TMI Blog2007 (10) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KO RIL) (the contractor) were the successful bidder for block KG-D6. 6. On 24-3-2000, Reliance Platform Communication Private Limited was incorporated which was changed to Global Fuel Management Services Limited and now called "Reliance Natural Resources Limited" (RNPL) - the applicant company. 7. A Production Sharing Contract (PSC) in respect thereof has been entered into between the Government of India and the Contractor on 12-4-2000. The PSC as recorded is within respect of contract area identified as blocked XG DWN-98-3. (KG-D6) which is situated Off-shore coasts of Andhra Pradesh in the Indian ocean. Such blocks are called as "Deep Water, Exploration Blocks". The exploration in such area requires 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 discoveries 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 expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill have the responsibility for RIL and IPCL and Anil Ambani will have the responsibility for Reliance Infocom and Reliance Energy and Reliance Capital. On 18-6-2005 Anil Ambani resigned as a Joint Managing Director of RIL. 15. Both the brothers with the mediation of their mother (Mrs. Kokilaben Dhirubhai Ambani) arrived at a Memorandum of Understanding/family arrangement dated 18-6-2005 (MOU) and accordingly resolved their dispute amicably. 16. Based upon the said MOU, both the brothers and the officials of RIL and other Group Companies, made various discussion, exchanged corres-pondences, e-mails, and held conferences and meetings to implement the MOU and to resolve the disputes and to divide the various companies by moving a Scheme of Arrangement. Accordingly, RIL and other companies decided to move Bombay High Court for sanction of the scheme of demerger. 17. On 11-8-2005 RNRL (the applicant) acquired by RIL (the respondent) for the purposes of demerger. The name was changed to Global Fuel Management Services. RIL (demerged 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 Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4)/Reliance Energy Ventures Limited. (2)Gas Based Energy Undertaking (Clause 1.12)/Global Fuel Management Services Limited now known as "Reliance Industrial Resources Limited (RNRL) Applicant company. (3)Financial Services Undertaking/Reliance Capital Ventures Limited. (4)Telecommunication Undertakings/Reliance Communication Ventures Limited. 22. To retain all other business including petrochemicals, refining oil and gas exploration and production, textile and other business the Demerged company is Reliance Industries Limited (RIL) the respondent. The Scheme became effective from 21-12-2005. 23. A draft of GSMA (Gas Sale Master Agreement) and a GSPA (Gas Sale Purchase Agreement) were e-mailed by an official of RIL to a sole nominee of Anil Dhirubhai Ambani Group (ADAG) on the Board of RIL at late night of 10-1-2006, despite the officials of both the related companies were still discussing the suitable gas supply agreement. 24. On 11-1-2006 drafts of GSMA and GSPA were approved by the Board of the RIL at a time when the Board of RNPL was under the control of Mukesh Ambani. 25. The nominee of ADAG had raised the objections, but the same were overruled. There was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RIL as and when any changes are carried out to NTPC, GSPA. 34. On 28-2-2006 RNRL by its letter to RIL informed and elaborated various deviations in the GSMA from the agreed terms which were necessary for demerging the business. A suitable draft agreement in compliance with the Scheme, as per the appellant, was also sent with the letter. 35. On 12-4-2006 the respondents-RIL made an application to the Ministry of Petroleum and Natural Gas (the MoPNG) for approval of the gas price at which the sale of 28 MMSCMD of gas was agreed with the applicant under the GSMA. 36. On 9-5-2006 the applicants by a letter requested the MoPNG to accord approval to the application dated 12-4-2006 made by the respondents. 37. On 26-7-2006 the MoPNG communicated to the respondents its refusal to approve the price of gas agreed between the applicants and the respondents under the GSMA. 38. On 31-7-2006, RIL forwarded a letter to the applicants, a copy of letter dated 26-7-2006 received from the MoPNG, rejecting the proposed formula for determining the gas price as the basis of valuation of gas under the PSC. 39. On 7-11-2006/8-11-2006, a Company Application No. 1122/06 under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-5-2007, in Company Application No. 1123/06 an ad interim relief in terms of prayer ( a ) of the application has been granted. The relevant observations in paragraphs 20, 21 and 22 of order dated 3-5-2007 are reproduced below : "20. Be that as it may, the question is what is the ad interim relief that needs to be granted in the fact situation of the present case ? Although the Applicant Company has specified the quantum of gas which it is entitled to receive from the Respondent Company by way of supply for their power projects for generation of power, however, has not disclosed the immediate actual consumption of gas by the existing power projects and future requirements of the concerned power projects. Even so, the Applicant Company, for the present, will be bound by the scope of relief claimed by way of ad interim relief in the Application under consideration. In the circumstances, Respondent Company will have to be directed to ensure that no third party interest or right is created in respect of specified quantity of gas to be supplied to the Applicant under the Scheme on firm basis. In other words, the Respondent Company may proceed with the process of sale of the gas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any manner, which claim is founded on the GSMA dated 12-1-2006 or the one at Exhibit J or otherwise, which, if accepted, will substitute the said agreement as a suitable arrangement for the purpose of clause (19) of the sanctioned scheme. For, if the Company Court has power to do so, in that situation the Company Court will be faced with a fate accompli situation on account of prior commitments to be made by the respondent. 