TaxTMI 
TaxTMI 
2007 (10) TMI 402
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.... provided that various petroleum blocks could be awarded for exploration, development and production of petroleum and gas to private entities. 3. By virtue of article 297 of the Constitution of India, the Petroleum in its natural state in the territory waters and the continental shelf of India invested in the Union of India (The Government). The Oil Fields (Regulation and 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 Territory waters, continental shelf, exclusive of Economic Zone and other Maritime Zone Act, 1976 (Maritime Zone Act) provides for the grant of a licence or Letter of Authority by the Government to explore and exploit the resources of the Continental Shelf and Exclusive Economic Zone and any Petroleum operation. 4. The Government always desires that the petroleum resources which may exist in the territory 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 accordan....
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....r Corporation Limited (NTPC) floated a global tender for supply of gas to its power projects. The Gas Sale and 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 in India, 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 16-6-2004 confirmed RIL's deal. 12. Sometime in June, 2004 RIL entered into a State Support Agreement with Government of U.P. to make necessary arrangement for land, water and other facilities for Dadri Project. 13. On 20-10-2004 in a Board Meeting of Reliance Energy Limited (REL) which was attended by Mukesh Ambani and other Directors of RIL, after reviewing the Dadri Power Project recorded that gas from KG Bhasin 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. 14. On 18-6-2005, the media released a issue informing the general public that an amicable r....
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....d 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. 19. The relevant clauses of the Scheme are reproduced along with the part-pleading of the parties : "4. Transfer of Demerged Undertakings. 19. Agreements. The Resulting Companies will have the right to use the "Reliance" brand and logo and suitable agreements will be entered into in this regard. Further, suitable arrangements would also be entered into in relation to (i) non-competition in relation to the businesses of the Demerged Undertakings and the Remaining Undertaking; (ii) supply of gas for power projects of Reliance Patalganga Power Limited and REL with the Gas Based Energy Resulting Company; and (iii) Transfer of leasehold rights of RIL to the relevant Resulting Company with respect to the relevant Demerged Undertaking." 20. As recorded, the Scheme sanctioned by this Hon'ble Court provided for Demerger of four Undertakings of Reliance Industries Limited (RIL) and transfer of these Undertakings on a "Going concern" basis to four Resulting Companies. 21. The following four are the transferred Undertakings/Resultin....
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....o recorded. 29. On 26-1-2006 the GSPA copy was made available to ADAG for the first time. 30. On 27-1-2006, the shares of the applicants-company to the shareholders of RIL were allotted. 31. Sometime in January, 2006 an information Memorandum for listing of shares of RNRL submitted to the Stock Exchange and displayed on the website of Stock Exchange which, inter alia, sets out the risk factors arising out of uncertainty in respect of gas supply with RIL. It also sets out the main commercial point agreed upon for the supply of gas as part of the overall re-organisation, as alleged. 32. On 7-2-2006 the Board of the applicant re-constituted in order to hand over the management and control of the resulting companies to Mr. Anil Ambani. 33. On 14-2-2006 a letter addressed by RIL to the applicant 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 are contained in the GSPA signed by RIL on 12-12-2005 and forwarded to the NTPC. It was further informed that they would be agreed to carry out changes to the proforma GSPA annexed to the GSMA so that it reflects the same terms as contained in....
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....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 deem fit and proper." 40. Subsequently, a company Application No. 1123/2006 in Company Application No. 1122/2006 dated 16-11-2006 has been filed having following prayer clause (a), as there was no interim relief granted till this time : "(a)RIL be restrained 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 NTPS 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." 41. On 10-11-2006 an application for ad interim relief was moved. However, on 23-11-2006 no ad interim relief was granted. The matter was adjourned for the respondents' reply/affidavit. 42. On 3-5-2007, in Company Application No. 1123/06....
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....is only a tentative view for consideration of prayer for ad interim relief. Pending proceedings will be decided uninfluenced by any of these observations. All questions therein are left open." 43. On 19-6-2007 another Company Application No. 695/2007 (Lodging No. 721/07) has been filed by the applicant and prayed as under : "(a)restraining the respondent from committing the sale/auction of any quantity of gas to any third party or from seeking requisite approval under the Production Sharing Contract for any sale/auction from the Government. (b)restraining RIL from creating any third party interest or rights without first satisfying the first option rights of the applicant. (c) ad interim relief in terms of prayer (a) and (b ) above." 44. By order dated 20-6-2007, after hearing both the parties, the Court has further observed in paragraphs 16, 17 and 18 as under : "16. Thus understood, I have no hesitation in observing that the respondent cannot be heard to say that they are free to negotiate for the proposed sale of gas produce with third party though it may affect the claim of the applicant in any manner, which claim is founded on the GSMA dated 12-1-2006 or the one at Exhib....
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.... of RIL were appreciative of the resolution of the issues between Shri Mukesh Ambani and Shri Anil Ambani and in their meeting held on 18-6-2005 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 appreciating the sincere and painstaking efforts by Smt. Kokilaben Dhirubhai Ambani in working towards the settlement. A Press Release issued by RIL on 18-6-2005 and the report sent by RIL to the Stock Exchange on that date are enclosed collectively marked Exhibit C. 6.6 The agreement arrived at between Shri Mukesh Ambani, Chairman and Managing Director of RIL and Shri Anil Ambani relating to the reorganisation 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 following are the part of the said agreement:- (a )Quantum of Supply and Source of Supply uSupply of 28 MMSCMD gas by RIL to Anil Dhirubhai Ambani Group (ADAG). This supply is subject to supply of 12 MMSCMD to NTPC. uIn the event that NTPC contract does not materialise or cancelled, the entitlement of NTPC....
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....rged. The Gas Based Energy Undertaking of RIL to be demerged under the Scheme consisted of the business of supply of gas for power projects REL and of Reliance Patalganga Power Ltd. ("RPPL") through suitable arrangements. uThe relevant provisions of the Scheme to give effect to this arrangement include the following : 1. Definitions 1. ****** 1.1 - 1.10 ****** 1.11 'Gas Based Energy Resulting Company' means Global Fuel Management Services Limited having its registered office at 3rd floor, Maker Chambers IV, 222, Nariman Point, Mumbai 400 021; 1.12 'Gas Based Energy Undertaking' as described in item (ii) of sub-clause (f) of Clause A of the Preamble means the Demerged Company's undertaking, business, activities and operations pertaining to supply of gas for the generation of power by Reliance Patalganga Power Limited and REL for their power projects (hereinafter referred to as "Gas Based Power") and comprising all the assets (movable and immovable) and liabilities, which relate thereto or are necessary therefor and including specifically the following : (i )All investments of the Demerged Company in Reliance Patalganga Power Limited and other assets through which the Demerged....
