Index

Sr. No.

Topic

Page No.

1.

Introduction

2.

Snapshot of the Case

3.

Comments

4.

Bibliography

Introduction

Reliance Industries Limited, together with its subsidiaries, engages in the exploration and production of oil and gas in India and internationally. The company also engages in the textile, retail, and SEZ development business. The companys segments include Petrochemicals, Refining and Oil and Gas. The Petrochemicals segment includes production and marketing operations of petrochemical products, including high and low density polyethylene, polypropylene, polyvinyl chloride, poly butadiene rubber, polyester yarn, polyester fibres, purified terephthalic acid, paraxylene, ethylene glycol, olefins, aromatics, butadiene, linear alkyl benzene, polyethylene terephthalate, acrylonitrile and caustic soda. The Refining segment includes production and marketing operations of Petroleum products. The Oil and Gas segment includes exploration, development and production of crude oil and natural gas. Reliance Industries Ltd. has started production of gas from the Dhirubhai 1 and 3 discoveries of the KG-D6 block in the Krishna Godavari Basin. The gas is flowing at the rate of 2.5 to 2.8 million standard cubic meters per day (mscmd) and could reach 10 mscmd in a week. It is being received at RILs onshore facility at Gadimoga village in East Godavari district and delivered to the East West Pipeline of Reliance Gas Transportation Infrastructure (RGTIL). Reliance Natural Resources Limited engages in the exploration, development, and production of oil and gas; and the sourcing and supply of gas, coal, and liquid fuels in India. The company also focuses on the exploration and production of coal bed methane (CBM). The company has interest in four blocks with acreage of 3,251 square kilometers for the exploration and production of CBM. It also has interest in a block in the state of Mizoram for the exploration and production of oil and gas. The company has a gas supply master agreement (GSMA) with Reliance Industries Limited (RIL). It supplies coal to the power plants. It has contract for the transportation of coal from Korba to Dahanu Thermal Power Station. It also supplies approximately 5 lakh metric tonnes of imported coal to Dahanu Thermal Power Station.

Snapshot of the Case

The raging dispute being heard in the Supreme Court between the companies belonging to the two Ambani brothers, Mukesh and Anil, mainly concerns the supply and pricing of natural gas from the Krishna Godavari basin. At the core of the dispute is how valid is a family pact reached between the two brothers, brokered by their mother Kokilaben when the Reliance empire was split a few years ago, in deciding the price of gas in which the government, too, has claimed a share. The dispute is over the supply of 28 million units of natural gas, for 17 years, at $2.34 per unit, to Anil Ambani-led Reliance Natural Resources; from the natural gas fields, off the Andhra Pradesh coast, were won by Mukesh Ambani-led Reliance Industries, and are one of the biggest discoveries made in Asia in recent years. Anil Ambani wants a part of the gas for his group's power plants, based on the family pact. The price, tenure and quantity were all based on a family re-organisation pact in 2005 but RIL subsequently said it could only sell the gas for $4.20 per unit, as this was the price, the company claimed, that was fixed by the government. But the ministry of petroleum and natural gas is not happy with the price at which Anil Ambani has asked for the gas -- between the time the family pact was reached in 2005 and now, hydrocarbon prices have more than doubled. The government, based on the recommendations of a committee led by the present Finance Minister Pranab Mukherjee, had recommended the price of natural gas from the Krishna Godavari basin at $4.21 per unit. Last month, the Bombay High Court asked Reliance Industries to supply 28 million units to RNRL for 17 years at $2.34 per unit after assigning 12 million units to the state-run National Thermal Power Corp. Reliance Industries has challenged this verdict in the Supreme Court, even as the ministry of petroleum and natural gas has joined the dispute as part owner of the gas, and has called for the family pact to be declared null and void. This stand has been contested by RNRL. It says the dispute has been depicted as one with the government, rather than one between the two companies, adding the government actually has little role to play in it. All parties have filed their respective affidavits and stated their positions in the Supreme Court.
2

Comments

Memorandum of Understanding (MOU) - In present day business parlance, Memorandum of Understanding (MOU) as this term is being used, it has become the most misunderstood term. It is used for relationship varying and oscillating in between non binding to binding nature. However, from a legal point of view, the term Memorandum of Understanding"(MOU) should only be used to depict and embody the understanding of the parties in principle without creating any right or obligation of binding nature. In essence, MOU is a simple and pure gentlemen's agreement which does not create any right or duty of binding nature to be enforceable by a Court of law. The term MOU, in practice, is used to denote relationship which may be binding or non-binding in nature. Therefore, it is necessary to probe deeper and dwell in detail so as to understand and appreciate nature of relationship created amongst the parties by MOU. The legal nature of M.O.U essentially rests on the nature of rights, obligation/ duties or legal relationship it creates among the parties. No doubt, it embodies understanding of the parties in principle, however all understandings do not mature in contracts or in other words may not result in conferring of rights and imposition of duties and as such cannot be enforced by the legal process. As per Section 10 of the Contract Act 1872, the essential requirements of a legally binding agreement are as follows: a) There must be offer from one party and its acceptance by another, b) Consent of the parties must be free, c) Parties must be competent to contract, d) There must be lawful consideration, e) There must be lawful object, f) There must be intention to create legal relations. Based on the above characteristics, it can be clearly inferred that the MOU signed by the brothers was binding. However, Reliance Industries Ltd (RIL) sought to impress upon the Supreme Court that the family pact between the promoter brothers- Mukesh and Anil Ambani - brokered by their mother Kokilaben was not binding on the company as the family pact was "in private domain" and "not in the corporate domain". Seven directors of RIL filed affidavits stating they had no knowledge of the contents of the family pact.

On the other hand, if RIL was not aware of the binding character of the MoU then how did they come to know about the arrangement for the supply of 28 mmBtu of gas to RNRL. Hence, the MoU was in the knowledge of the RIL Board and its directors who were acting upon it. If RIL was not aware of the MoU how could RIL know about the supply of 28mmBtu of gas. This exhibits that RIL accepted that MoU was binding on them by conduct too. Only when the dispute came to the court, RIL came out for the first time to say MoU was not binding. Additionally, since Mukesh Ambani was acting for the RIL clearly from the July 27, 2004 Resolution by which all powers of RIL Board was delegated to him. Inspite of the company having a distinct identity of its own; in this case, Mukesh Ambani and RIL should not be treated as a separate identity. The corporate veil should be lifted in since RIL is clearly trying to evade laws by masking their identity. The 2005 family MoU involving their mother Kokilaben led to the division of RIL between the Ambani brothers. Hence, incase of failure of the family pact, under Section 392 of the Companies Act, if the scheme is not implemented, as envisaged, Anil Ambani is entitled to be reinstated in RIL board with full powers as existed before the July 27, 2004 board resolution. Prior to that, Anil Ambani was vice chairman, managing director and on the board of RIL. Since Anil's elder brother, Mukesh is chairman of the company and its 'alter ego', neither he nor the company are entitled to take the position that the family reorganisation pact was not known and take exemption from its liabilities.

Bibliography 1) Economic Times 2) Times of India 3) Business Week 4) Internet