17. For that reason, it needs to be clarified that in the event, the respondent taking benefit of the observations made in paragraph 20 of my order dated 3-5-2007 were to commit itself in relation to any gas produce to third party, that will be subject to the outcome of the main Company Application No. 1122/2006. This position needs to be clarified which, in fact, will be stating the obvious. Ordered accordingly. 18. Place this Company Application for hearing along with Company Application 1122 of 2006 on 7-7-2007." 45. On 17-7-2007, the applicants by a letter requested again to the MoPNG to re-consider its earlier decision dated 26-7-2006 and requested to grant expeditiously the approval to the respondents application dated 12-4-2006. 46. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 12 MMSCMD to NTPC. uIn the event that NTPC contract does not materialise 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. uADA Group to have option to buy 40 per cent of all balance and future gas from the current or future gas fields of MDA Group. uSupply to be from the proven P1 Reserves of RIL whether from the KGD-6 Basin or elsewhere. ( b )Supply Period u17 (Seventeen) Years. ( c )ADA Group s Purchase Obligation. uOn take or pay basis. ( d )Price and Commercial Terms uThe firm quantity of 28 MMSCMD/40 MMSCMD at a price no greater than NTPC prices. uOption gas at the market rate. uOther commercial terms - same as those of NTPC contract. uShall be in accordance with International Best Practices. uShall be bankable in international financial markets. ( e )Other Terms Governing the Arrangement uReliance - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically the following : ( i )All investments of the Demerged Company in Reliance Patalganga Power Limited and other assets through which the Demerged Company carries on its business, activities and operations pertaining to gas based power as described in Part A of Schedule II hereto; ( ii )All the debts (whether secured or unsecured), liabilities (including contingent liabilities), duties and obligations of the Demerged Company of every kind, nature and description whatsoever and howsoever accruing or arising out of, and all loans arising out of, and all loans and borrowings raised or incurred and utilized for its businesses, activities and operations pertaining to Gas Based Power as described in Part B of Schedule II hereto; ( iii )All agreements, rights, contracts, entitlements, permits, licences, approvals, consents, engagements, arrangements and all other privileges and benefits of every kind, nature and description whatsoever relating to the Demerged Company s business, activities and operations pertaining to Gas Based Power; ( iv )All intellectual property rights, records, files, papers, data and documents relating to the Demerged Company s business, activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 otherwise have done, for the power projects of REL. 6.10 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. Along with the tender document, the Gas Supply Purchase Agreement (GSPA) to be entered into with the successful bidder was annexed. 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 applicants at the price and terms no less favourable than those of NTPC and that the gas supply agreement between RIL and the applicant would be as per the said NTPC Contract Terms. A copy of the draft GSPA annexed to the NTPC Tender is enclosed marked Exhibit E. RIL has also confirmed the relevance of the Agreement between RIL and NTPC as the base for the Agreement between RIL and the applicant. RIL has, by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 also on behalf of the applicant without the terms thereof having been vetted by or even considered by REL or by Shri Anil Ambani or the nominee of Shri Anil Ambani on the Board of the applicant and despite the serious differences on critical issues all of which were unilaterally reflected in favour of RIL. The said act by RIL and its representatives is patently illegal and in breach of trust which RIL and its representatives had vis-a-vis the applicant and the millions of persons who have become shareholders of the applicant. The circumstances leading to the unjustified imposition of an agreement with onerous liabilities and also defeating some of the key requirements of the Scheme which would enable the applicant and REL to take over the Gas Based Energy Undertaking of RIL are set out in the correspondence exchanged between the nominees of Shri Anil Ambani on the Board of the applicant and nominees of RIL who constituted the majority of the Board of the applicant and establish b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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, thereby making an aggregate Base Volume quantity of 40 MMSCMD. uThe price and