Reliance Natural Resources Ltd. Vs. Reliance Industries Ltd. [2010] INSC 374 (7 May 2010)
Judgment
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 4273 OF 2010 (Arising out of S.L.P. (C) Nos. 14997 of 2009) Reliance Natural Resources Ltd. .... Appellant (s) Versus Reliance Industries Ltd. .... Respondent(s) WITH CIVIL APPEAL NO. 4274 OF 2010 (Arising out of S.L.P. (C) No. 15033 of 2009) CIVIL APPEAL NO. 4275-4276 OF 2010 (Arising out of S.L.P. (C) No. 15063-15064 of 2009) CIVIL APPEAL NO. 4277 OF 2010 (Arising out of S.L.P. (C) No. 18929 of 2009) I.A. NO. 1 IN C.A.Nos.428-4281/2010 @ S. L. P. (C) .14414- 14415/2010 @ CC NO. 16126-16127 of 2009 1
P. Sathasivam, J.
1) I have had the benefit of reading the erudite judgment of my learned Brother, Hon. B. Sudershan Reddy, J. I am unable to share the view expressed by him on some points and must respectfully dissent.
2) Though the facts and provisions of the relevant law have been set out in the judgment prepared by B. Sudershan Reddy, J., keeping in view of the importance in the matter, I propose to refer all the details and deliver a separate judgment in the following terms:- 3) Leave granted.
4) "The people of the entire country have a stake in natural gas and its benefit has to be shared by the whole country."
- Association of Natural Gas & Ors. vs. Union of India & Ors. - (2004) 4 SCC 489 (CB).
2 5) Being aggrieved by the judgment and order of the Division Bench of the High Court of Bombay dated 15.06.2009 in Appeal No. 1 of 2008 in Company Application No. 1122 of 2006 and in Company Petition No. 731 of 2005, Reliance Natural Resources Ltd. (in short "RNRL") has filed S.L.P.(C) Nos. 14997 & 15033 of 2009. Questioning the same common order of the Division Bench of the High Court, Reliance Industries Limited (in short "RIL") has filed S.L.P. (C) Nos.
15063-15064 of 2009. Since the Union of India intervened at the stage when the Division Bench heard Appeal Nos. 844 of 2007 and 1 of 2008, it also filed S.L.P.(C) No. 18929 of 2009.
One Vishweshwar Madhavarao Raste also filed SLP(C)....CC Nos.16126-16127 of 2009. Since all the appeals arising out of the above special leave petitions emanated from the common order dated 15.06.2009 passed by the Division Bench and the issues raised in all these appeals are one and the same, all the appeals were heard together and are being disposed of by this common judgment.
3 6) Brief facts:
The case of RNRL:
(a) In 1973, late Dhirubhai Ambani set up the RIL consisting of Oil, gas, refining and exploration, textile, yarn, polyster, petrochemicals and communication business with his two sons Mukesh Ambani and Anil Ambani. In the year 1999, the Government of India announced a New Exploration and Licensing Policy, 1999 (in short "NELP"). This policy provided that various petroleum blocks could be awarded for exploration, development and production of petroleum and gas to private entities.
(b) It is the policy of the Government that Petroleum Resources which may exist in the territorial waters, the continental shelf and the exclusive economic zone of India be discovered and exploited with utmost expedition in the overall interest of India and in accordance with good International Petroleum Industry Practice.
(c) In the same year, i.e. 1999, RIL has formed a Consortium with NIKO. Their consortium was the successful bidder for Block KG-D6 and was called the Contractor.
4 (d) On 24.03.2000, Reliance Platforms Communications.com Private Limited was incorporated which was changed to Global Fuel Management Services Limited and now called "Reliance Natural Resources Limited (RNRL).
(e) A Production Sharing Contract (in short "PSC") has been entered into between the Government of India and the Contractor on 12.04.2000. The PSC, as recorded, is within the contract area identified as Block KG DWN-98-3. KG-D6 is situated offshore coasts of Andhra Pradesh in the Indian Ocean. Such blocks are called as "Deep Water Exploration Blocks". The exploration in such areas require employment of highly skilled and experienced technical personnel and an extremely expensive and time-consuming exercise. As recorded, all exploration expenses required to locate petroleum resources have to be borne by the Contractor. Therefore, the Contractor is bound to incur huge cost and resources for discovery of reserves in the area at their risk. The exploration activities are still in progress, the first gas deal expected in June, 2008. As per the PSC, all the expenses relating to the exploration, development and production of cost incurred by 5 the Contractor can only be recovered from the petroleum/gas actually produced and sold by the Contractor. The Contractor has freedom to sell the gas produced from the block subject to the adjustment and the terms of profit sharing between the Government and the RIL as set out in the PSC.
(f) On 06.07.2002, Mr. Dhirubhai Ambani passed away.
