The Bombay High Court has ruled that Mukesh Ambani's Reliance Industries cannot be forced to sell gas from its eastern offshore KG-D6 fields to firms run by his brother Anil at subsidised rates and incur losses.
Justice Anoop V Mohta, delivering the final verdict on Friday in the gas supply row between RIL and Reliance Natural Resources Limited, asked the two companies to decide on a new gas price, as the rate of $2.34 per mBtu agreed in the family de-merger agreement had already been rejected by the government.
"The respondents (RIL) cannot be directed to sell or supply gas at subsidised rate and to incur losses," he said.
Government had recently approved a market-determined price of $4.20 per mBtu for gas from KG-D6.
Upholding the government's right to decide on gas price, the court on October 15 said the government's entitlement to profit petroleum from the total production will be reduced if gas is sold at sub-market price or if gas is undervalued.
RIL 'cannot be compelled to commit such breaches to face the risk of termination of the contract (for KG-D6) itself.'
The court, however, thrashed RIL''s contention on family de-merger agreement and upheld the pact for splitting the Dhirubhai Ambani empire. Under the de-merger agreement, RIL is to supply RNRL 28 mmscmd of gas and an additional 12 mmscmd in case RIL's deal with NTPC fails.
It said the gas supply agreements between RIL and RNRL, entered into in January 2006 with Mukesh Ambani presiding over both RIL and de-merged RNRL, was breach of de-merger scheme and asked the two to renegotiate the same within four months.
The court's restrain on RIL from selling gas meant for RNRL to third party will continue for the period.
The Memorandum of Understanding between Anil and Mukesh prior to the splitting of Reliance empire will be 'binding' on both as well as their companies, the court held.
RIL, it said, should provide gas to power projects of companies (RNRL and Reliance Energy) that were formed because of the split.
"But this should be definitely based on the suitable arrangement and agreements. There cannot be the commitment and/or agreement beyond the scope and capacity of RIL in reference to the period, quality, liability and/or non-supply of gas for various bonafide and genuine reasons beyond the control of RIL and against any government policy," it said.
The order said the terms mentioned in the MoU and Gas Sales Master Agreement need to be suitable for both the parties subject to the government's policies and national, international practices in supply of gas.
"The contract of such nature is subject to the government's approval in view of New Exploration Licensing Policy (under which KG-D6 was awarded) and Production Sharing Contract (for KG-D6)," it said, adding that the supply of gas contract/agreement needs to be 'clear and bankable documents.'
It upheld the government's right to check, scrutinize before approving the contractor's price which should be in line with the global standard and best international practice of similar trade and business of supply of gas.
"To say that the government has no say at all even in the gas price agreed between RIL and RNRL and/or such party is not correct," it said.