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....eemed to be transferred to and vested in the Gas Based Energy Resulting Company on a going concern basis such that all the properties, assets, rights, claims, title, interest, authorities and liabilities comprised in the Gas Based Energy Undertaking immediately before the demerger shall become the properties, assets, rights, claims, title, interest, authorities and liabilities of the Gas Based Energy Resulting Company by virtue of and in the manner provided in this Scheme. 19. Agreements u........ Further, suitable arrangements would also be entered into in relation to (i) .....; (ii ) supply of gas for power projects of Reliance Patalganga Power Limited and REL with the Gas Based Energy Resulting Company; and (iii). . . . . 6.9 Even though the Scheme was formulated in a manner in which the applicant would be put into the shoes of RIL, it was not possible on account of various contractual and regulatory considerations to demerge RIL's interest in the gas fields under exploration and/or proposed to be explored by RIL. Consequently, as noted above, the Scheme provided for suitable arrangements whereby the applicant would receive gas from RIL and supply the same, as RIL would other....
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....nd managed by Shri Anil D. Ambani. The Demerged Company constituting the Remaining Undertaking shall continue to be controlled and managed by Shri Mukesh D. Ambani." 7.3 Further the agreements had to reflect an interest in gas produced by all of the gas fields of RIL so as to ensure that gas up to the agreed quantity i.e., 28 MMSCMD or 40 MMSCMD, as the case may be, would be made available to the applicant, in priority to any other sale or use by RIL, except for the gas to be used by RIL itself for operation and transportation and for the gas to be supplied to NTPC. The interest of the applicant was thus to extend to gas fields other than the KGD-6. 7.8 In spite of the failure to arrive at appropriate and suitable arrangements and despite serious differences on critical clauses between the parties, RIL decided to execute an agreement with the applicant titled as "Gas Supply Master Agreement (GSMA)" to which is annexed a draft of an actual Gas Sale and Purchase Agreement (GSPA) to be entered into by RIL directly with entities engaged in or proposing to engage in generation of gas based power. The GSMA was prepared by RIL and finalized and executed by RIL not only on its behalf but....
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....t to Buyer having procured alternate fuel. Reimbursement is linked to not only to procurement but also to actual consumption of fuel. (f) Assignment to 100% subsidiary does not relieve the Seller of its obligation. Assignment relieves the assigning party of its obligations under the agreement. 7.11 Provisions not part of the NTPC contract Terms but included in 12-1-2006 agreement with the Applicant. . . . . . . 8.3 By this Application therefore, the applicant is seeking appropriate order and directions of this Hon'ble Court for modification of the Scheme to implement it and make it workable for the effective vesting of the Gas Based Energy Undertaking in RNRL and compliance with the requirements of the Scheme, the gas supply arrangement between RIL and the applicant to reflect the following commercial aspects : uAfter the NTPC entitlement (for 12 MMSCMD), the applicant will get a firm supply of 28 MMSCMD of gas from RIL, which is the Base Volume from the gas reserves of RIL including from KGD6. uIf, for any reason, the NTPC contract does not materialize, or is cancelled, its entitlement of the aforesaid 12 MMSCMD will also go to applicant, in addition to the 28 MMSCMD, there....
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.... 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. It is submitted once the Scheme as was placed before and duly approved by the shareholders (99 per cent 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 become irrelevant. The senior-most member of the family who (even as per the applicants) resolved all the disputes has, at no point, contested the Scheme (which as aforesaid has, actually and factually been fully implemented) as being, inconsistent with any arrangement that may have been arrived at. It is submitted that 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 t....
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....ions as in the best judgment of the Board, accorded to their duty as the Board with the shareholders interests being of utmost importance." 51. The respondents have been unable to deny and/or place on record any contra-material to oppose the contents of MOU. Relevant correspondences - discussion prior and post sanction of the scheme referring to the MOU 52. Some of the extract from the important letters from Exhibit "F" filed by the applicants and not denied by the respondents. The existence of these documents "Exhibit F" are not in dispute. As replied and denied by respective letters and correspondences, the contents of these letters and e-mails are not seriously denied by the applicants. In fact the concerned persons have acted upon the same. ANNEXURE 2 EXTRACTS OF SOME IMPORTANT LETTERS FROM EXHIBIT "F" (i) E-mail dated 30-6-2005 from Anil Ambani Group to RIL (pg. 3). Para VIII (vii) of Annexure 1 to the MOU (page 27) provides for making available the Production Sharing Contract, correspondence with NTPC and the latest version of draft NTPC contract to ADA Group. As will be appreciated, it is highly important for the ADA Group to study the aforesaid documents. The same m....
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....aft of NTPC execution of agreement to be final contract, adopted with deviation to copy will be to provide for: provided to 1. swapping of gas; 2. bankability in the international finance markets; and Sl. No. Details of the issue ADA Group's remarks MDA Group's remarks 3. dealing with gas transportation capacity for which cost is but not used. ADA Group to agree for changes, if any, accepted by NTPC after the date of the execution of the execution agreement between RIL and ADA Group's fuel management company. Substantial delay in appointment of international consultant for evaluation of gas reserves. Need to be appointed without any further delay. Even for option gas NTPC agreement shall form the basis as envisaged under the MOU. (vi) E-mail from Mr.Cyril Shroff dated 30-8-2005 (pp. 44-46). Sub: Resolution of issues pursuant to KDA directions. '( ii)Gas Supply Contract uIn this behalf, I would invite attention to our mail of 16-8-2005, a copy of which is enclosed herewith for ready reference. Hence, on the Friday/Saturday meetings, my suggestion would be : (d )As a related matter, to evaluate the implications of 'bankabi....
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....a mark-up over the agreements that have been signed already. (x )E-mail from Mr.Cyril Shroff dated 24-2-2006 (pg.139). 2/24/2006 10.43 am Subject: Deviation from MOU This has reference to your mail of 23rd February in relation to the MOU deviations and enclosing the revised documents. Please forward your mail with enclosures to the MDA Group as well. They will need to comment upon your suggestions in detail. 53. These correspondences, therefore just cannot be overlooked while considering the submissions as raised by the learned senior counsel for the applicants Mr. Rohatgi that the Scheme has the foundation of the MOU in question, though not reflected in clear terms in any part of the Scheme as both the parties are aware of its contents also. 54. Therefore, the submission of the learned senior counsel for the respondents Mr. Salve that there was no reliance placed on these averments and/or even these documents as the MOU in question though relied upon is itself not the part of the Court proceeding, is unacceptable. Binding MOU/Family arrangement and its importance & effect 55. The learned senior counsel for the applicants has strongly relied on the following judgments in re....
