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TMI Blog2007 (10) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Scheme accordingly. 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. 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. 1123/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O & 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 expenses rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Scheme) between RIL and four other compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 no sufficient time given to the applicant to read the draft. No independent or legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 392 of the Companies Act, 1956 ('the Act') has been filed before the Bombay High Court in which the prayers are as under : "(a)O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 through auction, but of the remainder quantity of the gas explored and produced by it. Respondent Company will take all precautions to ensure that specified quantity of gas to be supplied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 these applications therefore, by consent, were listed for hearing on 19-7-2007. The parties have no objection that the matter be heard by the present Company Court Judge. 47. All these matters were heard on 19-7-2007, 27-7-2007, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not used, but will have the right to deal with the capacity as it deems fit and to sell or assign the same to another party. uThe gas supply/option agreements would be between RIL and a 100 per cent subsidiary of RIL, which would be demerged to the Reliance - ADA Group as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to; (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, activities and operations pertaining to Gas Based Power; and (v )All employees engaged in or relating to the Demerged Company's business, activities and operations pertaining to Gas Based Power. PART II DEMERGED UNDERTAKING '4. Transfer of Demerged Undertakings. 4.1 Transfer of assets : (a )Upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the letter addressed by RIL on 14-2-2006 signed by one K. Sethuraman, Authorised Signatory of RIL, communicated that he was directed to confirm that RIL would agree to carry out amending changes to the proforma of GSPA annexed to the Gas Supply Master Agreement so that it reflects the same terms as are contained in the GSPA for 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 beyond doubt the mala fide manner in which RIL has acted in effectively frustrating the Scheme. In particular the correspondence establishes that : 7.10 The said GSMA and the Form of the GSPA annexed thereto significantly depart from the Draft Agreement annexed to the NTPC request for bids and unconditionally accepted by RIL. The key dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 will not be used for trading, other than trading between applicant's group companies and affiliates. uSwapping of gas will be permitted. uFor Base Volume Gas, applicant will have the option to set up its own pipeline, but will have to pay the transportation costs, even if does not use RIL's East-West pipeline. However, in that situation, applicant will have the right to deal with the unutilized pipeline capacity, as it deems fit. uGas Supply Agreements to be entered into for both, Base Volume and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed 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 Shri Mukesh Ambani and Shri Anil Ambani were personal to the Ambani family and the Board of RIL was not aware of the details of the settlement between Shri Mukesh Ambani and Shri Anil Ambani. u With further reference to paragraph 6.6, I respectfully submit that bearing the Vice Chairman and Joint Managing Director of RIL, at the relevant time, Shri Anil Ambani was or in any event, should be deemed to be fully aware of the nature of the rights of RIL in relation to exploration and production of gas from variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 implemented as soon as possible by not being detrimental to the respective companies. Our proposed GSPA uses the NTPC GSPA as a base document. The final document will be based on the agreed final draft with NTPC. The modification suggested is only intended to expedite the implementation of the MOU by producing a workable commercial arrangement that is in accordance with the MOU and the standards stated above. RELs counter proposal in the modified document, however, renders it unworkable." (iv) E-mail dated 8-9-2005 from Anil Ambani Group to RIL (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from Mr. Cyril Shroff dated 7-1-2006 (pg.95). 1/7/2006 3.30 pm Subject: MOU - steps Pursuant to the MOU of June 2005 and subsequent KDA directions, we are separately forwarding the pre-final versions of the shared services agreement, trademark management agreement and non-compete agreements as also some other related documents to the above. These have been prepared after receiving comments from both groups. Consistent with the MOU and KDA directions, we were to finalize the same. We believe that except for some factual inputs and specific clarifications that are being indicated along with each document, these agreements are in final form and it should be possible to execute the same in the next few days upon obtaining requisite corporate authorizations. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty 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 persons who may have some sort of antecedent title, a semblance of a claim or even if they have a spes succession is so that future disputes are sealed for ever and the family instead of fighting claims inter se and wasting time, money and energy on such fruitless or futile litigation is able to devote its attention to more constructive work in the larger interest of the country. The Courts have, therefore, leaned in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds. Where the courts find that the family arrangement suffers from a legal lacuna or a formal defect the rule of estoppel is pressed into service and is applied to shut out plea of the person who being a party to family arrangement seeks to unsettle a settled dispute and claims to revoke th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um 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 Chairman, IFCI may give pertaining to the implementation of the Memorandum of Understanding. He is also empowered to give clarifications and decide any differences relating to the implementation of the Memorandum of Understanding. Such a family settlement which settles disputes within the family should not be lightly interfered with especially when the settlement has been already acted upon by some members of the family. In the present case, from 