RIL readies to appeal gas spat verdict in SC

Reliance Industries (RIL) is preparing to approach the Supreme Court to contest the Bombay High Court verdict in its gas spat with the Anil Dhirubai Ambani Group firm Reliance Natural Resources, according to sources close to the development.

It is likely to approach the highest court in the country towards the end of the one-month period set by the high court for dispute resolution, unless the Government of India does so first.

“The current judgement is flawed on many points and we will appeal before the Supreme Court (SC),” said an official close to the development, on condition of anonymity.

RIL will argue its appeal on two main points — against superseding current government policy and giving an “unfair” advantage to the Anil Ambani group. However, the company will first wait to see if the government will appeal against the judgement, the official said.

The company will contest the court’s contention that the demerger agreement is exempt from rules applicable for commercial transaction.  

The division bench of justice J N Patel and K K Tated had held the demerger scheme of the undivided Reliance Industries was “in a class of its own” and not directly comparable to normal commercial transactions entered into by private companies.

As such, the court held that the scheme is to be exempt from subsequent government guidelines regarding disposing of of natural gas.

RIL is expected to point out that the memorandum of understanding (MoU) between the brothers in 2005, as written down, has become unworkable since it is incompatible with the government’s gas allocation policy.

The MoU lays down norms for sharing the entire production of RIL’s gas basin.

Besides this, RIL will argue the case for a level playing field among power producers. It will point out that the implementation of the MoU will result in the creation of a non-level playing field among power producers since the Anil Ambani group will get natural gas cheaper than everyone else (with the possible exception of NTPC).

RIL will also argue that the judgement may set a bad precedent, besides affecting gas supply to its existing customers.
Sources said RIL is unlikely to go to Kokilaben Ambani, mother of Anil and Mukesh, for mediation.

“If she could solve it, it would have been solved long back. That option was always there,” a company official, not wishing to be named, said.

Industry officials were not surprised at the move, pointing out that Monday’s judgement left RIL with only three options —- an out-of-court settlement, going back to the company court for modifying the demerger scheme or approaching the Supreme Court. The last option is seen as the least painful for the group.

A top New Delhi-based corporate lawyer, not wishing to be named, was sceptical about an appeal based on the MoU flouting the government’s gas distribution norms.

Against an expected production of 40 million cubic metres by next month and 80 mmscd by December, RIL has only entered into supply agreements for less than 30 million cubic metres.

“At a production of 80 million cubic meters, the government’s priority allocation norms may not be needed to ensure supply of gas to all the participants,” he pointed out.

An appeal in the SC, either by RIL or the government, will mean deliberations and arguments for another 4-6 months, according to lawyers.

If the SC rules against implementing the MoU, it may either seek a re-drafting of the division of assets between the brothers or leave the matter for a new petition by the Anil Dhirubhai Ambani Group (ADAG).

In addition to seeking re-drafting, ADAG can also claim damages under the terms of the MoU.