such a document could not
have been read into and incorporated in the Scheme
propounded by the Board, approved by the
shareholders and sanctioned by the Company Court;
(ii) the courts below having rightly directed the parties to
negotiate, and further having rightly refused to grant
the prayers in the Company Application, however, fell
into error directing the MoU to be binding and the
basis for further negotiations between the parties.
MoU is a private pact between the members of
Ambani family which is not binding on RIL;
(iii) the EGOM decisions, regarding the utilization of the
natural gas and the price formula/basis etc. do not
suffer from any legal or constitutional infirmities.
They shall apply to all supplies of natural gas under
the PSC. The parties are bound by the governmental
policy and approvals regarding price, quantity and
tenure for supply of gas;
(iv) under the PSC in issue the Contractor (RIL) does not
become the owner of natural gas, and there is nothing
like specified physical quantities of natural gas to be
shared by the GoI and the Contractor;
(v) we, accordingly, direct the parties to renegotiate as
to the suitable arrangements for supply of gas de-hors
the MoU. Such renegotiations shall be within the
framework of governmental policy and approvals
regarding price, quantity and tenure for supply of gas.
The renegotiations shall commence within eight weeks
from today at the initiative of RIL and shall be
completed within a period of six weeks from the day
of commencement of negotiations.
Accordingly, the judgments of the learned Single
Judge and the Division Bench of the Bombay High Court are set
aside and we dispose of all the appeals without any order as to
costs. Intervention Applications do not require any adjudication.
They are also accordingly disposed of.
164. Before we part with the case, we consider it
appropriate to observe and remind the GoI 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.
165. What remains for us is to place our appreciation on
record of the invaluable assistance rendered by Sarvashri Ram
Jethmalani, Harish N. Salve, Mukul Rohatgi, R.F. Nariman and
Ravi Shankar Prasad, all learned senior counsel appearing on
behalf of the parties. We also acknowledge a very dispassionate
assistance rendered by learned Solicitor General and his team of
Additional Solicitors General.
Read the full judgement at the following URL: http://judis.nic.in/supremecourt/helddis3.aspx