commercial terms for the aforesaid gas supply will be no less favourable than NTPC Contract Terms. uSupply to the extent of 50 per cent of the commitment for supply of Base Volume Gas (28 MMSCMD, or 40 MMSCMD, as the case may be) to be commenced in 2008-09, and the balance in 2009-10. uThereafter, from the entire future reserves of RIL (including new discoveries of gas from new explorations, and/or bids as may be submitted from time to time), applicant will have the first option to get 40 per cent quantity of gas (Option Volume Gas). This is to ensure that 2.2 million shareholders of RNRL continue to benefit from RILs Gas finds. uSupply of Option Volume Gas will be at market rates. uGas can be used for all projects of applicant and its affiliates and group companies. uThe gas supplied wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the demerger of the businesses but the provisions of section 392 of the Companies Act, 1956. uReferring to paragraph 6.5, I crave leave to refer to the Resolution dated 18-6-2005 passed by the Board of Directors of RIL and the Press Release of that date to ascertain the true meaning and correct legal effect thereof. uReferring to paragraph 6.6, I respectfully submit 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 this Hon ble Court. The averments made therein are completely extraneous and irrelevant and this Hon ble Court may be pleased to disregard the same. I repeat and reiterate that the issues, if at all, as between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 may be furnished at the earliest. ( ii ) Letters forming part of Exh. F . E-mail dated 30-6-2005 from RIL to Anil Ambani Group (pg. 3). Sub: Re: FW Gas supply. We have already sent to Sh. Cyril Shroff. We will send you a copy by Saturday, 2-7-2005 (as this is voluminous). Kindly let me know where this should be sent. Regards, Harish. ( iii )E-mail dated 30-7-2005 from RIL to Anil Ambani Group (pg. 25). Sub: Re: FW Actions arising from MOU. "I think we both accept that the MOU has to be given a shape to produce a technically feasible and commercially workable long-term GSPA, and that the nuances of such a long-term arrangement cannot be expected to have been addressed earlier than the negotiations relating to actual GSPA commenced. We have to regard the decision and move ahead to reach an agreement so that it is impl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 bankability and directions given to MDA personally under the MOU to ensure that the gas supply contract is robust. Secondly, what, if any, are the appropriate changes that could be made in order to give meaning and effect to the directions under the MOU ? ( vii ) E-mail from Mr.Cyril Shroff dated 29-11-2005 (pg. 63). Sub: Gas. ( ii )I impressed upon MDA (and he agreed) that the finalization of the agreement with ADA Group should no longer wait the outcome of the NTPC agreement. It was possible to progress the negotiations bilaterally between the two groups using the MOU of 18th June, and the interim settled drafts between RIL and NTPC as a guidance tool. ( viii ) E-mail fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reference to the importance of such family arrangement (MOU) and it s effect and value. ( 1 ) Kale v. Dy. Director of Consolidation [1976] 3 SCC 119, relevant paras 9, 17, 19, 42 are reproduced below : "9....A family arrangement by which the property is equitably divided between the various contenders so as to achieve an equal distribution of wealth instead of concentrating the same in the hands of a few is undoubtedly a milestone in the administration of social justice. That is why the term family has to be understood in a wider sense so as to include within its fold not only close relations or legal heirs but even those per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rights to various members of the Modi family forming part of either Group A or Group B have been finally settled and adjusted. Where it has become necessary to split any of the existing companies, this has also been provided for in the Memorandum of Understanding. It is a complete settlement, providing how assets are to be valued, how they are to be divided, how a scheme for dividing some of the specified companies has to be prepared and who has to do this work. In order to obviate any dispute, the parties have agreed that the entire working out of this agreement will be subject to such directions as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . . . . ." (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 agreement could not, therefore, be held to be valid. 58. He further relied on Spindel Fabrik Sussen v. Sussen Textile Bearings Ltd. 1989 (2) CLA 202; Rolta India Limited v. Venire Industries Ltd. [2000] 24 SCL 13; IL FS Trust Co. Ltd. v. Birla Perucchini Ltd. [2003] 4 CLJ 131 (Bom.) and he submitted that an agreement between shareholders is not binding on the company unless the company adopts it and it is incorporated in the articles of association. Therefore, he resisted that the demerger scheme was based on the MOU and be treated as guidance to the term "suitable arrangem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. 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 reference to the MOU and its contents apart from all the correspondences revolving around the MOU as filed in compilation (F) on the record, remained non-traversed for want of specific denial. 