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....ble reversioner enters into a transaction which settles his claim as well as the claim of the opponents at the relevant time, he cannot be permitted to go back on that agreement when reversion actually falls open." (p. 125) (2) K.K. Modi v. K.N. Modi [1998] 3 SCC 573 : AIR 1998 SC 1297, relevant paras 33 and 52 are reproduced below : "33. In the present case, the Memorandum of Understanding records the settlement of various disputes as between Group A and Group B in terms of the Memorandum of Understanding. It essentially records a settlement arrived at regarding disputes and differences between the two groups which belong to the same family. In terms of the settlement, the shares and assets of various companies are required to be valued in the manner specified in the agreement. . . . . 52. Group A also contends that there is no merit in the challenge to the decision of the Chairman of IFCI which has been made binding under the Memorandum of Understanding. The entire Memorandum of Understanding including clause 9 has to be looked upon as a family settlement between various members of the Modi family. Under the Memorandum of Understanding, all pending disputes in respect of the r....
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....ember to transfer his shareholding only to the branch of family to which he belongs in terms imposes two restrictions which are not stipulated in the Article. Firstly, it imposes a restriction on a living member to transfer the shares only to the existing members and secondly the transfer has to be only to a member belonging to the same branch of family. The agreement obviously, therefore, imposes additional restrictions on the member's right to transfer his shares which are contrary to the provisions of article 13. They are, therefore, not binding either on the shareholders or on the company. . . . . . ." (p. 457) 57. He contended that the question before the Supreme Court was as to the enforceability of an agreement which was inconsistent with private company's articles in the context of transfer of shares. It was held that the agreement between the two groups of shareholders which impose certain restrictions on the transferability of the shares held by them was not binding either on the company or its shareholders because the restrictions so imposed by the agreement were contrary to the provisions of the articles; a sale of shares held by one of the two groups in breach of the ....
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....ercial arrangement. Both the parties were trying to bring all the important facets of the private domain into the family corporate domain. There were various discussions and meetings took place apart from e-mails to use the MOU and the draft between RIL and NTPC as a guidance to finalise the agreement between the applicants and respondents to be "a suitable arrangement" as contemplated under clause 19 of the scheme. The submission therefore that there is no MOU at all in existence as referred and relied by the applicants and as resisted by the respondents is not acceptable. Though the actual copy of the MOU is not part of the record, yet in the absence of any contra-material and in view of the correspondences referred above, apart from the discussion as recorded therein, it is difficult to accept the contention that neither RIL nor its Board member were and are unaware of the contents of the MOU. It is also not acceptable that the respondents are not agreed to accept or incorporate the terms of MOU in any of the arrangement for supply of gas for the power plants of REL and RPNL. 61. Another facet is that there are positive averments made in the pleading by the applicants in refere....
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....sh Salve on the case of V.B. Rangaraj (supra) is not applicable to the facts and circumstances of the case. There was no such question of sanction of scheme of Demerger there. Except some clauses of the agreements the whole scheme has been implemented successfully till this date. This is not a case of agreement between two groups of shareholders which imposed certain restrictions on the transferability of the shares held by them which was not binding either to the companies or its shareholders. Only because of some challenges raised to the clauses of GSMA and GSPA that itself cannot be the reason as recorded above to discard the MOU or the scheme. The submission, surrounding to section 36 and even on the judgments of V.B. Rangaraj's case (supra), Rolta India Ltd.'s case (supra), Spindel Fabrik Sussen's case (supra) and IL & FS Trust Co. Ltd.'s case (supra), as cited by the respondents is unacceptable. The facts are totally distinct and distinguishable. 66. The agreement and the discussion from June 2005 till this date on the issues raised by the applicant, i.e., identity of sellers and buyers, quantity and Government approval, tenure and due performance which has been based upon t....
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....rned senior counsel with regard to these two agreements i.e., GSMA and GSPA submitted that; the arrangement as referred to and agreed in the MOU has been overlooked and breached; these agreements are not falling within the ambit of "suitable arrangement" as agreed in clause 19 of the scheme; and are not bankable documents. The terms and conditions as put in the GSMA and GSPA are one sided and not in the interest of the applicants. The Government Policy and the P.S.C. - Its knowledge 69. Mr. Anil Ambani of ADAJ was fully aware of the Government's New Exploration and Licensing Policy, 1999 (NELP) being part and important person/official of the original respondent-company. He is fully aware of the PSC in respect of the exploration Block KGDWN-98/3 in question which has been signed on 12-4-2000 between the Government of India and the Consortium (the contractor) consisting of NIKO and RIL sometime in October, 2000, the contractor announced discovery of significant results of natural gas in KGD-6 Block. On 18-6-2005 Anil Ambani resigned as Joint Managing Director of the RIL. As noted, various correspondences, e-mails, reflect their discussion and due deliberation by both the parties, f....
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....llers and buyers and in which such buyers and sellers have no contractual or other relationship, directly or indirectly, or any common or joint interest as is reasonably likely to influence selling prices and shall, inter alia, exclude sales (whether direct or indirect, through brokers or otherwise) involving Affiliates, sales between Companies which are Parties to this Contract, sales between Governments and Government-owned entities, counter trades, restricted or distress sales, sales involving barter arrangements and generally any transactions motivated in whole or in part by considerations other than normal commercial practices. 1.19 "Commercial Discovery" means a Discovery of Petroleum reserves which has been declared as a Commercial Discovery in accordance with the provisions of article 10 and/or article 21. 1.25 'Contract Costs' means Exploration Costs, Development Costs and Production Costs as provided in section 2 of the Accounting Procedure and allowed to be cost recoverable in terms of section 3 of the Accounting Procedure. 1.28 'Cost Petroleum' means, the portion of the total value of Crude Oil, Condensate and Natural Gas produced and saved from the Contract Area whi....
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.... that in case a Party has earlier approved or agreed to a plan, activity, practice, procedure etc. under this Contract, then it shall not raise a question about GIPIP on that matter. 1.74 'Petroleum Operations' means, as the context may require, Exploration Operations, Development Operations or Production Operations or any combination of two or more of such operations, including construction, operation and maintenance of all necessary facilities, plugging and abandonment of Wells, safety, environmental protection, transportation, storage, sale or disposition of Petroleum to the Delivery Point, Site Restoration and any or all other incidental operations or activities as may be necessary. 1.75 'Production Costs' means those costs and expenditures incurred in carrying out Production Operations as classified and defined in section 2 of the Accounting Procedure and allowed to be recovered in terms of section 3 thereof. 1.77 'Profit Petroleum' means, the total value of Crude Oil, Condensate and Natural Gas produced and saved from the Contract Area in a particular period, as reduced by Cost Petroleum and calculated as provided in article 16. 8.3 The Contractor shall having due regard ....
