Supreme Court Rules on Reliance Gas Dispute

Much has been debated about the four year old high-profile battle over Reliance gas between the famous Ambani brothers – Mukesh and Anil. On 7^th May, 2010, the Supreme Court' s verdict favored the government. The court ruled that the ultimate authority of allocating gas and fixing its price lies with the government. Following the judgment, the BSE reflected RIL shares rising by 5% to close at Rs 1050. Conversely, RNRL’s shares saw a steep decline of 20% to close at Rs 55.

Reliance Gas: Supreme Court Rules on Legal Battle Between Brothers

The rift between the Ambani brothers worsened in June 2005, almost two years after the death of their father, Dhirubhai, following which the mother, Kokilaben finalized a family settlement. The older son, Mukesh, was given the ownership of the energy and petrochemicals business. The younger son, Anil was allotted the power, financial services and telecom business.

In December 2005, the Bombay High Court approved the de-merger scheme leading to the official establishment of the Anil Dhirubhai Ambani group (ADAG). This settlement, however, did little to break the ice of extreme sibling rivalry. The battle between the brothers worsened to some extent due to the excessive media coverage given to what had begun as a family row and progressed to a legal battle that continued in and out of the courtroom.

Reliance Gas: Supreme Court Rules That Gas is National Property & Not Subject to Private Contracts

RNRL, which belongs to ADAG, had sought RIL to supply gas to it for its 7,800 MW electricity plant. The plant was meant to be set up at Dadri in Uttar Pradesh. At the root of this rivalry was the demerger of the Reliance Empire. RNRL (led by Anil) argued that it should be sanctioned 28 million standard cubic metres a day (mscmd) of gas per day from RIL’s (led by Mukesh) Krishna Godavari Basin D6 block at $2.34/ mBtu for a period of 17 years. The price demanded by RNRL is 44% lower than what is approved by the government i.e. USD 4.20 per mmBtu.

In response, RIL clarified that it is not authorized to supply gas at a lower rate than the government approved rate. However, the Bombay High Court ruled in favor of RNRL, directing RIL to supply gas at the price stated in the family agreement. This forced Mukesh Ambani to appeal against this in the Supreme Court on July 4, 2009. On July 19, 2009, the Government intervened and petitioned in the apex court that gas, being a national property, should not be subject to private contracts.

Reliance Gas: Supreme Court Rules That MoU of Ambani Family is not Legally and Technically Binding

A three judge bench headed by the Chief Justice K.G. Balakrishnan held that the division of Reliance gas under the MoU of Ambani family was legally and technically not binding.

While reading out the verdict, Chief Justice K.G. Balakrishnan said, “RIL does not have absolute right over gas and price is subject to government approval... since MoU (of the Ambani family) has not been made public, it does not fall in the corporate domain... Under the Production Sharing Contract, it is for the government to evaluate the price of fuel.”

The bench also observed that the MoU does not fall in the category of corporate domain because the MoU was not made public. This ruling ended speculations about the judgment, Although the Supreme Court found the petition filed by RNRL as maintainable, it upheld its view that the “gas is government asset till it reaches consumer.”

The court also highlighted that marketing rights over gas were not available to RIL. This means that RNRL must go back to the negotiation table.

RNRL Chairman Anil Ambani is said to have left the courtroom without more ado following the court’s verdict. He even avoided answering the queries of reporters. The buzz is that Anil had launched public tirade against his elder brother in 2009. He had accused Mukesh of trading the vision of their father Dhirubhia for “corporate greed.” Anil also blamed the RIL chairman for not imparting any significance to their mother Kokilaben’s role in resolving the gas dispute.

The Oil Minister, Murli Deora stated, “No matter what campaign one ran against the government, the nation is supreme.” He did not mention that the Anil Ambani group had accused his ministry of being partial towards Mukesh-led RIL.