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Home News Power Sector News Natural resources are national assets: Supreme Court

Natural resources are national assets: Supreme Court

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Supreme CourtThe Supreme Court on 07-05-2010 said the government was the undisputed owner of natural resources and had the right to fix its price. It was delivering the verdict on the dispute over Krishna-Godavari gas between companies led by the two Ambani brothers, Mukesh and Anil. In what could be a virtual win like situation for Mukesh Ambani’s Reliance Industries Ltd (RIL) in its dispute with estranged brother Anil Ambani’s Reliance Natural Resources Ltd (RNRL) over supply of gas from Krishna-Godavari basin, the Supreme Court asked both the parties to renegotiate to sort out their differences but within the government’s gas utilization policy and the decisions of the Empowered Group of Ministers (EGoM) which had fixed the price at $4.20 per million British thermal unit (mmBtu).

The case, one of the most-followed legal battles in India, was heard by a three member bench of Chief Justice K.G. Balakrishnan, Justice B. Sudershan Reddy and Justice B. Sudershan Reddy. "We direct both the parties to renegotiate to sort out the differences but within the government’s policy of Gas Utilization Policy and the egom decisions", said Chief Justice KG Balakrishnan and Justice P Sathasivam in their separate judgment. Justice B Sudershan Reddy in his separate judgment also asked both RIL and RNRL to renegotiate to sort out their differences but set aside Bombay high court order.

The high court order had directed the RIL to supply 28 million standard cubic metres per day (mmscmd) of gas to RNRL at $2.34 per million British thermal unit (mmBtu) in accordance with the MoU signed between the estranged Ambani brothers.

The government is the owner of natural gas and contractor RIL has no absolute marketing freedom to sale the gas till its delivery to the consumers without government’s approval, said Justice Sathasivam reading out the opearative part of the judgment.

It said, the Production Sharing Contract (PSC) signed between government and RIL will override the Ambanis family Memorandum of Understanding.

As per the MoU signed on June 18, 2005 as part of a settlement on division of the Reliance empire, RIL is to supply 28 million standard cubic metres per day (mmscmd) of gas to RNRL at $2.34 per million British thermal unit (mmBtu). This price is at a 44% discount to the price of $4.20 per mmBtu fixed later by the government for sale of gas by RIL to some power and fertiliser companies.

The court further ruled that the MoU signed by Mukesh Ambani with Anil Ambani with the help of mother Kokilaben is not binding on RIL adding it does not fall under corporate domain.

The court asked both the parties to renegotiate between 6 weeks and approach the Bombay high court within 8 weeks for approval.

It, however, ruled that the petition of RNRL which was filed in the company court (high court) was maintainable. It had moved the court for supply of gas from RIL at the agreed price of $ 2.34 per unit.

At the core of the gas dispute was the validity of an agreement reached between the two brothers -- and blessed by their mother Kokilabehn -- at the time of the de-merger of the erstwhile Reliance Group in June 2005.

It concerned the price, quantity and tenure of gas supplies by Reliance Industries to Reliance Natural Resources. The agreement called for 28 million units of gas a day to be supplied by Reliance Industries to Reliance Natural Resources at $2.34 per unit for 17 years.

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."

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.

Source- Economic Times


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