62. The dispute between the two brothers was known to the concerned and basically to the shareholders. The Press Release as relied by the learned senior counsel for the applicants (Exh. D) just cannot be overlooked. The fact that because of the efforts of Smt. Kokilaben Ambani, i.e., the mother of Mukesh Ambani and Anil Ambani, the family settlement has been arrived at and follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the contents of MOU itself, supports the case of the applicants that both the parties have full knowledge about the MOU and its contents. It further supports that at the relevant time these were the agreed terms. What remained was the terms to be suitably elaborated and finalised, as contemplated under clause 19 of the scheme. 67. The submission that the documents required to be proved by its production and/or as not produced even as secondary evidence, in accordance with sections 57 to 62 of the Evidence Act is also rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, firstly to move such scheme and secondly, to all feasible and possible way to enter into agreements/arrangements so that the respondents will be able to supply/sell from the share of gas to be produced at the Gas fields to the applicants or its affiliate and its undertakings. Therefore, various aspects and requirements and obligations of PSC have been the matter of discussion throughout, prior and even after the framing of the scheme between the parties. The PSC and its effect on agreements GSMA and GSP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which the Contractor is entitled to take in a particular period, for the recovery of Contract Costs as provided in article 15. 1.31 Delivery Point means, except as otherwise herein provided or as may be otherwise agreed between the parties having regard to international practice, the point at which Petroleum reaches the outlet flange of the delivery facility, either off-shore or on-shore and different Delivery Point(s) may be established for purposes of sales, Delivery Point(s) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls, 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 to GIPIP. ****** 8.3( e ) in the preparation and implementation of Work Programmes and in the conduct of Petroleum Operations, follow Good International Petroleum Industry Practices with such degree of diligence and prudence reasonably and ordinarily exercised by experienced parties engaged in a similar activity under similar circumstances and conditions. 8.3( f ) establish and submit to the Management Committee for approval appropriate criteria and procedures including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural 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 length sales in the region for similar sales under similar conditions. 21.6-3 The formula or basis on which the prices shall be determined pursuant to article 21.6.2 ( b ) or ( c ) shall be approved by the Government prior to the sale of Natural Gas to the consumers/buyers. For granting this approval, Government shall take into account the prevailing policy, if any, on pricing of Natural Gas including any linkages with traded liquid fuels, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal 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 PSC out of the total production of petroleum, the respondent-contractor can recover the costs from a percentage of the total petroleum produced and saved in any contract year, in this case 90 per cent. 10 per cent of the production of petroleum is treated as profit petroleum. In other words, annual cost recovered is limited to 90 per cent of that year s production. Unrecovered cost being carried forward to the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 though based upon the MOU, still it is difficult for the respondents to loose sight of the conditions of PSC. Those important facets and factors of PSC are well within the knowledge of the applicants, its officers as the PSC was entered in the year 2002, when Anil Ambani was playing dominant or important role in executing the said PSC. The importance of these conditions, therefore, resulted into the basic cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussion 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 finalise, might have agreed for a "suitable arrangement" for supply of gas as reflected in clause 19 of the scheme. The arrangement between NTPC and RIL as noted is based upon the "Arms Length Transaction". The same has been entered into pursuant to the Global competitive bidding process initiated by the NTPC. The MOU itself provides that the agreement shall be in accordance with the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . . 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, however, is not regarded by the parties as a remaking of the contract; nor do the courts so regard it. Instead, it is merely a further expression by the parties of the meaning that they give and have given to the terms of their contract previously made. There is no good reason why the courts should not give great weight to these further expressions by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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 assumed by the contractual words in which they sought to express them. It is commonly, though inaccurately, thought that the purpose of interpreting a contract is to discover the actual intentions of the contracting parties. In Pioneer Shipping Ltd. v. B.T.P. Tioxide Ltd. [1982] A.C. 724 Lord Diplock said: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 arrangement should be