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....ntract Area. Accordingly, any proposal by the Contractor relating to Discovery and production of Natural Gas from the Contract Area shall be made in the context of the Government's policy for the utilisation of Natural Gas and shall take into account the objectives of the Government to develop its resources in the most efficient manner and to promote conservation measures. 21.6 Valuation of Natural Gas. 21.6-1 The Contractor shall endeavour to sell all Natural Gas produced and saved from the Contract Area at arms length prices to the benefits of Parties to the Contract. 21.6-2 Notwithstanding the provision of article 21.6.1, Natural Gas produced from the Contract Area shall be valued for the purposes of this Contract as follows : (a )Gas which is used as per article 21.2 or flared with the approval of the Government or re-injected or sold to the Government pursuant to article 21.4-5 shall be ascribed a zero value; (b )Gas which is sold to the Government or any other Government nominee shall be valued at the prices actually obtained; and (c )Gas which is sold or disposed of otherwise than in accordance with paragraph (a) or (b ) shall be valued on the basis of competitive arms....
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....particular; or (i )has failed to carry out or observe any of the terms and conditions of the License or Lease or the provisions of the Acts or Rules in force thereunder, subject however, to article 31." 74. The description of contract area is provided in Appendix "A" with map, Accounting Procedure to production sharing contract is provided in Appendix "C" which also deals with cost, expenses, expenditure and incidental income of the contract. It also provides classification, definition and allocation of costs and expenditure. It also provides that requirements of various statements, such as: Profit, value of production and pricing, statement of cost, expenditure, cost recovery, profit sharing, end of year and Budget statement. 75. As per the PSC in question, the respondents being contractor required to incur all expenditure for petroleum operation in respect of gas and/or oil blocks awarded under the NELP which is then being recovered from sale of petroleum when produced. The amount of expenditures even though incurred by the contractor for petroleum operation under the provisions of PSC, it is strictly monitored, reviewed and audited from time to time. As per Article 15 of the ....
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....ttee take decisions based upon the votes or unanimous votes or majority votes as mentioned in article 6.13. It is specifically provided that in case of unanimity, if not achieved within a reasonable period, the decision of the Management Committee may be approved by the majority participating interest of 70 per cent or more, with the Government having a positive vote in favour of the decision. 79. The submission, therefore, is that the Government plays a very dominant role in every aspect of discovery, development, production, sharing of petroleum, taxes, royalties, valuation, natural gas, accounting, inspection, security, guarantee etc. including domestic supply, sale, disposal of crude oil and condensate. Any breach would result into termination of the contract insofar as the respondents-contractor is concerned. Therefore, the submission is that the conditions of PSC are important and necessary for the respondents to follow. There is no reason that all other contracts or further sale of the gas, even out of the contractor's profit, the approval of the Government in such matter can be overruled. Therefore any private contract or even if entered into by the respondents, even thoug....
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....lateral document or agreement. It also means that it should be suitable to both RIL and RNRL. The issue of suitability of arrangement cannot be beyond the scheme and Government policy pertaining to supply of gas. It is clear to both the parties therefore, even on the date of sanction of the scheme that the draft agreements and/or arrangement through GSMA/GSPA have been the matter of discussion and deliberation, which were based upon the basic terms of the MOU. It is clear that the successful implementation of the scheme in no way solely depend upon the "suitable arrangement" in question. Basically the understanding of the parties for the suitable arrangement for supply of gas for the power projects of Reliance Patalganga Power Projects Limited (RPPL & REL) keeping in view all the existing terms of the PSC, NTPC Contract, the MOU, the commercial and technical aspects therefore, definitely need to be considered from the point of view of both entities and their respective shareholders interest. 84. The reference to NTPC contract and its contents as reflected in the MOU could not have been overlooked. The parties and their officials had been discussing the same, but as unable to final....
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....expressed. It is in the ultimate analysis a question of construction of the contract. And again it is well established that in construing a contract it would be legitimate to take into account surrounding circumstances. . . . ." 88. In Gopisetti Venkatratnam v. Vijaywada Municipality AIR 1966 SC 353, the Supreme Court in para 3 observed as under : "(3) . . . As the meaning of the word is ambiguous, it is legitimate, in order to ascertain its true meaning, not only to study the document as a whole but also to ascertain its meaning from the circumstances whereunder the said agreement came into existence. . . ." (p. 354) 89. The principle is further elaborated in the Godhra Electricity Co. Ltd. v. State of Gujarat AIR 1975 SC 32. The relevant paras 11 and 13 reads thus: "11. In the process of interpretation of the terms of a contract, the court can frequently get great assistance from the interpreting statements made by the parties themselves or from their conduct in rendering or in receiving performance under it. Parties can, by mutual agreement, make their own contracts; they can also by mutual agreement, remake them. The process of practical interpretation and application, howe....
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....ruing a particular clause of the contract, it is only reasonable to construe that the words and the terms used therein must be given effect to. In other words, one part of the contract cannot be made otiose by giving a meaning to the policy of the contract." 92. Recently, the Apex Court in CIT v. Hoogly Mills Co. Ltd. [2006] 157 Taxman 347, while reiterating the principle for interpretation of the agreement held that it has to be read as a whole. 93. Apart from that the following extracts from Chitty on Contracts (27th Edition), 1994 in para 12.053 is also useful : "Every contract is to be construed with reference to its object and the whole of its terms, and accordingly, the whole context must be considered in endeavouring to collect the intention of the parties, even though the immediate object of inquiry is the meaning of an isolated word or clause." 94. The Interpretation of Contracts, Second Edition by Kim Lewison, Q.C., 1997, in reference to the intention of the parties, the author has expressed as under : "1.02 The object sought to be achieved in construing any contract is to ascertain what the mutual intentions of the parties were as to the legal obligations each assum....
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....hole as under : "6.02 In order to arrive at the true interpretation of a document, a clause must not be considered in isolation, but must be considered in the context of the whole of the document. 6.03 In construing a contract all parts of it must be given effect where possible, and no part of it should be treated as inoperative or surplus. The construction of a document as a whole necessarily involves giving effect to each part of it in relation to all other parts of it. Accordingly, as a corollary of the principle that a document must be construed as a whole, effect must be given to each part of the document. This in turn means that in general each part of the document is taken to have been deliberately inserted, having regard to all the other parts of the document, with the result that there is a presumption against redundant words (usually called 'surplusage')." 96. For interpretation and to gather the intention and object of the MOU, the scheme and the GSMA, the above principles are extendable and applicable. I am of the opinion that the term or phrase 'suitable arrangement' referred back to all the ingredients of the PSC, MOU and the scheme. However, it also means the arr....
