RIL does not have absolute marketing right over gas; the price was subject to the government’s approval.

* RIL-RNRL gas dispute row: SC order tilts towards Mukesh Ambani |
* Brothers must renegotiate agreement in 6 weeks and conclude in another 8 weeks: SC |
* Gas natural resources can't be subject to family agreement: SC |
* Govt contract overrides private deal: SC | Govt has right to decide price: SC

The Supreme Court on Friday ruled that the government was the legal owner of the gas in the RIL-RNRL gas dispute and said it had the right to decide the price and utilization of fuel, which is a natural asset. The government contract overrides any private deal, the court ruled.

RIL does not have absolute marketing right over gas; the price was subject to the government’s approval, the court said.

In an order tilting in favour of elder brother Mukesh Ambani in the KG basin gas row, the apex court ordered RIL to initiate in six weeks, re-negotiation with RNRL in terms of Gas Sale Master Agreement so that the rights of RNRL shareholders were safeguarded. It also told them to ensure the deal abides by the government’s policies.

The court also said that natural gas resources cannot be subject to any family agreement and the family MoU signed by Mukesh and Anil Ambani and their mother Kokilaben was not legally and technically binding. Family agreement can only be a guiding factor about parties’ intention, it said.

Delivering the majority verdict of the bench headed by Chief Justice K G Balakrishnan on the four-year gas dispute between RIL and RNRL, Justice P Sathasivam said the Production Sharing Contract over-rides all other agreements.

The Supreme Cour’s order implies that RNRL, which was seeking 28 mmscmd of gas from RIL's KG-D6 fields at a price agreed in the family MoU, would not get the fuel. The family MoU provided for a price of USD 2.34 per mmBtu, while the government had set a price of USD 4.20 per mmBtu.

Millions of stakeholders were awaiting the verdict closely. Not surprising, when you consider that the verdict has direct fallout on scrips of companies with a combined market capitalization of about Rs 3.78 lakh crore.

The high-voltage legal battle has stretched for several days over Anil Ambani's claim for a share of Mukesh Ambani-controlled KG basin gas.

The brothers, through their lawyers, traded arguments and claims. Mukesh said he could not honour the family agreement requiring RIL to give 28 mmscd of KG basin gas to Anil's Reliance Natural Resources Ltd for 17 years at $2.34 per unit because the gas actually belonged to the government, while Anil Ambani asked for enforcement of the family accord.

The outcome will have repercussions not just for the siblings but also for firms -- belonging to private sector as well as those in public sector like NTPC -- that have tied up with RIL for 60 mmscnd of KG basin gas. An adverse outcome for RIL can singe the government because of allegations of collusion between Mukesh and the ministry of petroleum and natural gas (MoPNG).

The government claimed to be neutral. But many felt that its stance asserting its proprietorial rights over the KG basin gas while maintaining that it could not allow the precious public good to be apportioned between two brothers on the basis of a family agreement, showed a tilt towards the elder of the Ambani siblings.

The judgment comes after four-and-a-half months. It was reserved on December 18, 2009, which like judgment day, was also a Friday.

Apart from arguing that supply of gas from KG basin was subject to the production sharing contract (PSC) and Centre's Gas Utilisation Policy (GUP), RIL had said that if it sold gas to RNRL at $2.34 for 17 years, its return on investment of $12 billion would be just $2 billion, which was much lower than the interest that this sum would attract on investment or credit.

The Centre had questioned the basis of any gas supply agreement between two private parties on the lines of a family agreement and asked how RIL could allocate gas to RNRL when the government had not yet given any allocations to its own entity in NTPC.

NTPC was apprehensive of the outcome of the legal battle between the corporate honchos. It wanted to safeguard its interest and had pleaded with the court that the outcome should not alter RIL's commitment to supply it gas at $2.34 to its power plants at Kawas and Gandhar. RNRL had argued that it was only seeking to enforce a document which was framed on the foundation of RIL's commitment to NTPC.