suitable to all the concerned and not only to one party. Maintainability of the application and jurisdiction of the Company Court 97. Now in this background, it is necessary to consider the basic submission and plea as raised by the learned senior co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger. " 99. Under the Companies Act, there is no provision except sections 391 to 394 which deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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 dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onferred 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 arrangement. To effectuate this purpose the power of widest amplitude has been conferred on the High Court and this is a basic departure from the scheme of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Court while sanctioning any such Scheme. The Bombay High Court (Anoop V. Mohta, J.) while considering the Scheme and the meaning of "arrangemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The amplitude of the power under section 392 is no longer in doubt. Section 392(1) confers powers of the widest am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme, 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 Divya Vasundhara Financiers Ltd. v. K.N. Samant [1990] 69 Comp. Cas. 646 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Hindustan Lever Employees Union v. Hindusta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entities managed and controlled by NTPC without linking to 51 per cent ownership interest For other than RIL and Reliance Patalganga Power To be amended to be in line with NTPC contract or even to PSC or other agreements (such as Non Competition 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) 10.6] / [(APV-N) 35.3147x365]" 121. Referring to clause 3.1( b ) of the GSMA dated 12-1-2006, the submission made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtified Proved Reserves for the purposes of the formula is different from the definition of Certified Proved Reserves in the main definition clause at p.368, Volume II. The main definition of Certified Proved Reserves at p.368 refers to the Development Plan of any field of RIL. This is different from the Initial Development Plan, of the KG D6 basin. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advocate that the GSPA ought to stipulate that 28 of gas would be supplied for term of 17 years and that too, to RNRL and to enter into such a commitment without a stipulation of any limit on liability. ( iii )Such a stipulation would require these respondents to make a commitment to supply quantity of gas even if the respondents have no proven reserves making the very existence 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source and the business of production of gas in question.". The quantity of gas to be supplied 124. In reference to the quantity of gas to be supplied, the basic clause of GSMA under challenge is 3.1( c ) which reads thus : "( c )The quantity of Gas that is available for contracting under GSPAs for any Year n during the Tenure ("Available Quantity"), expressed on an average daily basis 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Contract Year and shall be expressed in TBtu in respect of each Contract Year. During Build-Up period, ACQ shall be as specified under Article 6.1( a ). ACQ for the remaining Contract Years shall, subject to any upward revisions made in accordance with the subsequent provisions of this Article 7.1 be 132 TBtu. During Contract Term, Buyer may by notice request Seller for an increase in ACQ for any specified period or the remaining period of Contract Term. Buyer and Seller may thereafter reasonably discuss and agree on any upward revision 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or as per the scheme, no other person or entity are entitled for this supply of gas. There is no dispute by the RIL to supply of gas to the power plants of RPPL and REL and also to the power projects of these entities. The requirement of 51 per cent share of RPPL or REL in this backdrop cannot be said to be unjust or bad. The appellant/applicants cannot insist that any company which the applicants hold any shares whatsoever irrespective of the percentage is not within the scheme and never contemplated under the MOU. In my view, therefore, there is force in the submission 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ype of transaction definitely need protection from all aspects. In the facts and circumstances of the present case, it is expected that the respondents shall act bona fide as per the MOU and as per the agreed terms of the Scheme. 135. As this is a case of demerging, it also means the existing companies and/or entities have decided to separate and work by different entities. So this voluntary arrangement is always with the background to see that both entities should work smoothly and develop like other commercial entities. The apprehension that by this clause, the respondents would wriggle out 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 defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Ambani was a dominant member being important official of the RIL, at the relevant time, and was fully aware of such practice and procedure of such clauses based upon the formulas. As referred in the MOU itself, it has been observed that the agreements shall be subject to the international policy and/or practice. The PSC itself refers to various such international practices. Considering the peculiarity of the business in question and being the contract or agreement arising out of natural resources of the Government of India, the submission that such formula ought not to have been placed on record and/or ought not to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Government, as per the development plan for approval which includes the proposed capital expenditure and production from the blocks. The Government, therefore, even at all these stages plays important and dominant role to monitor and review all these facts through their Management Committee. 