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....y an order dated 9-12-2005 for demerger of four Undertakings of Reliance Industries Limited (RIL)-Demerged company and their transfer to four Transferee companies as a going concern (resulting companies). Both these terms i.e., Demerger, Demerged company and the resulting company are not defined under the Companies Act. These terms are defined under the Income-tax Act. Those are sections 2(19AA), 2(19AAA) and 2(41A) respectively. For convenience the same are reproduced as under : "(19AA) 'demerger', in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that - ****** (19AAA) 'demerged company' means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company. (41A) "resulting company" means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged c....
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....hom 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 251, and the like. (3) An order made by the Tribunal under sub-section (2) shall have no effect until certified copy of the order has been filed with the Registrar. ****** 392. Power of Tribunal to enforce compromise and arrangement.-(1) Where the Tribunal makes an order under section 39 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 b....
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.... the Tribunal 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 Tribunal 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 s....
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....e steps to be taken for removing such hitches and impediments. This would be unduly cumbersome and time-consuming and, therefore, the Legislature in its wisdom conferred power of widest amplitude on the High Court under section 392 not only to give directions but to make such modification in the compromise and/or arrangement as the Court may consider necessary, the only limit on the power of the Court being that such directions can be given and modifications can be made for the proper working of the compromise and/or arrangement. The purpose underlying section 392 is to provide for effective working of the compromise and/or arrangement once sanctioned and over which the Court must exercise continuous supervision (see section 392(1)], and if over a period there may arise obstacles, difficulties or impediments, to remove them, again, not for any other purpose but for the proper working of the compromise and/or arrangement. This power either to give directions to overcome the difficulties or if the provisions of the Scheme themselves create an impediment, to modify the provision to the extent necessary, can only be exercised so as to provide for smooth working of the compromise and/or....
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....d satisfactorily with or without modification [see J.K. Bombay (P.) Ltd. (supra)]. It follows as a corollary that if the compromise or arrangement can be worked as it is or by making modifications, the Court will have no power to wind up the company under section 392(2). . . . ." (p. 65) The submission, therefore, as raised that the present dispute is a case of Scheme of arrangement involving transfer of assets from a transferor company to a transferee company and, therefore, the provisions of section 394 would be applicable and not section 391, is unacceptable. It is difficult to dissect these provisions and to read in isolation for the purpose of supervise and/or modification of the Scheme and/or passing appropriate order to see that the Scheme has already sanctioned must run smoothly in the interest of all. All these sections are interlinked and interconnected and operates coherently. Therefore, the submission that once the Scheme is sanctioned, section 392 is not applicable after passing the order under section 394 become functus officio and section 394 operates in an occupied field, is also unacceptable. All these sections are in addition to and in aid of the primary power of....
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.... H. Mafatlal v. Mafatlal Industries Ltd. [1996] 10 SCL 70 (SC), after dealing with even S.K. Gupta's case (supra) at para 28 it is observed 'the aforesaid provisions of the Act show that the compromise or arrangement can be proposed between a company and its creditors or any class of them or between a company and its members or any class of them. Such a compromise would also take in its sweep any scheme of amalgamation/merger of one company with another'. 105. In Indian Hardware Industries Ltd. v. S.K. Gupta [1981] 51 Comp. Cas. 51, Delhi High Court has observed at page 54 by referring to Indian Hardware Industries Ltd.'s case (supra ) as under : "Now, section 392 empowers the Court sanctioning a scheme or at any time thereafter to 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. We cannot read any limitation in it so as to exclude the power to call a meeting of the company for the purpose of electing the directors if the court feels that it is necessary for the proper working of the scheme to know who are the real directors of the company.....
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....said provision and such power has to be exercised only for the purpose of proper working of the scheme, which is the only limitation which is imposed on the court under this provision." (p. 483) 107. The Bombay High Court also in D.S. Venkatraman v. Gujarat Industries (P.) Ltd. [1977] 47 Comp. Cas. 352 has observed that "If any difficulty arises in the workingout of a Scheme, the Court can modify the same so that its purpose can be achieved for the mutual advantage and benefit of the Company and the class of its creditors or members who are parties to it." The same view has been taken by the Kerala High Court in K. Meenakshi Amma v. Sreerama Vilas Press & Publications (P.) Ltd. [1992] 73 Comp. Cas. 285 . 108. The Apex Court in J.K. (Bombay) (P.) Ltd. v. New Kaiser-I-Hind Spg. Wvg. Co. Ltd. AIR 1970 SC 1041, while interpreting the Scheme has observed as under : "Though a Scheme prepared by the Company to pay the creditors is not a mere agreement, but has statutory force, it has to be construed as a commercial document, that is in the manner in which businessmen would read it." (p. 1041) 109. Apart from above, the learned senior counsel for the applicants has strongly relied on D....
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....e sanctioning of the Scheme. There is no dispute that the demerged companies and/or the resulting companies were separate entity but under the control of one group until by the arrangement, they agreed and, accordingly, the Bombay High Court has sanctioned the Scheme. Both these new groups/entities have been formed and divided only thereafter. There is no other provision wherein or whereby such arrangement and/or such application for modification and/or direction and/or supervision by the Court can be considered. The application, therefore, under section 392 is maintainable and it is within the jurisdiction of the Company Court who has sanctioned the Scheme to pass appropriate order or direction if case is made out. The power of Company Court to grant relief as prayed or to modify the scheme 113. Now, the important question is whether the facts and circumstances are sufficient with the material on record, to grant the reliefs as claimed in these applications of the applicants, specially in view of the following observation while considering the Scheme of sections 391 to 394 in question. In Larsen & Toubro Ltd.'s case (supra) this Court (Anoop V. Mohta, J.), after considering the ....
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....s appropriate order including of modification of the Scheme for smooth working as contemplated under section 392 of the Companies Act as defined and explained in S.K. Gupta's case (supra), yet the observation of the Apex Court in Miheer H. Mafatlal's case (supra), which is reproduced as under, just cannot be lost sight of. "29. Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction." 115. The respective business strategy of the companies is not the Court's domain. In the competitive market the Corporate exhaustive strategies are essential. Companies know how to make or arrange and a....
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....respondents would have repercussions and/or affect the other clauses also. Therefore, even otherwise in such type of transactions or agreements, the clauses are always inter-connected and inter-linked. In the present case, it is not possible to hold that deletion of one clause would not affect other clauses. The result would be therefore the whole GSMA and/or GSPA itself would be unclear and unworkable. 119. In the written submission filed by the applicants and even after considering the rival pleading and submission made by the learned senior counsel in the matter, the following are the protested points. Those are tabulated as under. The appellants are insisting for proposed revision. The respondents submitted to retain the provision of GSMA. Nature of the Contractual Term Provision in Scheme Provision in 12-1-2006 contract GSMA Proposed Revision Parties to the GSPA The contract is executed between NTPC and RIL The GSPA is to be entered into between RIL & NTPC The definition of buyer and the scope of, such affiliate is the contract of RNRL which needs to be actually amended to mean the power plant rather than RNRL itself as an affiliate needs (p.371).This is to be amen....
