RIL declines 'arbitration'

Adding to its observation yesterday on the Ambani brothers’ battle over gas, that shareholders and everyone else were suffering due to a personal standoff between the two chiefs, the Supreme Court today asked if the issue couldn’t be settled by mediation or arbitration.

The case is being heard by a three-judge Bench of Chief Justice K G Balakrishnan and Justices P Sathasivam and R V Raveendran.

In the second day of the hearing in the apex court on the long and bitter dispute between Mukesh Ambani’s Reliance Industries (RIL) and Anil Ambani’s Reliance Natural Resources Ltd (RNRL), the Bench suggested there could be “suitable arrangement” through arbitration.

For, it noted, the Bombay High Court, which had gone into and approved the scheme of demerger of the original Reliance empire had still found itself unable to spell out the ideal arrangement.

The suggestion, however, fell on dry ground as far as RIL went. Harish Salve,its senior counsel, promptly replied that the government’s gas utilisation and pricing policy, the very point RIL has cited for rejecting RNRL’s plea and the HC decision, was itself a “suitable arrangement”.

As for RNRL’s plea to dismiss RIL’s petition, Salve said they had no legal standing to urge this; only creditors and board members could do so. Yesterday, he had said the family arrangement splitting the empire had never been approved by the RIL board; hence, the gas supply and pricing agreed between the two brothers had no legal standing when superseded by later government policy.

RNRL’s turn to argue comes later. Salve today broadened RIL’s main point, that the government order fixing the price and quantum of gas from RIL’s Krishna-Godavari basin, which RNRL is claiming on the basis of the family pact and the HC order, binds all parties. RIL, said Salve, lacks marketing freedom for the product and can only sell to RNRL or anyone else at a price approved by the government.

“The gas belongs to the government as per the production sharing contract and RIL is entitled to recover sums of money which it has invested in exploration and production…What remains after cost is the profit which will be shared between the government and RIL. In the gas supply agreements with both RNRL and NTPC, there is a clause that the government must approve it,” he told the judges.

RIL and RNRL have moved the apex court on the Bombay High Court decision delivered on June 15, which had asked RIL to provide 28 million metric standard cubic metres per day (mmscmd) of gas to RNRL at a price of $2.34 per million British thermal unit (mBtu), based on an earlier family pact dividing the Reliance legacy between two rival brothers. RIL, however, contends that it cannot do so in view of government policy. It also said it cannot sell at a price lower than the government approved price of $4.2.

RIL is expected to continue with its arguments till October 28. The Bench asked if the company will make profits at $2.34 and if RIL could avoid the family contract entered at the time of the split, which mandated gas supply from RIL to RNRL. “If a contract is entered to sell a bag of grain at Rs

100 and later the government fixes the price of grain at Rs 200, can you avoid the contract?” Justice Raveendran queried.

He also asked if RIL would agree to sell gas to RNRL at $2.34 per mBtu if the government approves the price. To this, Salve said that if it (RIL) has to sell gas to RNRL at a price of $2.34 per mBtu, it will have to take a hit in revenues. He added that there could not be “five different prices for five different companies”.