Sometime thereafter, differences started between Mukesh Ambani and Anil Ambani over the management and control of the group companies. Both the brothers, at the relevant time, were looking after the affairs of RIL in all respects including the group companies.
(g) The provisions of the PSC were known to the respective Board of Directors as well as to both the brothers. Mukesh Ambani was the Managing Director and Anil Ambani was the Joint Managing Director of the RIL.
(h) In October, 2002, the Consortium (NIKO & RIL) announced discovery of significant result of KG-D6 Block.
Sometime in the year 2003, the National Thermal Power Corporation Limited (in short "NTPC") floated a global tender for supply of gas to its power projects. The Gas Sale and 6 Purchase Agreement was annexed with the tender document.
NTPC invited international competitive bids for supply of natural gas to its power plants located in the State of Gujarat to meet its fuel requirements. RIL succeeded in its bid to sell, transport and deliver 132 TBtu (means one trillion BTU (British Thermal Unit) or 1000000 MMBTU). NTPC, by letter dated 16.06.2004, confirmed RIL's deal.
(i) In June, 2004, RIL entered into a State Support Agreement with the Government of U.P. to make necessary arrangements for land, water and other facilities for Dadri Project.
(j) In a Board Meeting of Reliance Energy Limited (in short "REL") held on 20.10.2004, which was attended by Mukesh Ambani and other Directors of RIL, after reviewing the Dadri Project it was recorded that gas from KG Basin would be supplied for the power projects of REL. The Board of REL was assured about the availability of gas, its timing, adequate quality and requested quantity at a competitive price for the project.
7 (k) On 18.06.2005, the media released a statement informing the general public that an amicable settlement is arrived at in respect of all disputes between the Ambani Brothers. It was stated that Mukesh Ambani will take over the responsibility for RIL and IPCL and Anil Ambani will take over the responsibility for Reliance Infocomm Ltd., Reliance Energy Ltd. and Reliance Capital Ltd. On the same day, Anil Ambani resigned as Joint Managing Director of RIL.
(l) Both the brothers with the mediation of their mother Mrs. Kokilaben Dhirubhai Ambani arrived at a Memorandum of Understanding (MoU)/family arrangement dated 18.06.2005 and accordingly resolved their disputes amicably. Based upon the said MoU, both the brothers and the officials of RIL and other group companies, made various discussions, exchanged correspondences, e-mails and held conferences and meetings to implement the MoU and to resolve the disputes and to divide the various companies by a Scheme of Arrangement.
(m) On 11.08.2005, RNRL was acquired by RIL for the purpose of de-merger. The name was changed to Global Fuel 8 Management Services. RIL (de-merged company) moved a petition in the Bombay High Court bearing No. 731/2005 dated 24.10.2005 to obtain a sanction of Scheme of Arrangement (the Scheme) between RIL and four other companies viz., (i) Reliance Energy Ventures Limited, (ii) Global Fuel Management Services Limited, (iii) Reliance Capital Ventures Limited and (iv) Reliance Communication Ventures Limited. By order dated 09.12.2005, the Company Judge, Bombay High Court has granted sanction to the Scheme and inter alia directed that the shareholders of RIL would hold shares in each of the resulting companies in the ratio of 1:1 in addition to the shares held in the parent company (RIL). The scheme provides that RIL successfully bid for off-shore oil and gas fields; strategic investment in RIL which has engaged in power projects, in order to use part of gas discovered for the generation of power; appropriate gas supply arrangement will be entered into between RIL and Global Fuel Management Services pursuant to which gas will be supplied to RIL; refined gas based energy undertaking; after the record date the Board of the resulting companies shall be 9 re-constituted and shall thereafter be controlled and managed by Anil Ambani. A suitable arrangement would be entered into in relation to supply of gas for power projects of Reliance Patalganga Power Limited and REL with the gas based energy resulting companies.
(n) The Scheme sanctioned by the Company Judge provided for de-merger of four Undertakings of Reliance Industries Limited (RIL) and transfer of these Undertakings on a "Going concern" basis to four resulting Companies. They are:
(i) The Coal Based Energy Undertakings/Reliance Energy Ventures Limited.
(ii) Gas Based Energy Undertaking/Global Fuel Management Services Limited now known as "Reliance Natural Resources Limited (RNRL).
(iii) Financial Services Undertaking/Reliance Capital Ventures Limited.
(iv) Telecommunication Undertakings/Reliance Communication Ventures Limited.
The De-merged company-Reliance Industries Limited (RIL) is to retain all other businesses including Petrochemicals, 10 refining, oil and gas exploration and production, textile and other business. The Scheme became effective from 21.12.2005.
