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Introduction
In this case the conflict between the two Ambani brothers arise based on the basis of
Memorandum of Understanding. Finally it was held that the MoU entered by private parties
cannot be binding. As the Ambani brothers had the MoU arriving out of family arrangement
within private parties.
The dispute between RIL and RNRL has its origins in events following the decision of the Indian
Government to allow limited private sector participation in gas exploration. The Government
awarded particular blocks to private companies, and this relationship is governed by several
documents that are well-known in the oil and gas industry, of which the most important for this
case was the Production Sharing Contract [PSC]. Such a block in the Krishna-Godavari
basin, known as KG-D6 was awarded to a RIL Consortium in 1999, and a PSC was duly entered
into. In 2003, RIL tendered for the supply of gas to the National Thermal Power Corporation
[NTPC], won the bid, and entered into an agreement to supply a specified quantity of gas at
$2.34/mmBtu. In the meanwhile, differences had begun to emerge between the RIL principals
Mukesh and Anil Ambani and a family arrangement or Memorandum of Understanding
[MoU] was entered into between the two brothers and their mother, on 18 June, 2005, dividing
RIL concerns between the brothers. The MoU gave RNRL a specified entitlement of oil and gas
at the price at which RIL had agreed to supply gas to NTPC in short, $2.34/mmBtu. The
Bombay High Court approved the consequent Scheme, which required that suitable
arrangements be made for the supply of gas by RIL to RNRL, and the Scheme became effective
on 21 December, 2005.
Following this, the RIL and RNRL Boards (controlled at the time by the MDA Group) approved
a draft Gas Sale Master Agreement [GSMA] and Gas Sale Purchase Agreement [GSPA].
Once control was transferred to the ADA Group, RNRL contended that the GSPA and GSMA
were inconsistent with the scheme. Subsequently, the Ministry of Petroleum and Natural Gas
declined to approve RILs request to supply gas to RNRL at the NTPC price of $2.34/mmBtu.
RNRL filed an application in the Bombay High Court requesting the Court to direct RIL to
supply gas at the price agreed in the MoU.
. Questions to be decided
There were many Questions to be decided, but the major issues were -
1. Whether the PSC overrides all other contracts, and affords the Government the power to
control prices?
2. The binding nature of a MoU on a company in the absence of an express provision in its
Articles of Association is valid?
Contention of parties-
Decision
in perhaps the most significant issue in the context of the case, the majority and Justice Reddy
agreed that the power of the Union to distribute natural resources for the good of the community
overrides private agreements. In this respect, the Court relied on Art. 297 of the Constitution,
which vests natural resources in the Union of India, Art. 39(b), which requires distribution of
resources to subserve the common good, commercial practice in the oil and gas
industry(para 84), the international principle of permanent sovereignty over natural resources
adopted by the UN General Assembly in Resolution 1803 (para 88), the provisions of the PSC,
the doctrine of public trust (para 97) etc.
Finally, Justice Sudershan Reddy (paras 21, 141) observed that directors owe a fiduciary duty
to shareholders. Construed literally, this is a departure from the settled proposition that such
duties are owed to the company. However, although this point is not free from doubt, it appears
to be a passing observation, and the reference to shareholders seems to be intended to refer to the
company as a body of shareholders.
The Supreme Court has ruled in favour of Mukesh Ambani-promoted Reliance Industries
Limited (RIL) in its battle against Anil Ambani-controlled Reliance Natural Resources Limited
(RNRL).