141. The Government s interest, apart from the maximum utility and use of the natural resources to the benefit of people at large is also to have royalties and taxes and its share of profits. The profit share is only after cost recovery of all capital and operating expenditure of the contractor. The price formula for valuation purposes 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 Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays a bone of contention specially when it is a natural resource owned by the Government. They provide or allow and/or permit the contractors to utilise the same natural resource, in view of this NELP, for domestic purposes only. The competitive bidding or maximum earning or income are therefore always insisted upon in such type of contracts and/or transactions. The role of Government, therefore, just cannot be overlooked and has rightly contended by the learned senior counsel for the RIL-respondent that the approval even to GSMA and/or GSPA and or such other transaction by the contractors with the third person, even though from the share of profit 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 el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price need to be considered from all angles on the date of actual commencement of supply or a reasonable period. There is no question of fixing the floor price for all the time to come. It needs to be revisable from time to time, as per the practice and Government policy having a price review clause. 150. The price so fixed and agreed by the RIL and RNRL is based on the NTPC contract. It was agreed and determined by following the then procedure and Government policy. Therefore the competitive bidding prices, as followed cannot be overlooked, based upon the then declared policy or decision. 151. To what extent RIL should commit and respect the MOU, even in respect 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 provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he would first recover investments made in the block from the sale of petroleum production from the field. As per the PSC, it is only after recovery of the cost, the surplus of the production, if any, would be shared between the Government and the contractor based on a given formula of increased share to Government. The respondents-RIL have already made huge investment based upon the PSC and licence granted by the Authorities. The prescribed period of licence granted to the RIL to explore the block is up to the year 2025. The respondent, based upon the PSC, entitled to recover the investment in particular exploration of block only from oil and gas which is recovered and produced from 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Scheme. 157. The respondents as agreed must provide and/or supply and/or sale 40 (28 + 12) MMSCMD of gas but insofar as the price is concerned, the parties must sit and decide together as the price at US D 2.35 per MMBTU has already been rejected by the Government. 158. The respondents-RIL cannot be compelled to commit such breaches to face the risk of termination of the PSC itself. Therefore, there is a force in the submission that RIL cannot sell or commit quantities of gas which are in excess of P-1 reserves in hand. Therefore, the provisions in the GSMA that RIL would enter into commitment for sale of gas up to 28 MMSCMD as agreed to provide to RNRL to the extent of 28 MMSCMD 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to the change in the Government policies and laws apart from national and international policies of supply of oil and gas. No further trading of gas by RNRL 163. Insofar as the trading by RNRL concerned, during the course of argument, the learned senior counsel for the applicants, on instructions, has expressly given up this issue of trading and submitted that the gas supply would be only for the power plant of any REL and RNRL. They are not pressing and/or pleading that RNRL is entitled to trade in gas. They are restricting their claim and submission only in respect of the supply of gas which will be for their power plants. The applicants are not a shell company 164. There is a force in the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly taking into consideration the background and/or events followed up to the sanctioning of the scheme. As noted, the control over the Board of the applicants on 10-1-2006 was of RIL, as control over had not been handed over to Anil Ambani. On 26-1-2006 final copy of GSPA was made available by nominee of RIL to nominee of Ambani Group. The drafts of GSMA and GSPA were only circulated on late night of 10-1-2006 through mail. It is to be noted that shares of RNRL were allotted/transferred to Anil Ambani only on 27-1-2006 to themselves admittedly after the Board meeting dated 27-1-2006 as referred above. The New Board was reconstituted in accordance with clause 17 of the scheme on 7-2-2006. As per clause 6 RIL continued to manage 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en of damages. Even when the same Government policy and PSC well within the knowledge of the respondent-RIL, based upon MOU and those clauses of NTPC both the parties have been discussing and deliberating on this issue. 