(o) A draft of GSMA (Gas Sale Master Agreement) and GSPA (Gas Sale Purchase Agreement) were e-mailed by an official of RIL to sole nominee of Anil Dhirubhai Ambani Group on the Board of RIL on 11.01.2006, drafts of GSMA and GSPA were approved by the Board of RIL at a time when the Board of RNRL was under the control of Mukesh Ambani. The nominee of Anil Dhirubhai Ambani Group had raised objections but the same were overruled. There was no sufficient time given to RNRL to read the draft. No independent or legal advise could be taken on behalf of RNRL. Basic clauses to the agreements are the bone of contention of the present litigation. Both the agreements alleged to have also been settled and executed on 12.01.2006. On the same day, a letter addressed by Mr. J.P. Chalasani, the nominee of ADAG on the Board of RNRL to other Directors on the Board of RNRL namely, Mr. Sandip Tandon and Mr. L.V. Merchant who were the nominees of Mukesh Ambani/RIL, stating therein that the proceeding in 11 the Board Meeting held on 11.01.2006 to consider the agreement with RIL in terms of the Scheme were illegal and void. By another letter dated 13.01.2006, a request was made to take the contents of letter dated 12.01.2006 with regard to the agenda-item No.8 (gas supply agreement) and be made part of the minutes of the Board Meeting.
(p) On 13.01.2006 by a letter addressed to Shri Chalasani, the minutes of the Board of Directors held on 11.01.2006 were informed that it would be tabled at the meeting of 13.01.2006.
Some of the objections, as raised by Chalasani, were also recorded. On 26.01.2006, the GSPA copy was made available to ADAG for the first time. On 27.01.2006, the shares of the RNRL to the shareholders of RIL were allotted.
(q) On 07.02.2006, the Board of the RNRL was re- constituted in order to hand over the management and control of the resulting companies to Mr. Anil Ambani. On 14.02.2006, a letter addressed by RIL to the RNRL stating that a proforma gas sale and purchase agreement (GSPA) has been annexed to the above GSMA. The proforma contains the terms and conditions as mentioned in the GSPA signed by RIL on 12 12.12.2005 and forwarded to the NTPC. It was further informed that they agree to carry out the changes to the proforma GSPA annexed to the GSMA so that it reflects the same terms as contained in GSPA between NTPC and RIL as and when any changes are carried out to NTPC GSPA.
(r) On 28.02.2006, RNRL, by its letter to RIL, informed and elaborated various deviations in the GSMA from the agreed terms which were necessary for de-merging the business. A suitable draft agreement in compliance with the Scheme was also sent with the letter. On 12.04.2006, RIL made an application to the Ministry of Petroleum and Natural Gas (MoPNG) for approval of the gas price at which the sale of 28 MMSCMD of gas was agreed with the RNRL under the GSMA.
(s) On 09.05.2006, RNRL, by a letter, requested the MoPNG to accord approval to the application dated 12.04.2006 made by the RIL. On 26.07.2006, the MoPNG communicated to the RIL its refusal to approve the price of gas agreed between the RNRL and the RIL under the GSMA. On 31.07.2006, RIL forwarded a letter to the RNRL, a copy of letter dated 26.07.2006 received from the MoPNG rejecting the proposed 13 formula for determining the gas price as the basis of valuation of gas under the PSC.
(t) With these details, RNRL on 07.11.2006/08.11.2006, filed a Company application No. 1122 of 2006 under Section 392 of the Companies Act, 1956 (hereinafter referred to as "the Act") before the High Court of Bombay in which the following prayers were made:
"(a)Order and Direct RIL to take all necessary steps in order to ensure actual supply of 28 MMSCMD or 40 MMSCMD of gas to RNRL on the NTPC Contract Terms and as per the commercial aspect set out in Para 8.3 hereinabove.
(b)Order and Direct RIL to execute an amendment to the Gas Supply Master Agreement dated January 12, 2006 and to the Form of Gas Sale and Purchase Agreement attached in Schedule 3.2 thereto, to bring them in line with the Gas Supply Master Agreement and Form of Gas Sale and Purchase Agreement as set out in Ex. J to this Application.
(c) restrain RIL from creating any third party interests or rights in respect of i) 28 MMSCMD of Gas to be supplied to the Applicant; (ii) 12 MMSCMD to be supplied to the Applicant on firm basis in case NTPC Contract does not materialize; and/or entering into any contract(s) and/or use or supply to any third party the said gas (28 MMSCMD or 40 MMSCMD, as the case may be) which is required to be supplied to the Applicant under the Scheme.
(d) pending the hearing and final disposal of the application, direct RIL to supply the said 28 MMSCMD or 40 MMSCMD gas, as the case may be, to the applicant on the same terms as per NTPC Contract.
(e) ad-interim reliefs in terms of prayer (c) and (d) above.
(f) Such further orders be passed and/or directions be given as this Hon'ble Court may deems fit and proper."
