Reliance Natural

Resources Ltd vs
Reliance Industries Ltd
As a Course Work for continuous evaluation in the
subject of

Module :- Company Law

 FACTS
Krishna-Godavari basin, known as KG-D6 was
awarded to a RIL Consortium in 1999.
PSC was signed in 2000.
RIL tendered for the supply of gas, won the bid,
and entered into an agreement to supply a
specified quantity of gas at $2.34/mmBtu to the
National Thermal Power Corporation [NTPC].
When the two brothers separated there was an
MoU signed between the two brothers and their
mother, on 18 June, 2005, dividing RIL concerns
between the brothers.
In 2006 RNRL filed a case against RIL.
 In october of 2007 the govt. approved the market
price at $4.2.
The Bombay high court stepped in on june 15, 2009
asking both companies to respect the MoU.
The Division Bench held that the suitable
arrangement in the Scheme had to be formulated in
light of the MoA, and further observed that nothing in
the PSC prevented RIL from selling gas to a third
party at a rate lower than that prescribed by the
Union of India.
All three parties RIL, RNRL and the Union of India
appealed to the Supreme Court, which heard
arguments for over 26 days.
 What does the MoU says?

Signed on June 18, 2005.

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 for 17 years.
Additionally if the contract b/w RIL &
NTPC does not materialise, then
Anils side will also get NTPCs share
of 12 mmscd.
 What Is The Fight About?

RIL agreed to sell RNRL 28 mmscmd

of gas from KG Basin for 17 years at
$2.34 per mmbtu for its Dadari
power plant.
With RIL not supplying the gas, RNRL
went to court against it for not
implementing this part of a family
MoU signed when the empire was
being carved up between the two
brothers.
 JUDGEMENT
The Supreme Court, in its verdict through two
concurring judgments, overturned the Bombay High
Courts judgment and held as follows:
1. All natural gas vests in the Union of India by virtue of
Article 297, and title vests to the delivery point in
accordance with Article 27.1 of the PSC.
2. Since some functions of the Union relating to the
exploration and supply of natural gas have been
privatized, such private parties are also bound by other
Constitutional obligations that would have been
applicable to the Union of India if such functions had
not been privatized.
3. The power of the Union of India to regulate supply and
production of natural gas is paramount under the
Constitution.
 It is put into operation through relevant statutes and
the PSC itself and this cannot be superseded by a
private arrangement.
4. Allocation of natural gas made by the EGOM cannot
be overridden by a contractor through a private
arrangement.
5. Contractor, i.e. RIL, is bound by the decisions of the
EGOM on price, quantity and tenure of supply of
natural gas.
6. Supplies of natural gas can only be made in
accordance with the policies of the Government and
RNRL will have to approach the Government seeking
allocation of gas before any supplies are made to it.
Further, such supplies must be in accordance with the
price, quantity and tenure fixed by the Government in
the decisions of the EGOM.
 Union of India
(Petroleum Ministry)
Petroleum ministry says that the brothers are fighting
over something that does not belong to them.
Article 297 of the Constitution of India lists petroleum
as a resource, which Union of India has an authority
over.
The Discovered Gas in the KG basin is the Property of
the Government and that RIL is merely a Contractor.
So, therefore any MOU signed between the Ambani
Brothers on this gas should be declared Null and Void
as RIL has no authority to enter into this MOU.
The Ambani Brothers cant make the Gas their
Private Property.
 Reliance Natural Resources Ltd.
(Anil Ambani)
RNRLarguesthe ministrys roleunder the PSCis limited to
ensuring that it gets fair share of profits or not.
RIL cangivethe gasawayfreeas long as itgives the
government its share of the profit.
The Bombay High Court has ruled that the family MoU does
not violate the PSC-that is, the ministry could not cancel the
RIL-RNRL agreement.
The cost of production in the KG basin is $1.28 to $ 1.41
and at $ 4.20/mmbtu RIL will make huge profit. He feels
that the price of the gas should not be above $ 1.5/mmbtu .
$ 4.20 price has been determined by the govt. for its take
as a part of PSC.
RIL will make a profit of Rs. 50,000 crore by pricing gas at $
4.20. RNRL will lose $ 1 Billion( Rs. 4,800 crore) over 17
years.
 Reliance Industries Ltd.
(Mukesh Ambani)
Never committed a price since it is
subjected to govt. approval. Govt. has
rejected the price of $2.34 in january 2006.
If the gas is sold at US $ 2.34, it would be a
double as the buyer will then sell it for US
$ 4.20 and pocket the difference.
If govt. values gas at $ 4.2 for its profit
share and RIL has to sell it at $ 2.34, it
could suffer a loss.
 ISSUE
Whether the MoU entered into
amongst the family members of the
Promoter was binding upon the
corporate entity.
Doctrine of Identification (Para 35)
MoUcan be used as an external aid for the
interpretation of suitable agreement
under the scheme. (Para 36)
MoU is one of the means of construing
suitability of the arrangement. (Para 37)
 CRITICAL ANALYSIS
The Supreme Court has affirmed the power of the
Government to control and regulate the natural
gas sector,
and approved of the present method of regulation
of this scarce commodity.
Reddy J noticed that the Constitution vests the
natural resources within the domain of India with
the Union.
Not ownership or possession, rather, it is an
commitment.
The principles laid down in the context of natural
gas, applicable in future instances in deciding the
validity and scope of regulations in the context of
other scarce natural resources.
 CONCLUSION

The Reliance case, served well to

prevent the centralization of natural
resources in a few hands.
Thank You