169. The availability of gas and its impact on Indian economy is very important. There is no dispute that the comprehensive policy and guidelines to supply and utilise the gas through various procedure and chain in this country s need of energy, security, market and competitiveness is very important. The substantial contribution to the national exchequer by way of royalty, taxes and Government of India s share of profit petroleum and, therefore, to maximise the potential benefit of such huge gas finds for the country s economic 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that every one should know or understand all the technical or electronic formulas, when we discuss and deal with the agreements and documentation, based upon the Government policy, everyone should be in a position to understand and rightly submitted to avoid further complication and litigation in the matter apart from bankable for the purpose of financial help from the Banks and Financial Institution. Allegations of fraud 170. There are various allegations made in the application while questioning the GSMA and/or GSPA by the applicants by referring the said documents to be a hollow, sham as the same were executed in fraudulent manner. Those are sham documents. These documents are unreasonable, un-conscionable, one sided and, therefore, it is 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 becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll it does not mean that the RIL must commit supply of gas without agreeing to suitable arrangement even though based on the MOU or the Scheme in question. Both the parties therefore on this issue also must come forward and settle to make the document Bankable, if required by executing such agreements by taking into consideration the MOU, the Scheme, PSC and the Government policy. The applicant is therefore also required to purchase the gas from the market for their projects being commercial entity in all respects, who wants to and/or start such undertakings. RIL being committed through MOU and/or in the Scheme also must see that the resulting companies like the applicant should develop and therefore must provide the gas from the available quantity to the applicants, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing into consider- ation all the facets, commercial, economic and above all Government policies and law. What should be the arrangement for supply and sale of the gas by the RIL to RNRL and at the same stroke to cover up the investment already made and/or earn the money out of the share of contractor. 175. In totality the MOU as provided for a demerger and transfer of Gas Based Energy Undertaking. It was at that time admittedly the gas which has been allotted to RIL and it has been decided to utilise the gas to the Group power projects. Both the companies RIL and EEL, therefore, agreed and recorded that RIL would support the Gas Based Power Projects of REL. The MOU has been agreed - in the presence of the mother after the death of late Shri Dhirubhai Ambani, the founder 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. Ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id application. By another Company Application No. 1123/2006 the main application in question, the applicants on 16-11-2006 have prayed for orders for injunction as quoted in para 42, whereby the prayer has been sought against the respondent-RIL from creating any third party interest or rights in respect of 40 MMSCMD of gas from supplying to any third person. By order dated 3-5-2007 as reproduced in para 51, this Court has granted ad interim relief in terms of prayer ( a ). The applicants thereafter have filed another Company Application No. 695/2007 on 19-6-2007 and further prayed that the respondents be restrained from committing the sale or auction of any quantity of gas to any third party and further from seeking requisite approval under the Production Sharing Contract for any sale, 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, we do not find anything in the impugned orders which prevents the Central Government from going ahead with the matter of the price fixation under the PSC between the Central Government and the appellant. 3. This is of course recorded without prejudice to the rights of both the parties in the main Company Application No. 112 of 2006. 4. The hearing of these Appeals stand adjourned for eight weeks. In the meanwhile, the learned Company Judge is requested to proceed with the hearing of the Company Application No. 1122 of 2006. 5. Liberty to the learned counsel for the parties to mention the matter if any contingency arises." The Division Bench has passed an identical common order in both the appeals. Both the appeals are still pending. However, in view of the above order, main Company Application No. 1122/2006 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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. (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 (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. (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 policies and national, international pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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