14 7) In the said application of RNRL, it was highlighted that to make the Scheme as sanctioned by the High Court, effective and workable, it is necessary to direct the amendments and alterations to the GSMA dated 12.01.2006 and draft GSPA annexed to the GSMA, as both do not result in effective transfer of the business sought to be demerged and are not in compliance with the terms of the Scheme of Arrangement in its letter and spirit. The GSMA and GSPA are also not in compliance with the MoU which was the very reason of the Scheme of Arrangement as filed by RIL. Therefore, RNRL prayed for Company Courts' intervention to ensure that the Scheme is implemented effectively.
8) In addition to the above particulars, RNRL placed the following additional materials in support of their stand:
a) The Board of Directors of RIL were appreciative of the resolution of the issues between Shri Mukesh Ambani and Shri Anil Ambani and in their meeting held on June 18, 2005 noted the settlement and amicable resolution of the dispute providing for reorganization of the Reliance Group including the businesses and interests of RIL and adopted a resolution 15 thanking the efforts made by Smt. Kokilaben Dhirubhai Ambani in working towards the settlement.
b) The agreement arrived at between Shri Mukesh Ambani, Chairman and Managing Director of RIL and Shri Anil Ambani relating to the reorganization of the RIL Group envisaged the supply of gas from RIL's current and future gas fields for various projects of Reliance-Anil Dhirubhai Group. The said agreement contains the following clauses:- (a) Quantum of Supply and Source of Supply 7 Supply of 28 MMSCMD gas by RIL to Anil Dhirubhai Ambani Group (ADAG). This supply is subject to supply of 12 MMSCMD to NTPC.
7 In the event that NTPC contract does not materialize or cancelled, the entitlement of NTPC to the said extent should go to the ADA Group in addition to its entitlement of 28 MMSCMD i.e. a total of 40 MMSCMD.
7 ADA Group to have option to buy 40% of all balance and future gas from the current or future gas fields of MDA Group.
7 Supply to be from the proven P1 Reserves of RIL whether from the KGD-6 Basin or elsewhere.
(b) Supply period 17 (Seventeen) Years.
(c) ADA Group's Purchase Obligation.
On take or pay basis.
(d) Price and Commercial Terms 7 The firm quantity of 28 MMSCMD/ 40 MMSCMD at a price no greater than NTPC prices.
7 Option gas at the market rate 7 Other commercial terms-same as those of NTPC contract.
16 7 Shall be in accordance with International Best Practices.
7 Shall be bankable in International Financial Markets.
(e) Other terms governing the Arrangement.
7 Reliance ADA Group shall have the option to take delivery of gas at Kakinada on the East Coast and may construct its own pipeline. However, REL would still have to pay the transportation cost for supply to the West Coast even if the facility is not used, but will have the right to deal with the capacity as it deems fit and to sell or assign the same to another party.
7 The gas supply/option agreements would be between RIL and a 100% subsidiary of RIL, which would be demerged to the Reliance--ADA Group as part of the Scheme and not with REL.
7 In relation to applicable governmental and statutory approvals, without in any manner mitigating RIL's responsibility, RIL and Reliance--ADA Group, give an irrevocable Power of Attorney to the Reliance--ADA Group to apply for and obtain all such governmental and regulatory approvals as are necessary on its behalf.
c) The understanding and agreements relating to the supply of gas as part of the reorganization of RIL are set out in the Information Memorandum filed for the benefit of the shareholders and investors by RNRL with the Bombay Stock Exchange and of the RNRL. Consequently, as part of the reorganization of the business and undertakings of RIL, the power business of RIL including the Gas Based Power Business, described in the Scheme as the Gas Based Energy Undertaking, was also to be demerged. The Gas Based Energy Undertaking of RIL to be demerged under the Scheme 17 consisted of the business of supply of gas for power projects REL and of Reliance Patalganga Power Ltd., through suitable arrangements.
d) The Scheme also explains:
(i) Gas Based Energy Resulting Company (ii) Gas Based Energy Undertaking e) The Scheme provided for suitable arrangements whereby the RNRL would receive gas from RIL and supply the same, as RIL would otherwise have done, for the power projects of REL.
f) In the year 2003, NTPC had floated a global tender for supply of gas to its power projects to be located at Kawas and Gandhar in the State of Gujarat. RIL, who emerged as the successful bidder, had at the time of submission of bids unconditionally accepted all the terms and conditions mentioned in the draft GSPA. In accordance with the agreed position/settlement, the gas was to be supplied by RIL to the RNRL at the price and terms no less favourable than those of NTPC and the gas supply agreement between RIL and the RNRL would be as per the said NTPC contract terms. RIL, by letter dated 14.02.2006, signed by one K. Sethuraman, Authorised Signatory of RIL, communicated that he was 18 directed to confirm that RIL would agree to carry out amending changes to the proforma of GSPA annexed to the Gas Supply Master Agreement (GSMA) so that it reflects the same terms as are contained in the GSPA for 12 MMSCMD between NTPC and RIL as and when changes are carried out to NTPC GSPA.
