2007 (10) TMI 402 - HC - Companies Law

Court affirms jurisdiction to modify scheme, rejects fraud claims, and directs renegotiation under Companies Act.

Reliance Natural Resources Ltd. Versus Reliance Industries Ltd.

The Court held that the application under Section 392 of the Companies Act is maintainable, emphasizing the Company Court's jurisdiction to modify the ... Compromise and arrangement - applicants prayed for interim relief of injunction - Held that:- The present company application under section 392 of the Companies Act is maintainable. 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. The GSMA as formed and finalised in the Board of Director’s Meeting of RIL on 11-1-2007 and modified on 12-1-2007 is in breach of the Scheme. 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 (ADA) 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. 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. The terms as mentioned in the MOU and GSMA need to be suitable for both the parties subject to the Government’s policies and national, international practice in supply of gas or such other products. 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. The supply of gas contract/agreement needs to be clear and bankable documents for all the concerned parties. Thus it would be appropriate for both the parties to re-negotiate, re-consider and settle the terms of existing GSMA and GSPA afresh within four months or as early as possible. Interim order dated 3-5-2007 (in C.A. No. 1123/2007) and 20-6-2007 (in C.A. No. 695/2007) and further modified on 18-7-2007 in Appeal Nos. 440/2007 and 441/2007 are continued and be maintained only for further four months. Issues Involved:1. Maintainability of the application under Section 392 of the Companies Act.2. Jurisdiction of the Company Court to modify the scheme.3. Interpretation of the term 'suitable arrangement' in the scheme.4. Validity of the Gas Supply Master Agreement (GSMA) and Gas Sale and Purchase Agreement (GSPA) executed by the Board of Directors of RIL.5. Allegations of fraud and breach of the scheme.6. Role and approval of the Government in the gas supply agreements.7. Interim orders and their continuation.Detailed Analysis:1. Maintainability of the Application under Section 392 of the Companies Act:The Court held that the application under Section 392 is maintainable. The power of the Company Court to supervise and modify the scheme is not limited to the initial sanction but extends to ensuring its proper working. The Court emphasized that the parties cannot be rendered remedyless, and the Company Court has jurisdiction to pass appropriate orders to ensure the scheme's effective implementation.2. Jurisdiction of the Company Court to Modify the Scheme:The Court concluded that it has the jurisdiction to modify the scheme under Section 392 of the Companies Act. The Court can give directions or make modifications necessary for the proper working of the scheme. This power is not limited to the initial sanction but can be exercised at any time to address issues that arise during the scheme's implementation.3. Interpretation of the Term 'Suitable Arrangement' in the Scheme:The term 'suitable arrangement' was interpreted to mean an arrangement that is suitable to both RIL and RNRL, considering the existing background and underlying facts, including the Memorandum of Understanding (MOU), Production Sharing Contract (PSC), and Government policies. The Court emphasized that the arrangement should be mutually agreed upon and not unilateral.4. Validity of the GSMA and GSPA Executed by the Board of Directors of RIL:The Court found that the GSMA and GSPA executed by the Board of Directors of RIL on 11-1-2006 and 12-1-2006 were in breach of the scheme. The agreements were executed hurriedly without proper opportunity for the applicants to review and object. The Court held that these agreements were not in the interest of RNRL and were executed in breach of the scheme's terms.5. Allegations of Fraud and Breach of the Scheme:The Court rejected the allegations of fraud, stating that the execution of the GSMA and GSPA, though objected to by the applicants, did not constitute fraud as defined under Section 17 of the Contract Act. The Court emphasized that the parties had been discussing the terms and that the dispute was about specific clauses, not the entire agreement.6. Role and Approval of the Government in the Gas Supply Agreements:The Court highlighted the importance of Government approval in the gas supply agreements due to the PSC and Government policies. The Court stated that the contractor's right to sell gas is subject to Government approval to ensure that the transactions are in line with national and international practices and policies.7. Interim Orders and Their Continuation:The Court decided to continue the interim orders dated 3-5-2007, 20-6-2007, and 18-7-2007 for four months, allowing the parties to re-negotiate and settle the terms of the GSMA and GSPA afresh. The interim orders ensured that no third party interests were created in the specified quantity of gas until a suitable arrangement was reached.Resultant Order:1. Both parties are directed to re-negotiate and settle the terms of the GSMA and GSPA within four months.2. Interim orders are to be continued and maintained for four months.3. Company Application No. 1122/2006 is disposed of with liberty.4. All related interlocutory applications are also disposed of with liberty.5. No costs are awarded.