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2010 (5) TMI 732 - SC - Companies LawWhether the Company Petition filed by RNRL under Section 392 of the Companies Act, was maintainable? Whether the challenge raised by RNRL to the GSMA, that it is not a suitable arrangement was maintainable particularly in view of the fact that on merits, the Company Judge had found, these objections to be unsustainable? Whether the MoU entered into amongst the family members of the Promoter was binding upon the corporate entity - RIL? Whether the terms of the MoU are required to be incorporated in the GSMA as held by the Division Bench? Whether the provisions in the GSMA requiring Government approval for supply of gas to RNRL is unreasonable and that its inclusion renders the GSMA as not a suitable arrangement as contended by RNRL? Whether it is open to RNRL to now contend that the Government approval for supply of gas is not required and further that the provision requiring Government approvals should be deleted from the GSMA/GSPA? Whether it is necessary for this Court to go into the interpretation of the provisions of the PSC? Whether the approval of the Government is required to the price at which gas is sold by the contractor under the PSC? Whether the Government has the right to regulate the distribution of gas produced which it has exercised by putting in place the Gas Utilization Policy under which sectoral and consumer-wise priorities (to the quantities specified) have been identified and notified to RIL? Whether the Contractor has a physical share in the gas produced and saved which it can deal with at its own volition? Whether the Suitable Arrangement for supply of gas to Dadri Power Plant of REL can only be on the same terms as are applicable to other allottees of gas and that too to the extent of the quantity of gas that may be allocated by the Government as and when the Dadri Power Plant is ready to receive gas? Held that - Appeal allowed. Both the learned Single Judge and the Division Bench committed a serious error in exercising jurisdiction in the manner they did under Section 392 of the Companies Act, 1956, for such interference has resulted in the provisions of a document (MoU) which was not before the shareholders supersede the Scheme of Arrangement. Such a document could not have been read into and incorporated in the Scheme propounded by the Board, approved by the shareholders and sanctioned by the Company Court. The courts below having rightly directed the parties to negotiate, and further having rightly refused to grant the prayers in the Company Application, however, fell into error directing the MoU to be binding and the basis for further negotiations between the parties. MoU is a private pact between the members of Ambani family which is not binding on RIL. The EGOM decisions, regarding the utilization of the natural gas and the price formula/basis etc. do not suffer from any legal or constitutional infirmities. They shall apply to all supplies of natural gas under the PSC. The parties are bound by the governmental policy and approvals regarding price, quantity and tenure for supply of gas. Under the PSC in issue the Contractor (RIL) does not become the owner of natural gas, and there is nothing like specified physical quantities of natural gas to be shared by the GoI and the Contractor. Thus accordingly, direct the parties to renegotiate as to the suitable arrangements for supply of gas de-hors the MoU. Such renegotiations shall be within the framework of governmental policy and approvals regarding price, quantity and tenure for supply of gas. The renegotiations shall commence within eight weeks from today at the initiative of RIL and shall be completed within a period of six weeks from the day of commencement of negotiations.
Issues Involved:
1. Jurisdiction of the Company Court under the Companies Act. 2. Interpretation and implementation of the Memorandum of Understanding (MoU). 3. Validity and suitability of the Gas Supply Master Agreement (GSMA) and Gas Sale and Purchase Agreement (GSPA). 4. Government's role in regulating natural gas pricing and distribution. 5. Compliance with Production Sharing Contract (PSC) and Government policies. Analysis of the Judgment: 1. Jurisdiction of the Company Court under the Companies Act: The Court held that the application filed by RNRL under Section 392 of the Companies Act was maintainable. The power of the Company Court under Sections 391 to 394 of the Companies Act is wide enough to make necessary changes for the working of the Scheme. However, this power does not extend to making any substantial or substantive changes to the Scheme. 2. Interpretation and Implementation of the Memorandum of Understanding (MoU): The Court concluded that the MoU, signed as a private family arrangement, does not fall within the corporate domain and is not legally binding on the companies. However, the MoU can be used as an external aid for interpreting the "suitable arrangement" under the Scheme. The suitable arrangement must be suitable for the interests of the shareholders of RNRL, RIL, the obligations of RIL under the PSC, the national policy on gas, and the broader national and public interest. 3. Validity and Suitability of the GSMA and GSPA: The Court held that the GSMA and GSPA should be renegotiated to ensure they are bankable and do not reduce RNRL to a shell company. The renegotiation should be within the framework of the Government's policy and approvals regarding price, quantity, and tenure for the supply of gas. The Court emphasized that the GSMA and GSPA must be suitable for both RIL and RNRL, taking into account the MoU, Government policies, and national interests. 4. Government's Role in Regulating Natural Gas Pricing and Distribution: The Court affirmed that the Government has the power to determine the price and distribution of natural gas under the PSC and the Gas Utilization Policy. The Government's policy, including the decisions of the Empowered Group of Ministers (EGOM), would be applicable to the pricing and distribution of gas. The Court emphasized that the Government holds natural resources in trust for the people and must ensure their use for national development and public welfare. 5. Compliance with Production Sharing Contract (PSC) and Government Policies: The Court clarified that under the PSC, the Contractor (RIL) does not become the owner of the natural gas. The title to the natural gas remains with the Government until it reaches the delivery point. The PSC mandates that the sale of natural gas must be in accordance with the Government's utilization policy. The Court held that the price formula approved by the Government is binding, and RIL must comply with it. Summary of Conclusions: 1. The Company Court has jurisdiction under Sections 392 and 394 of the Companies Act. 2. The MoU is not legally binding but can be used as an external aid for interpreting the Scheme. 3. The GSMA and GSPA must be renegotiated to be bankable and suitable for both RIL and RNRL. 4. The Government has the power to determine the price and distribution of natural gas under the PSC and Gas Utilization Policy. 5. The Contractor (RIL) does not become the owner of the natural gas under the PSC. Relief: The Court directed the parties to renegotiate the terms of the GSMA within the framework of the Government's policy and approvals. The renegotiations should commence within eight weeks and be completed within six weeks thereafter. The resultant decision should be placed before the Company Court for necessary orders.
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