g) The Scheme also provided that post the demerger of the Demerged Undertakings of RIL, Shri Anil Ambani would obtain control and management of the businesses and undertakings being demerged.
h) Further, the agreement had to reflect an interest in gas produced by all the gas fields of RIL so as to ensure that gas upto the agreed quantity i.e. 28 MMSCMD or 40 MMSCMD, as the case may be, would be made available to RNRL in priority to any other sale or use by RIL except for the gas to be used for RIL itself for operation and transportation and for the gas to be supplied to NTPC. The interest of RNRL was thus to extend to gas fields other than the KG-D6.
19 i) The GSMA and the form of GSPA significantly depart from the Draft Agreement to the NTPC request for bids and unconditionally accepted by RIL.
9) The case of RIL:- a) A Scheme for the demerger of a large company with majority of shares being held by the public and by institutions, has to be in larger public interest as well as in the interest of the company. It must necessarily safeguard the interest of large body of shareholders of the Demerged Company as also the shareholders of the Resulting Companies. Any settlement of the disputes stated to have taken place between or amongst the promoters has, as a necessity, to abide by the final decision of the Board of the Demerged Company and such adaptations as may be necessary to protect and further the interests of the large body of shareholders or public interest.
(b) Once the Scheme as was placed before and duly approved by; the shareholders (99% shareholders approved the Scheme) which suggests that the Scheme had the support not merely of the General Body of shareholders but also the members of the promoters' family-all anterior or underlying agreements 20 become irrelevant. The senior-most member of the family who resolved all the disputes has, at no point, contested the Scheme as being inconsistent with any arrangement that may have been arrived at. The present application is a thinly disguised attempt to reopen the Scheme after it has been fully implemented in a manner that is completely inconsistent not only with the demerger of the businesses but the provisions of Section 392 of the Companies Act, 1956.
c) That none of the heads of so-called Agreement are a part of the Scheme as proposed by the Board of Directors of RIL and approved by the creditors and general body of shareholders.
These allegations have no place in an application made for implementation of the Scheme as sanctioned by the High Court. The averments made therein are completely extraneous and irrelevant. The issues, if at all, as between Shri Mukesh Ambani and Shri Anil Ambani were personal to the Ambani family and the Board of RIL was not aware of the details of the settlement between Shri Mukesh Ambani and Shri Anil Ambani.
21 d) The Vice Chairman and Joint Managing Director of RIL, at the relevant time, Shri Anil Ambani was or in any event, should be deemed to be fully aware of the nature of the rights of RIL in relation to exploration and production of gas from various gas-fields as also the provisions of the Production Sharing Contract (PSC). Significantly, the Production Sharing Contract for Block KG-D6 was executed way back in the year 2000. Being Board managed company, the business and affairs of RIL are under control and supervision of the Board of Directors and in fact the Minutes of the Board meeting clearly show that in all matters in which Shri Mukesh Ambani was or could be said to be an interested director, he had refrained from participating in the deliberations and voting on the resolutions. The terms and conditions on which the gas was to be supplied to the power plants of Reliance Patalganga Power Limited and REL was to be at the discretion by the Board of Directors of the Demerged Company who were not bound by any "agreement" as between two groups of promoters. The Board of Directors of Demerged Company was obliged and in fact had at all times kept the interests of the 22 general body of shareholders as being a paramount importance and had taken such decisions as in the best judgment of the Board, accorded to their duty as the Board with the shareholders interests being of utmost importance.
10) After considering the claim of both the parties viz., RNRL and RIL the "Company Judge has arrived at the following conclusions":
"184. The conclusions are:
(1) The present company application under Section 392 of the Companies Act is maintainable.
(2) The Company Court, however, under Section 392 of the Companies Act cannot direct or dictate to maintain or amend or modify and/or insist for a particular clause or clauses of such gas supply agreement or such other commercial agreement/contract.
(3) The GSMA as formed and finalized in the Board of Director's Meeting of RIL on 11.01.2007 and modified on 12.01.2007 is in breach of the Scheme.
(4) The MoU (Memorandum of Understanding/Family Arrangement) and its content are binding to both parties RIL and RNRL and all the concerned, Mr. Mukesh Ambani and his group of Companies and Mr. Anil Ambani and his group of Companies have already acted upon at the pre and post stages of the MoU and the pre and post stages of the Scheme accordingly.
(5) The term "suitable arrangement" as referred in the Scheme needs to read and interpret by taking into account the terms of the MoU as well as the Scheme as referred above. It is also necessary for the complete and full working of the Scheme.
