HC says Ambanis’ settlement binding

Anil Group says: Thumping victory for RNRL, double whammy for RIL
Mukesh Group says: Court order to rework $2.33 gas price, government role in issue, are positives

MUMBAI: The Bombay High Court has directed Mukesh Ambani’s Reliance
Industries and Anil Ambani’s Reliance Natural Resources to come to the table and renegotiate the gas supply master agreement in four months.

The Anil Ambani camp immediately claimed the interim order ‘vindicated’ its stand that the memorandum of understanding between the two richest men in India to settle all “ownership issues” between them are binding on the two brothers and their respective group companies.

They claimed the interim court order as a ‘double whammy’ against Reliance Industries.
RNRL counsel Manali Singhal called the order “a thumping victory” for the gas trading company.

In an official communiqué, Reliance ADAG said: “We are extremely happy that the Bombay High Court has upheld the enforceability of the family settlement between Mukesh Ambani and Anil Ambani groups and has held that the said agreement is binding on their respective companies.”

Reliance Industries sources said they were heartened by the court’s observation that parties must negotiate on price since the rate of $2.33/mBtu, which RNRL has demanded, has been rejected by the government.  

They point out that the court also said government role in the issue cannot be ruled out, nor can RIL sell or commit quantities of gas which are in excess of P-1 reserves in hand.

They termed the court order that the family memorandum of understanding is binding on all concerned “is contrary to all established norms of corporate governance.”

“Such documents, inter se, between promoters can never bind the board of directors of a company which has millions of shareholders,” Reliance Industries sources said.

The basic grouse harboured by Anil Ambani’s group is that the Gas Supply Master Agreement (GSMA) signed between Reliance Natural Resources and Reliance Industries had unilaterally deviated from the family settlement understanding.

The GSMA was signed after the ownership issues were settled, when RIL representatives Sandeep Tandon and L V Merchant, as board members of RNRL, signed an agreement on behalf of Anil Ambani’s group with RIL.

These were naturally not in favour of Anil Ambani group’s business interests.
RNRL was basically set up to procure gas from Reliance Industries for Reliance Energy’s power needs especially in Dadri in Uttar Pradesh.

What Reliance ADA group sources further claim is that Reliance Industries ‘will have no gas to sell” over and above the gas committed to Reliance Natural Resources and NTPC.

As per the agreement, the gas will be sold at $2.34 as against $4.2 per million British thermal units arrived at by RIL through a price discovery process recently.

RIL cannot produce more than 80 MMSCMD at any point, as per RIL’s approved development plan.

Mukesh Ambani’s Reliance Industries wants higher prices for the gas it is drilling at the Krishna Godavari basin because the cost of hiring rigs, buying pipelines and construction materials have increased exponentially.

What sources close to Anil Ambani argue is that the price fixed then between the two are binding and the loss incurred by the government by way of lesser royalties should be incurred by Mukesh Ambani’s Reliance Industries.

Anil Ambani’s camp hopes that the parties to renegotiate and execute a fresh GSMA within four months, which shall be commercially suitable to both parties and bankable.

Only if they have some concrete arrangement can they borrow funds from banks to set up the Dadri project.

But RIL sources also claimed victory. RIL sources said the high court on Monday has rejected RNRL’s prayer for modifying the terms of the gas supply arrangement between RIL and RNRL.

The court said it will itself not enter into areas of “commercial wisdom.”

In real and practical terms, however, the judgement does not get anything for RNRL, RIL sources said.