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....tion Agreement) signed Nature of the Contractual Term Provision in Scheme Provision in 12-1-2006 contract GSMA Proposed Revision . by RIL pursuant to the Scheme (sic) Tenure of contract : 120. For tenure, both the learned senior counsel have relied on Clause 3.1(b) of GSMA which is as under : "3.1(b) The tenure over which volumes of Gas will be available for contracting under this Agreement from any Development Plan ("Tenure") shall be the period in Years determined under this Clause (b) but in no event beyond 31st March, 2025. (i) The Tenure of volumes available for RNRL from the Initial Block KG-D6, Development Plan shall mean the result (in years) of the following: Tenure = [(CPR-2.63) x 10.6] / [(APV-N) x 35.3147x365]" 121. Referring to clause 3.1(b) of the GSMA dated 12-1-2006, the submission made by the learned senior counsel for the applicants that the above clause is very vague and artificially designed. Such formula and such related clauses are not based upon any established national or international practice to execute such agreement of supply of gas. The Clause is complex, uncertain and unworkable formula. The supply of 17 year....
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....in. This distinction makes clear the mala fide intent of RIL. RIL could simply have used the definition of Certificate Proved Reserves given in the main definition section. However, by giving a separate definition exclusively for the purposes of the tenure calculation, the effort to artificially diminish the applicant's entitlement has been laid bare. 16. Fourthly, the linking of the tenure to proved reserves is artificial. What is relevant in the gas field is the actual production of the gas and not the proved reserves. The proved reserves are merely, and often conservative, estimates of the gas available. The total reserves are in fact a mixture of three components, namely Proved, Probable and possible reserves. Proved Reserves are only a small fraction of the actual reserves stated in the Development Plan. The calculation of tenure, assuming that it should be based on a formula at all, should have been based on actual production or at least on all three reserves. 17. Finally, Clause 3.1(c ) (f) at pg.374 of Volume II make it clear that that 'RIL does not warrant the Certified Proved Reserves in any certificate'. The absence of a warranty, therefore, makes the calculation of th....
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....tence of such reserves as doubtful and to undertake to do so without any limitation on liability. (iv)By no stretch of imagination, can these respondents be expected to make such a commitment at all, since it would expose these respondents to huge claim in damages. The doctrine of force majeure in such cases would be difficult to invoke if commitments such as above are made with full knowledge of the fact that adequate reserves may not exist to fulfil such commitments. (v )These respondents cannot be expected to expose themselves to such claims in damages and such an arrangement would certainly not be a suitable arrangement as far as these respondents are concerned. (vi)The applicants have also accepted the position that any supply of gas by RIL to RNRL will be only from RIL's entitlement of gas. RIL's entitlement over the period of PSC would be broadly 50 per cent. Therefore, for making a commitment for supply of 28 MMSCMD of gas for 17 years there should be P1 reserves of 18 TCF. This is demonstrated in Charts (Compilation R-13-e)." "The applicants have strongly relied on the MOU and put up their submissions accordingly. Even as per the MOU, the quantum of supply and/or sourc....
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.... in MMSCMD, shall be determined for each Development Plan as follows: 125. The submission of the appellants is that the above formula depends upon a number of variables wholly controllable and manipulable by RIL and hence there is no guarantee that a fixed quantity of gas will be supplied in any year. Referring to clause 3.1(f), as submitted, RIL expressly stated that it does not warrant that quantity are actually available. Further, as per clause 6.2 RIL's share of production of gas on any day under the PSC, if less than the quantity agreed to be supplied under the relevant GSMA, RIL will be under no obligation to supply shortfall. 126. A chart showing the calculation of actual quantities has been relied for calculation of volume under GSMA based upon a formula again, which reads thus : "(4) A chart showing the calculation of actual quantities to be supplied to RNRL is set out hereinbelow: Calculation of Volume under the GSMA dated 12-1-2006. Formula for calculation of volume: AQ = [(GP - GS ) x RP] - [0.03 x GP ] - N Assumption being that N (NTPC volume) is 12 MSCMD and GS (Government share) for a year is 45 per cent of GP . Year Total Production (i.e., GP ) in MMS....
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....n to ACQ, provided however that such increase in ACQ shall be on the same terms and conditions as contained in this Agreement. In the case of any Contract Year that is less than 12 months, ACQ shall be adjusted by the same proportion as the number of Days in such Contract Year to 365." (p.276, Volume I). 128. Therefore, the submission is that the contract terms must be clear and the clauses of NTPC contract need to be followed for the purposes of assuring the agreed quantity and to make the scheme workable. Identity of buyer and/or meaning of affiliate and use of gas for the power plants of RPPL & REL 129. Insofar as the identity of buyer is concerned, as per clause A(f)( i) of the Preamble of the Scheme and in the backdrop of the MOU, it is clearly envisaged that gas would be supplied by RIL to RNRL so that RNRL could supply the same to REL and its affiliates for the generation of power. The submission is that the business of supply of gas to REL and its affiliates was the very reason for which RNRL had been contemplated. The execution of individual agreements as provided in the GSMA, it would be between RIL and REL and its affiliates. It means, such agreements would be entere....
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....ion of the learned senior counsel for the respondent that such clause cannot be said to be contrary to the Scheme. In view of that such insistence by the applicant goes beyond the scheme and contrary to the intent of MOU. Further the fact that the learned senior counsel for the applicants restricted and conceded that the gas supplied by the respondents-RIL to the applicant would be only for the power plants of RPPL and REL. Therefore, on this aspect, no case is made out by the applicant to amend this clauses relating to "Affiliate" in respect of identity of buyer. Limitation of liability 132. With regard to the limitation of liability, the main clause is clause 14(3)(i) of GSMA which reads thus : "14(3)(i) Notwithstanding anything to the contrary provided in this Agreement, in no event shall the Seller's liability for Supply Deficiency Quantity or Delivery Default Quantity whether singly or cumulatively exceed the sum of USD(.) Million. (To be determined based on [Contract price "(Sum of ACQs in Schedule 7.1/Basic Term] x [1/2] x [Basic Term/17]." 133. As per the applicants' senior counsel, this clause is also complex formula. It restricts RIL's liability to pay damages to RNRL....