(6) The terms as mentioned in the MoU and GSMA need to be suitable for both the parties subject to the Government's 23 policies and national, international practice in supply of gas or such other products.
(7) The contract of such nature is subject to the Government's approval in view of NELP & PSC and such related Government policies, but keeping in view the several factors including the freedom and right of the contractor/RIL and the limited and restricted scope of interference in such permissible commercial aspects of the contractor, unless, it is in breach of any public policy and public interest.
(8) The supply of gas contract/agreement needs to be clear and bankable documents for all the concerned parties."
Finally, the Company Judge directed the parties to re- negotiate for a "suitable arrangement".
11) As discussed earlier, aggrieved by the said order/directions of the Company Judge, RNRL has filed Appeal No. 1 of 2008, RIL has also filed Appeal No. 844 of 2007 before the Division Bench. During the course of hearing, considering the public/national importance, the Division Bench permitted the Union of India to intervene and put forth their stand.
12) The Division Bench framed the following "issues for consideration":
(1) Whether the Company Court has jurisdiction to entertain the Application filed by RNRL under the Companies Act, 1956? (2) What is a "suitable arrangement" between the two Companies in the matter of supply of gas for the power projects of the Resulting Companies and its affiliates? 24 13) Answers by the Division Bench:
(a) The Division Bench has answered the first issue in the affirmative. The reasoning of the Division Bench, however, is different from that of the Single Judge. The Company Judge had held that the Application was maintainable under Section 392 read with Section 394 of the Companies Act. The Division Bench however found the Company Application to be maintainable on the basis of Clauses 17, 18, 20 to 24 of the Scheme of Demerger itself.
(b) On the second issue, the Division Bench held as follows:
(i) The suitable arrangement was required to be made by engrafting the MoU on the GSMA, (ii) As far as the fixation of price is concerned, the Government has the power to fix the price, but only for its "take" of the gas, and (iii) Although the Government could lay down the Gas Utilization Policy, such Utilization Policy would apply only to the gas available for allocation after certain quantity of gas which according to the Division Bench, "stood allocated" to 25 RNRL as per the MoU. The Gas Utilization Policy could apply only to the balance quantities.
(iv) There was nothing in the PSC that prevented the Contractor from selling gas at a price lower than the price approved by the Government and RIL could fulfill its obligation of supply of gas at a price of US $ 2.34 per mmbtu.
14) Aggrieved by the above directions/conclusions RNRL, RIL as well as U.O.I. have filed these appeals by way of special leave petition before this Court.
15) Heard M/s Ram Jethmalani and Mr. Mukul Rohatgi, Mr. Ravi Shankar Prasad, learned senior counsel for RNRL, M/s Harish N. Salve, and Mr. Rohington F. Nariman, learned senior counsel for RIL and Mr. Gopal Subramanium, learned Solicitor General, M/s Mohan Parasaran and Mr. Vivek Tankha, Additional Solicitor General for the Union of India.
16) Historical background:
Up to the early 90's, prior to the NELP and pre-NELP years, natural gas was being produced only from the fields operated by the Government companies, namely Oil & Natural Gas Corporation (in short `ONGC') and Oil India Limited (in 26 short `OIL), out of blocks which were given to these companies by the Government on nomination basis. Since these fields were given on nomination basis and only to Government Companies, the Government's power to regulate the Natural Gas Sector was absolute.
Later, it was decided to open the sector to Private Sector Investment during the mid 1990s when private investment was sought on competition basis and certain blocks were awarded to Private Sector companies under a Production Sharing Contract (better known as the pre-NELP Production Sharing Contracts). This was done to increase private investment in this sector since the exploration and production of oil and gas is associated with considerable risk and no investment would have been attracted if the APM regime continued. However, the Contractors who signed the PSC were required to sell all the gas produced and saved to the Gas Authority of India Limited, a PSU, and did not have marketing freedom as regards natural gas.
The pre-NELP regime was replaced by the NELP regime under which the PSC relevant to the present case was entered 27 into between a Joint Venture composed of RIL and NIKO Resources Limited and the Government of India. In the NELP- 1 PSC, marketing freedom has been given to the contractor to a limited extent subject to the overall regulation of the Government.
17) Constitutional and other statutory Provisions:
"Article 297. Things of value within territorial waters or continental shelf and resources of the exclusive economic zone to vest in the Union - (1) All lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf, or the exclusive economic zone, of India shall vest in the Union and be held for the purposes of the Union.
(2) All other resources of the exclusive economic zone of India shall also vest in the Union and be held for the purposes of the Union.
(3) The limits of the territorial waters, the continental shelf, the exclusive economic zone, and other maritime zones, of India shall be such as may be specified, from time to time, by or under any law made by Parliament."
