Monday, November 29, 1999

And, this one goes to mukesh

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The people of the entire country have a stake in natural gas and its benefit has to be shared by the whole country.RIL's right of distribution is based on the PSC, which itself is derived from the power of the government under the constitutional provisions. Thus the very basis of RIL's mandate is the constitutional concepts that have been discussed by now, including Article 297, Articles 14 and 39(b) and the Public Trust Doctrine. Therefore, it would be beyond the power of RIL to do something which even the government is not allowed to do. The transactions between RIL and RNRL are subject to the over-riding role of the government.The following are the broad sustainable conclusions which can be derived from the position of the Union:* The natural resources are vested with the government as a matter of trust in the name of the people of India. Thus, it is the solemn duty of the State to protect the national interest.* Even though exploration, extraction and exploitation of natural resources are within the domain of governmental function, the government has decided to privatise some of its functions. For this reason, the constitutional restrictions on the government would equally apply to the private players in this process. Natural resources must always be used in the interests of the country, and not private interests.* The broader constitutional principles, the statutory scheme as well as the proper interpretation of the PSC mandates the government to determine the price of the gas before it is supplied by the contractor.* The policy of the government, including the Gas Utilisation Policy and the decision of eGOM would be applicable to the pricing in the present case.* The government cannot be divested of its supervisory powers to regulate the supply and distribution of gas.Summary of conclusions:Question of maintainability of the company applicationRNRL filed an application under the Companies Act arguing that GSMA put in place by RIL does not satisfy the scheme of demerger. The scheme under question was approved by the Company Court on the previous occasion under Sections 392 and 394. Therefore, contrary to RIL's argument, Sections 392 and 394 are applicable.Further, the power of the court under Sections 391 to 394 of the Companies Act is wide enough to make necessary changes for working of the scheme. This power is specific to the facts and circumstances of the case at hand. Nevertheless, this power does not extend to making any substantial or substantive changes to the scheme. Therefore, the Company Court enjoys jurisdiction to entertain the application under Sections 392 and 394 of the Companies Act.Binding nature of the memorandum of understandingThe MoU was signed as a private family arrangement or understanding between the two brothers, Mukesh and Anil Ambani, and their mother. Contents of the MoU were not made public, and even in the present proceedings, they were revealed in parts. Clearly, the MoU does not fall under the corporate domain---it was neither approved by the shareholders, nor was it attached to the scheme. Therefore, technically, the MoU is not legally binding. Nevertheless, cognizance can be taken of the fact that the MoU formed the backdrop of the scheme, and therefore, contents of the scheme have to be interpreted in the light of the MoU.Considerations to determine "suitable arrangement" under Clause 19 of the Scheme"Suitable arrangement" under clause 19 of the Scheme must not be merely suitable for RIL. It has a broader meaning. Such an arrangement must be suitable for the interests of the shareholders of RNRL as reflected by the MoU, and RIL; the obligation of RIL under the PSC; the national policy on gas including the decisions of eGOM and the Gas Utilisation Policy; and the broader national and public interest.Proper interpretation of the PSCThe objective of the PSC inter alia is to regulate the supply and distribution of gas. Keeping this objective in mind, Article 21 of the PSC must be interpreted to give the power to the government to determine both the valuation and price of gas. It is not feasible to restrict the power of the government in such matters of national importance, especially when the governing contract, the PSC, also provides for it.Role of the governmentIn a constitutional democracy like ours, the national assets belong to the people. The government holds such natural resources in trust. Legally, therefore, the government owns such assets for the purposes of developing them in the interests of the people. In the present case, the government owns the gas till it reaches its ultimate consumer. A mechanism is provided under the PSC between the government and the contractor (RIL, in the present case). The PSC shall over-ride any other contractual obligation between the contractor and any other party.Relief* Though the Contractor (RIL) has the marketing freedom to sell the product from the contract area to other consumers, this freedom is not absolute. The price at which the produce will be sold to the consumer would be subject to government's approval. The tenure of such contracts can't be such that it vitiates the development plan as approved by the government. Therefore, the GSMA and the GSPA entered into with RNRL should fix the price, quantity and tenure in accordance with the PSC.* The eGOM has already set the price of gas for the purpose of the PSC. The parties must abide by this, and other conditions placed by the government policy. The GSMA/GSPA deeply affects the interests of the shareholders of both the companies. These interests must be balanced. This balance cannot be struck by the court as the court does not have the power under Sections 391-394 to create new conditions under the scheme. In view of the same, RIL is directed to initiate renegotiation with RNRL within six weeks the terms of the GSMA so that their interests are safeguarded and finalise the same within eight weeks thereafter and the resultant decision be placed before the Company Court for necessary orders.* While renegotiating the terms of GSMA, the following must be kept in mind:1) The terms of the PSC shall have an over-riding effect;2) The parties cannot violate the policy of the government in the form of the Gas Utilisation Policy and national interests;3) The parties should take into account the MoU, even though it is not legally binding, it is a commitment which reflects the good interests of both the parties;* The parties must restrict their negotiations within the conditions of the Government policy, as reflected inter alia by the Gas Utilisation Policy and eGOM decisions.With the above directions/observations, all the appeals and I.A. No.1 are disposed of. No order as to costs.(Chief Justice KG Balakrishnan)(Justice P Sathasivam)B Sudershan Reddy's dissenting judgementWe hold that:* Both the learned Single Judge and the Division Bench committed a serious error in exercising jurisdiction in the manner they did under Section 392 of the Companies Act, 1956, for such interference has resulted in the provisions of a document (MoU) which was not before the shareholders supersede the Scheme of Arrangement. Such a document could not have been read into and incorporated in the Scheme propounded by the Board, approved by the shareholders and sanctioned by the Company Court;* The courts below having rightly directed the parties to negotiate, and further having rightly refused to grant the prayers in the Company Application, however, fell into error directing the MoU to be binding and the basis for further negotiations between the parties. MoU is a private pact between the members of Ambani family which is not binding on RIL;* The eGOM decisions, regarding the utilisation of the natural gas and the price formula/basis etc. do not suffer from any legal or constitutional infirmities. They shall apply to all supplies of natural gas under the PSC. The parties are bound by the governmental policy and approvals regarding price, quantity and tenure for supply of gas;* Under the PSC in issue the Contractor (RIL) does not become the owner of natural gas, and there is nothing like specified physical quantities of natural gas to be shared by the GoI and the Contractor;* We, accordingly, direct the parties to renegotiate as to the suitable arrangements for supply of gas de-hors the MoU. Such renegotiations shall be within the framework of governmental policy and approvals regarding price, quantity and tenure for supply of gas. The renegotiations shall commence within eight weeks from today at the initiative of RIL and shall be completed within a period of six weeks from the day of commencement of negotiations.Before we part with the case, we consider it appropriate to observe and remind the GoI that it is high time it frames a comprehensive policy/suitable legislation with regard to energy security of India and supply of natural gas under production sharing contracts.

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