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Rediff.com  » Business » Govt has full right over gas, not Ambanis: SC

Govt has full right over gas, not Ambanis: SC

Last updated on: May 7, 2010 13:35 IST

Image: Mukesh Ambani (L-standing), Anil Ambani (R-standing) and Dhirubhai Ambani (seated).
Photographs: Jayanta Saha/Reuters Ranjit Kumar Sinha & R Balaji in New Delhi

In what could be a severe blow to Anil Ambani group seeking cheap gas from elder brother Mukesh-led Reliance Industries Ltd, the Supreme Court on Friday ruled that the government has the last word on pricing and utilisation of national asset.

Giving its verdict on the four-year-old Ambani battle that was intertwined with a bitter public wrangling, a three-judge bench of the court headed by Chief Justice K G Balakrishnan said the Ambani family memorandum of understanding (MoU) dividing the gas was not binding, both legally as well as technically.

Immediately after the judgement, RNRL chairman Anil Ambani, who was present at the courtroom, left without taking any questions from the throng of reporters and cameramen.

Stock market responded swiftly to the judgement, with RIL shares shooting up by about 5 per cent to nearly Rs 1,050 and that of RNRL tanked close to 26 per cent close to Rs 50.

"RIL does not have absolute right over gas and price is subject to government approval. . . since the MoU (of the Ambani family) has not been made public, it does not fall in the corporate domain. Under the Production Sharing Contract, it is for the government to evaluate the price of fuel," Justice P Sathasivam said, reading out the verdict.

The court also directed RIL to initiate negotiations with RNRL within six weeks to arrive at a sale agreement within the framework of government policy.

RNRL had contended that it was entitled to 28 mmscmd of gas a day from RIL's eastern offshore KG-D6 fields, at $2.34 per mmBtu, a price 44 per cent lower than the government approved rate of $4.20 per mmBtu.

The bench, headed by Chief Justice of India Balakrishnan who will be demitting office on May 11, also said that the Ambani family MoU can only be a means of arriving at suitable arrangement but cannot be the sole means for a suitable arrangement.

. . .

Govt has full right over gas, not Ambanis: SC

Image: Mukesh Ambani.
Photographs: Reuters

Contrary to speculation that the judgement could be split, the bench held that since the MoU had not been made public, it doesn't fall in the corporate domain.

Concurring with the judgement, Justice B Sudershan Reddy, who replaced Justice P Raveendran after he recused in November 2009 citing conflict of interest, said that the family MoU cannot be taken into consideration at all.

After a bitter public battle over division of Reliance empire, less than two years of Ambani family patriarch Dhirubhai's death, Mukesh and Anil reached a family settlement spelt out by mother Kokilaben in June 2005.

As per the settlement, the energy and petrochemicals business went to Mukesh and the power, financial services and telecom business to Anil.

Accordingly, the scheme of de-merger approved by the Bombay high court in December 2005, paving the way for creation of a new entity -- Anil Dhirubhai Ambani Group.

However, the bitterness between the two brothers did not cease and the two sides were constantly engaged in public and courtroom battles, with gas dispute reaching the flash point. ADAG firm RNRL had sought gas from RIL to power its proposed 7,800 MW electricity plant at Dadri in Uttar Pradesh.

The Bombay high court had last year directed RIL to reach an amicable agreement with RNRL for gas supply as per the family MoU.

Although the Apex Court said that the petition filed by RNRL was maintainable, as the company court had sanctioned the original demerger scheme, it held that the 'gas is government asset till it reaches consumer'.

. . .

Govt has full right over gas, not Ambanis: SC

Image: Anil Ambani.
Photographs: Punit Paranjpe/Reuters

The court, however, also made it clear that RIL did not have absolute marketing right over gas and in the face of the bench's observation, the Anil Ambani group's claim to over 28 mmscmd of gas for 17 years is likely to go back to the negotiating table.

"The court has asked us to renegotiate. . . that is what we are going to do. The court has given us some time," Reliance Industries executive director P M S Prasad told reporters.

The court earlier said that a suitable arrangement must not be suitable only for RIL, but also for shareholders of RNRL and it's RIL's obligation to look after it.

The Supreme Court held the family MoU as technically not binding on the ground that three million shareholders of RIL-RNRL did not know its contents. The MoU was only among the two brothers and their mother Kokilaben.

When the courts were hearing the matter last year, Anil Ambani had launched public tirade against Mukesh, saying his elder brother had traded their father Dhirubhai's vision for 'corporate greed'.

He had then also said that Mukesh no longer saw a role for their mother Kokilaben in resolving the gas dispute.

The public wrangling also included defamation suit filed by Anil against Mukesh, and Mukesh opposing Anil group firm RCOM's bid to merge with South African telecom giant MTN.

All this happened when the gas supply battle was playing out in courts.

The Apex Court on Friday said since gas is a national asset, public interest has to be looked into first.

"Terms of production sharing contract (between government and contractor RIL) will have  over-riding effect," the court said, adding that the PSC is meant for regulating supply of gas and under PSC it's for the government to evaluate price of fuel.

. . .

Govt has full right over gas, not Ambanis: SC

Image: An oil rig.

Govt stand vindicated: Deora on RIL-RNRL case verdict

Oil Minister Murli Deora, who faced flak for intervening in the gas dispute between the Ambani brothers, today welcomed the Supreme Court verdict saying the government stand that gas belongs to the nation has been vindicated.

Immediately after the Supreme Court upheld the government's right to fix price of gas and decide its utilisation, Deora told PTI: "SC verdict upholds the fact that gas belongs to the government and the people of the country and that is what we have been saying."

The court said that the Ambani family MoU seeking to divide gas between Reliance Industries and Reliance Natural Resources Ltd was not binding, both legally and technically.

"I welcome the verdict. No matter what campaign one ran against the government, the nation is supreme," he said without naming Anil Ambani group which had cast aspersions on his ministry for allegedly siding with Mukesh-led RIL.

In the midst of the court battle, the government had also moved the Supreme Court asserting its sovereign right on pricing and utilisation, even as RIL said that it had fixed the gas price at $4.20 per mmBtu as per the government policy.

The government's intervention in the case had made Deora the target of Opposition parties' attack both inside and outside Parliament.

Anil Ambani group had carried front page advertisements in newspapers, accusing Deora's ministry of trying to bailout RIL from its obligation under the Ambani family MoU to supply 28 mmscmd of gas to RNRL at a price of $2.34 per mmBtu.

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