18) Article 39(b) of the Constitution envisages that the State shall, in particular, direct its policy towards securing the ownership and control of material resources of the community as so distributed as best to sub-serve the common good.
19) This Court, in the case of State of Tamil Nadu vs. L. Abu Kavur Bai, (1984) 1 SCC 515 at 549 held that the 28 expression `distribute' under Article 39(b) cannot but be given full play as it fulfills the basic purpose of re-structuring the economic order. It embraces the entire material resources of the community. Its goal is so to undertake distribution as best to sub-serve the common good. It re-organizes by such distribution the ownership and control. To distribute, would mean, to allot, to divide into classes or into groups and embraces arrangements, classification, placement, disposition, apportionment, the system of disbursing goods throughout the community.
20) In Salar Jung Sugar Mills Ltd. etc. vs. State of Mysore & Ors., (1972) 1 SCC 23 at page 36 paragraph 38, this Court held as under:
"38............Delimiting areas for transactions or parties or denoting price for transactions are all within the area of individual freedom of contract with limited choice by reason of ensuring the greatest good for the greatest number by achieving proper supply at standard or fair price to eliminate the evils of hoarding and scarcity on the one hand and availability on the other."
21) In Tinsukhia Electric Supply Company Ltd. vs. State of Assam & Ors., (1989) 3 SCC 709, this Court affirmed the views expressed in the above cases in the context of electricity supply and also affirmed the Government's role in the securing 29 and distributing of the resources of the community that best sub-serves the common good.
22) This Court in numerous decisions has laid down that in the award of tenders and the distribution of national property and State largesse, the State is bound to follow the dictate of Article 14.
23) In Ramana Dayaram Shetty vs. International Airport Authority of India & Ors, (1979) 3 SCC 489, this Court has pointed out that :
"........The power or discretion of the Government in the matter of grant of largess including award of jobs, contracts, quotas, licences etc., must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory "
24) In Food Corporation of India vs. M/s Kamdhenu Cattle Feed Industries, (1993) 1 SCC 71, this Court observed as follows:
"In contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of the Constitution of which non-arbitrariness is a significant facet. There is no unfettered discretion in public law : A public authority possesses powers only to use them for 30 public good. This imposes the duty to act fairly and to adopt a procedure which is 'fairplay in action'. ........."
25) The Oil Fields (Regulation & Development) Act, 1948 and the Petroleum and Natural Gas Rules, 1959, make provisions, inter alia, for the regulation of petroleum operation and grant of licence and leases for exploration, development and production of petroleum in India. The Territorial Waters, Continental Shelf, Exclusive Economic Zone and Maritime Zones Act, 1976 provides for the grant or a licence of Letter of Authority by the Government to explore and exploit the resources of the Continental Shelf and Exclusive Economic Zone and any Petroleum operation.
26) Under the Companies Act, there are no provisions except Sections 391 to 394 which deal with the procedure and power of the Company Court to sanction the Scheme which falls within the ambit of requirements as contemplated under these sections. Since the Company Judge as well as the Division Bench of the High Court proceeded on the basis that it has ample power and jurisdiction to supervise the Scheme as sanctioned under Sections 391 to 394 of the Companies Act, it is but proper to refer those sections which are as under:
31 "391. Power to compromise or make arrangements with creditors and members (1) Where a compromise or arrangement is proposed- (a) between a company and its creditors or any class of them;
or (b) between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be to be called, held and conducted in such manner as the Tribunal directs.
(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Tribunal be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company:
Provided that no order sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Tribunal, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 351, and the like.
(3) An order made by the Tribunal under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.
32 (4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company.
(5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one hundred rupees for each copy in respect of which default is made.
(6) The Tribunal may, at any time after an application has been made to it under this section stay the commencement or continuation of any suit or proceeding against the company on such terms as the Tribunal thinks fit, until the application is finally disposed of.
392. Power of Tribunal to enforce compromise and arrangement : (1) Where the Tribunal makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it- (a) shall have power to supervise the carrying out of the compromise or an arrangement; and (b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement.
(2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of this Act.
(3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of the Companies 33 (Amendment) Act, 2001 sanctioning a compromise or an arrangement.
393. Information as to compromises or arrangements with creditors and members - (1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391,- (a) with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect; and in particular, stating any material interests of the directors, managing director or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests of the compromise or arrangement if, and in so far as, it is different from the effect on the like interests of other persons; and (b) in every notice calling the meeting which is given by advertisement, there shall be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statement as aforesaid.
(2) Where the compromise or arrangement affects the rights of debenture-holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the company's directors.
(3) Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting, every creditor or member so entitled shall, on making an application in the manner indicated by the notice, be furnished by the company, free of charge, with a copy of the statement.