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....t its commitment is all on presumptions and assumption. The principle of frustration and/or force majeure and further the background that the respondents would be in a position to supply the gas from his share only if it is available and permissible to sell and/or to supply others than the Government is very relevant factor. The applicants also in such circumstances would be entitled to claim the damages for such express breaches if any. 136. The learned senior counsel for the respondents, further submitted that the limit on liability does not relate to damages for deliberate default. Article 13(c) of GSPA draft in both NTPC and RNRL cases make the position clear that priority will be given to supply of gas to NTPC and RNRL in that order. As per article 14.3(d) supply deficiency in quantity or delivery default quantity are both premise from sellers daily shortfall. Therefore, the respondents are right in putting this clause in this background to submit that because sellers daily shortfall is the quantity which he is unable to deliver to the buyer and not quantity which the seller deliberately fails to deliver. The stipulated limit on liability is not for deliberate default and it ....
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.... have been the terms and conditions of the contract is unacceptable. Both the parties must be having the expert team of consultants, engineers of national and international level, which is otherwise a requirement to commence such business of exploration/production and supply of gas. Though unable to settle and finalise the terms and conditions as objected and discussed in the present petition, that itself cannot be the reason that Court should, without expertised knowledge in the subject or in the area, express and/or direct and/or impose and/or modify these terms and conditions on either side. It is not the domain of the Court to pass such directions merely because the parties have failed to arrive at settlement and/or failed to finalise such technical and complex terms and conditions, in spite of discussions prior or even after the scheme. 139. As the arrangement and/or compromise of any such Scheme like the present one has always the foundation of unanimity or the acceptance of respective terms and conditions. Now at the stage of the proceeding, it is expected again that for proper working and/or smooth working of the scheme the parties should settle themselves for a "suitable ....
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.... is also need to be approved by the Government. Subject to this PSC and Government policy, the contractor is the owner of his share of the gas, though the natural resources are within the control and ownership of the Government. The contractor has full right to dispose of the gas so produced according to his commercial wisdom to the third person or parties, but only from his share and that is after the respective profit share to the Government as agreed. The contractor has, therefore, full freedom to market his portion of the gas. 142. The Government shall, as per article 16.4, have the option to take its entitlement to profit petroleum either in cash or in kind by exercising such option and by notifying the same to the contractor not later than 30th June in each year preceding the year in which the entitlement is due. The pricing of gas and the Government's role 143. The Production Sharing Contract (PSC) signed between the Government of India and various E. & P. contractor envisages a national gas utilisation policy as per article 21 of PSC. The Government's share of profit petroleum in kind as per article 16 of PSC provides a notice to the contractors based upon the production....
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....of contractors. The Government definitely need to see and check firstly that the contractors should supply and sale the gas in the domestic market and secondly, it should be utilised to the maximum extent for the benefit of people at large and for development of the country. 145. The contractor while fixing the price need to be considered the floor price first based upon the USD per MMBTU. The Government has still power to check the rationale basis for fixing such floor price. The crude price of USD per barrel is also an important element. The contractor need to protect itself from price risk. The contractor's investment, expenditure taking into consideration the annual availability of the gas from a particular source, its estimated period, the gas exploration, development, production and thereafter marketability after considering the Government's share profit are the essential factors pricing of gas. The Government has therefore to check, scrutinise 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. 146. The formality of getting the approval from the Government h....
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....t of pricing and/or tenure and/or quantity is a matter between both the parties to settle and decide, that is too after taking into consideration the Government policy and clauses. The interest of shareholders and/or respondent-RIL just cannot be overlooked. The respondents cannot be directed to sale or supply gas at subsidised rate and to incur losses. The effect of MOU therefore need to be interpreted to mean that the applicant is entitled to the share and supply of gas reasonable price, quantity and tenure provided both the parties agreed to the suitable arrangement. Such agreement cannot be unilaterally. Therefore, once they come to a particular settlement which should be suitable to both and if it falls within the ambit of Government policy and/or Regulation, there is no reason that even the Government should not grant approval. 152. The profit share of contractor and/or of Government varies from time to time and/or year to year basis. There is no fixed profit share of gas of either of the parties. The fixing of price therefore cannot be of permanent nature even by the Government and/or even by; the contractor. The fluctuation of the market and based on various factors need t....
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....rom that block. Therefore, at this stage, the entitlement of respondent would be worked out by converting the cost and profit into equivalent of oil and gas produced from the field in question. 155. In consideration the contractor is entitled only to a share in the gas and/or oil, if any, which may actually be produced and save for recovering its gas and a share of profit. As per the PSC, the title to contractor's entitlement of oil and gas, will be transferred to it after it is produced and brought to the delivery point. The detail process as stipulated in the PSC which includes the petroleum operations always subject to review and approval by the Government. There are various checks and balances as provided in the PSC to ensure that the Nation's oil and gas resources are exploited by the contractors in a commercially prudent and utilise it to a maximum extent in the domestic market. The entitlement of the contractor as provided in articles 15 and 16 need to be calculated. 156. Under the KG-D6 PSC the contractor's entitlement of cost petroleum is limited to 90 per cent of each year's production. In case there is any unrecovered part of the total costs at the end of any year, the....
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....MD for 17 years from RIL's entitlement is just and proper. The applicants-RNRL is entitled, as agreed between RIL and RNRL, from RIL's entitlement and share and not otherwise. 159. The further submission of applicant that in case the NTPC contract with RIL does not materialise and as agreed in the MOU and even otherwise, they are entitled for the said 12 MMSCMD of NTPC from the total P-1 reserves for 17 years. As noted, the entitlement of RNRL would only be to the extent of available and as and when gas available from P-1 reserves even in future also as per development plan filed by RIL from time to time. RIL, therefore, can only supply those gas which are available from time to time from present as well as future P-1 reserves from its entitlement, after deducting the shares of Government, NIKO and in case of NTPC. 160. Both the parties have the team of expert technicians. They are free to consult and decide and finalise the terms. In this background, they are at liberty to re-negotiate and finalise. The Government has no role to play in respect of the share of gas of the RIL/contractor in view of the freedom already provided under the PSC. The RIL/contractor is free to sell his ....
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.... contention as raised by the learned senior counsel for the respondents based upon the statement made in the annual report of the applicants-company of the year ended March 2007 published on 25-4-2007 that the applicants-company has already an income of Rs. 250 crores, cash profits of Rs. 41 crores and further that RNRL is getting various concessions for exploration of oil and gas. The Director's report spelt out the projects in hand also. Reliance Fuel Resources Limited will lay the pipeline to Dadri for supply of gas from K.G.Bhasin of North India. Therefore gas if not routed through the applicants and supplies are directly made to the power plants the applicants would become a Shell Company is not correct. Except the issue in question i.e., supply of gas, all other resulting companies, based on the same scheme in question are working smoothly. The majority decision/resolution by RIL Board dated 11-1-2006 and 12-1-2006 and the execution of GSMA/GSPA is against the scheme 165. As per the scheme clause VIII and sub-clause (xvii) the respondents-company shall cause the Board of Directors of each of the resulting companies to be re-constituted in such manner as is agreed between ea....