(4) Where default is made in complying with any of the requirements of this section, the company, and every officer 34 of the company who is in default, shall be punishable with fine which may extend to fifty thousand rupees; and for the purpose of this sub-section any liquidator of the company and any trustee of a deed for securing the issue of debentures of the company shall be deemed to be an officer of the company:
Provided that a person shall not be punishable under this sub-section if he shows that the default was due to the refusal of any other person, being a director, managing director, manager or trustee for debenture holders, to supply the necessary particulars as to his material interests.
(5) Every director, managing director, or manager of the company, and every trustee for debenture holders of the company, shall give notice to the company of such matters relating to himself as may be necessary for the purposes of this section; and if he fails to do so, he shall be punishable with fine which may extend to five thousand rupees.
394. Provisions for facilitating reconstruction and amalgamation of companies (1) Where an application is made to the Tribunal under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal- (a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies; and (b) that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a "transferor company") is to be transferred to another company (in this section referred to as "the transferee company");
the Tribunal may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters:- (i) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company;
35 (ii) the allotment or appropriation by the transferee company of any shares, debentures policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person;
(iii) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;
(iv) the dissolution, without winding up, of any transferor company;
(v) the provision to be made for any persons who, within such time and in such manner as the Court directs dissent from the compromise or arrangement; and (vi) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out:
Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company, which is being wound up, with any other company or companies; shall be sanctioned by the Tribunal unless the Court has received a report from the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest:
Provided further that no order for the dissolution of any transferor company under clause (iv) shall be made by the Tribunal unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the Tribunal that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest.
(2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order; that property shall be transferred to and vest in and those liabilities shall be transferred to and become the liabilities of the transferee company and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect.
36 (3) Within thirty days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration.
If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees.
(4) In this section- (a) "property" includes property rights and powers of every description; and "liabilities" includes duties of every description; and (b) "Transferee company" does not include any company other than a company within the meaning of this Act; but "transferor company" includes anybody corporate, whether a company within the meaning of this Act or not.
394A. Notice to be given to Central Government for applications under sections 391 and 394 The Tribunal shall give notice of every application made to it under section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections."
27) ISSUES ARISING IN THE PRESENT APPEALS:
a) Whether the Company Petition filed by RNRL under Section 392 of the Companies Act, was maintainable? b) Even if the Company Petition was maintainable, whether the challenge raised by RNRL to the GSMA, that it is not a "suitable arrangement" was maintainable particularly 37 in view of the fact that on merits, the Company Judge had found, these objections to be unsustainable? c) Whether the MoU entered into amongst the family members of the Promoter was binding upon the corporate entity - RIL? d) Whether the terms of the MoU are required to be incorporated in the GSMA as held by the Division Bench? e) Whether the provisions in the GSMA requiring Government approval for supply of gas to RNRL is unreasonable and that its inclusion renders the GSMA as not a "suitable arrangement" as contended by RNRL? f) Having insisted upon a Gas Sale and Purchase Agreement (GSPA) in conformity with the NTPC draft GSPA dated 12th May, 2005 which contained an unequivocal stipulation for Government approval for quantity, tenure and price, whether it is open to RNRL to now contend that the Government approval for supply of gas is not required and further that the provision requiring Government approvals should be deleted from the GSMA/GSPA? 38 g) Whether it is necessary for this Court to go into the interpretation of the provisions of the PSC? h) i. Whether the approval of the Government is required to the price at which gas is sold by the contractor under the PSC? ii. Whether the Government has the right to regulate the distribution of gas produced which it has exercised by putting in place the Gas Utilization Policy under which sectoral and consumer-wise priorities (to the quantities specified) have been identified and notified to RIL? iii. Whether the Contractor has a physical share in the gas produced and saved which it can deal with at its own volition? i) In view of the Gas Utilization Policy and the Pricing Policy of the Government, whether the "Suitable Arrangement"
for supply of gas to Dadri Power Plant of REL can only be on the same terms as are applicable to other allottees of gas and that too to the extent of the quantity of gas that 39 may be allocated by the Government as and when the Dadri Power Plant is ready to receive gas? 28) All these issues can be answered in the following broad headings:
(A) Maintainability of the company petition:
i) It has been argued before this Court that the original company application was not maintainable as the Company Judge (single Judge) did not have any jurisdiction. It has been argued that the jurisdiction of the Court can only be found under Section 394 of the Act and Section 392 is completely inapplicable. RIL has argued this because the wording of both the provisions suggests that Section 392 provides much wider power to the Court with respect to making additions in the Scheme. Section 392 (1)(b) states that the Court "may give such directions in regard to any matter or making such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement". On the other hand, Section 394 restricts this power essentially to "incidental, consequential and supplemental matters only". Mr. R.F. Nariman, learned senior 40 counsel appear