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....ge the resulting companies till the effective date in the capacity of trustees. Therefore, the Board of the Meeting and the Resolution and/or execution of the said GSMA on 11-1-2006/12-1-2006 before the actual transfer of control of the resulting companies to Anil Ambani and before reconstitution of the Board as per clause 17 of each resulting companies was against clauses 17 and 19 and the basic purpose of the scheme insofar as the supply of gas is concerned. 166. The main crux of the problem arose because of the Resolution by the Board of Directors of RIL on 11-1-2006/12-1-2006. A company is a juristic person and acts through its Board of Directors. The Board of Directors act collectively for the company. It is specialised and body of responsible person. The decision by the Board is for the company's interest and for its benefit. The Board of Directors act as agents, trustees and in a fiduciary capacity. They are the trustees of the shareholders of the company. Their decision binds the company. In the present case, pending the decisions and discussion on various aspects of gas supply agreement hurriedly in spite of objection by so-called representatives of the applicants, the Bo....
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....nomic growth is very essential. It also means the end user of gas like power sector, who are gas consumer in the country need to be encouraged, promoted and provided or supplied gas at affordable price. Considering the requirement of huge finances for the exploration, production and supply of gas, huge finance is necessary. The documentation, therefore, for all these purposes must be clear and must be without any ambiguity, uncertainty and/or doubt. The commercial and economic aspects of such transaction have repercussions at national as well as international level. The gas being a rare commodity and demand is very great at all level, all documents from one stage to the other till the crude oil or basic material are used into power plants or fertiliser plant or such other plant, for converting the gas into energy and/or such other products, the document must be bankable document. Every person or any other entity involved in various ways must have a clear documentation for respective finance and for all other purposes considering the Government policies and the laws into account. The requirement of various compli- ance, of laws including Acts, Rules and Regulations, Policies need to....
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....s a fraud on the shareholders of the resulting companies and also on this High Court. 171. After hearing both the parties and considering the averments and denial as made and specially when for both the parties and their representatives/officials were definitely working and discussing the clauses till the date of its execution and even in the said Board meeting, the representative of the applicants was present. Therefore, merely because it was executed by majority that cannot be the case of fraud as contemplated under section 17 of the Contract Act. The objection to the said clauses and documents itself are the bone of contention even in these applications. The respondents are not totally denying to supply the gas. The dispute is about tenure, period, liability etc. Both the parties are disputing and targeting the words "suitable arrangement" as referred in clause 19 of the Scheme. Apart from this, there is no submission that the applicants are elected or choose to discard the agreement in toto. The application itself is for substitution of some clauses based on the respective interpretation of MOU and the effect of MOU or Government policy and lastly the Scheme. The submission, t....
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....plicants, but certainly not at subsidy rate as claimed by the applicants. The applicants even though invested huge amount of its power projects, if any, still that itself cannot be the reason for this Court to pass interim and final orders and/or directions as prayed. The RIL, under the facts and circumstances, must perform their part of obligation based upon the events, MOU and the Scheme in question, but definitely on agreed terms and conditions. The RIL cannot say and/or deny their obligation as referred and agreed throughout from the date of MOU and even after the sanction of the Scheme. The quantity, the tenure and all other such required aspects of gas price and/or option definitely need detail study and scrutiny and negotiation based upon the existing PSC and the Government policies in this regard. Therefore by adding such clauses and/or amending clauses as prayed by the applicant, without considering the PSC and/or Government policy is beyond the scope of section 392. It will be in fact contrary to the Scheme as sanctioned. 173. I am of the opinion that based upon the MOU and the Scheme in question, RIL is under obligation to see that the resulting companies or its underta....
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....under of RIL and the father of Mukesh Ambani, Chairman & Managing Director of RIL and Anil Ambani, Chairman & Managing Director of REL. Even more than two million shareholders of RIL in this background of settlement of dispute between the two brothers, by the mother, approving the Scheme for sanctioning the transfer of part of the gas supply based business of RIL, being the Gas Based Energy Undertaking to the RNRL. Keeping in the mind the said MOU and the terms and conditions basically in respect of the transfer of companies and formation of resulting companies on the assurance of supply of gas at US$ 2.34 MMBTU for 17 years based upon the NTPC term. The said commitments and assurance of Mukesh Ambani, the Board of RIL and approval by the body of shareholders of RIL to supply the gas to RNRL for the power project of REL is relevant factor to consider the case of the applicants in this regard. 176. There is a force in the submission as raised by the learned senior counsel for the respondents that the relief as claimed and as referred in Exhibit "J" cannot be granted as it is as the same amounts to deviation from the scheme and beyond the powers of the Court. As noted and discussed,....
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.... auction from the Government and further prayed for restraining the RIL from creating any third party interest without first satisfying the first option rights of the applicants. This Company Court by order dated 20-6-2007, without granting the ad interim order as prayed observed that any gas supplied to third party that will be subject to the outcome of the Company Application No. 1122/2006 in referring to the para 20 of the earlier order dated 3-5-2007. By that order, this Court has observed while granting the prayer (a) that "the respondent-company may proceed with the process of sale of gas through auction, but of the remainder quantity of the gas explored and produced by it to ensure that a satisfied quantity of gas to be supplied to the applicants is set apart and made available if and when directed." 179. It appears that the respondent's process for arriving at a market determined price by inviting price quotation from power and fertiliser companies having existing facilities, capital of consumer gas from the expected date of commencement of production of gas from Block KG-D6 was going on. Based upon the quotation received from an application made to the Government for appr....
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....122/2006 has been heard on merits. 181. The entitlement of the gas of the applicant as per the pleading at this stage is not more than 40 MMSCMD (28 as per MOU Plus 12 as per NTPC). The applicants have definitely no right or interest in respect of the balance quantity of gas explored and produced by the respondents-company. The respondents-company therefore are entitled to explore the market to see and assess the potentiality of the gas in the open market referring to price and its requirement. The supply price with RNRL would definitely be different than the market price on the date of sale by the RIL to the third person. The supply price would be determined by RIL and RNRL at the time of final execution and/or commitment for supply of gas which should be prior to the date of actual sale. It is also necessary to consider the immediate requirement, if any, of the applicant for such gas. The respondents-company need to ensure therefore at this stage that no third interest or right is created in respect of the specified quantity of gas and it should be made available as and when required by the applicants from the respondent's share. The respondents therefore need to take all precau....