1989 to 1995 the Memorandum of Understanding has been substantially acted upon and hence the parties must be held to the settlement which is in the interest of the family and which avoids disputes between the members of the family. Such settlements have to be viewed a little differently from ordinary contracts and their internal mechanism for working out the settlement should no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rla 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 arrangement". A family arrangement or the MOU has not been referred to at any stage, in the scheme or in any representation made to the Stock Exchange and further that it is all contrary to the applicant's own pleading and the case. 59. The learned senior counsel for the respondents Mr. Salve has also relied on the various exerts from some of the letters/e-mails from Exhibit "F" filed by the applicant as quoted above. Those are letters/e-mails dated 30-7-2005 from Mr. Harish Shah (RIL) (page 25) to Mr. Venkat Rao (REL); e-mail dated 6-10-2005 from Mr. Cyril Shroff to Mr. Sandeep Tandon/RIL (page 54), e-mail dated 29-11-2005 from Mr. Cyril Shroff to Mr. Anil Ambani (page 63), e-mail dated 14-12-2005 from RIL to Mr. J.P. Chalasani (page 72) and e-mail dated 27-12-2005 from Mr. Sandeep Tandon (RIL) to Mr. Venkat Ponanda etc. but not disputed the contents of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 followed by the Scheme of Demerger. This further supports the case that both the parties including the respective shareholders were fully aware of the division of the main RIL. The shareholders were fully aware of the reason for such division and/or formation of the resulting company. The Board of Directors as well as the shareholders apart from all other concerned, have unanimously agreed for the scheme. The submission therefore that RIL and its Board of Directors were not party to the said family arrangement and, therefore, were not bound by such family arrangement is inconceivable. 63. Strikingly, as recorded this division is also the part of the said MOU as referred in the pleading. Admittedly, both the parties have acted upon the scheme. Admittedly, thereafter both the parties have been entering into various contracts and agreements with the third parties as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the background as set out above. Having once accepted the MOU and both the parties and their respective Board of Directors, have already acted upon the said MOU and principally by moving such Scheme of Arrangement, which has been resulted into demerged company like the respondents and transferee company like the applicants and others. The affair of the main RIL throughout, till his death managed by late Shri Dhirubhai and these two brothers. In the sense that they were the main persons and officials to deal with the affairs of then existing RIL in all respects. It is too late to raise such opposition in these proceedings. Those requirements of Doctrine of Non-traverse based upon Manager, RBI v. S. Mani 2005 (5) SCC 100, is not applicable in the facts and circumstances of the case. The parties having once acted, are bound by the basic terms of the MOU subject to arrangement for its actual impleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 GSPA and or between RIL and RNRL 70. As noted the basic submission of the learned senior counsel for the respondents revolve around the PSC. By virtue of article 297 of the Constitution of India, petroleum and gas in its natural state in the Territorial Waters and the Continental Shelf of India is vested in the Union of India. In pursuance to NELP various such blocks have been awarded to provide entities for exploration, development, production. 71. The PSC provides in clauses 7 and 8 as follows : "(7) RIL-NIKO has/have committed that it has/they have, or will acquire and make available, the necessary financial and technical resources and the technical and industrial competence and experience necessary for proper discharge and/or performance of all obligations required to be performed under this contract in accordance with Good International Petroleum Industry Practices and will provide guarantees as required in article 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 the purpose of sale(s) of Petroleum from the Contract Area shall be approved by the Management Committee. 1.35 'Development Plan' means a plan submitted by the Contractor for the development of a Commercial Discovery, which has been approved by the Management Committee or the Government pursuant to article 10 or article 21. 1.42 'Exploration Costs' means those costs and expenditures incurred in carrying out Exploration Operations, as classified and defined in section 2 of the Accounting Procedure and allowed to be recovered in terms of section 3 thereof. 1.52 'Good International Petroleum Industry Practices' or "GIPIP" means those practices, methods, standards, and procedures generally accepted and followed internationally by prudent, diligent, skilled, and experienced operators in Petroleum Exploration, Development, and Production Operations and which, at a particular time in question, in the exercise of reasonable judgment and in light o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inarily 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 tender procedures for the acquisition of goods and services as provided in article 23.2 and for the purchase, lease or rental of machinery, equipment, assets and facilities required for Petroleum Operations based on economic considerations and generally accepted practices in the international petroleum industry with the objective of ensuring cost and operational efficiency in the conduct of Petroleum Operations. . . . . (k) be always mindful of the rights and interests of India in the conduct of Petroleum operations. 18.1 Until such time as the total availability to the Government of Crude Oil and Condensate, from all Petroleum production activities in India meets the total national demand, each Company comprising the Contractor, shall be required to sell in the domestic market in India all of the Company's entitlement to Crude Oil and Condensate from the Contract Area in order to assist in satisfying the national demand. 18.6 The Government shall, thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, and it may delegate or assign this function to a regulatory authority as and when such an authority is in existence. 25.3 The Contractor shall submit to the Government regular Statements and reports relating to Petroleum Operations as provided in Appendix C." 73. The other relevant articles for references are : Article 6 "Management Committee", Article 7 "Operatorship, Operating Agreement and Operating Committee", Article 8 "General Rights and Obligations of the Parties", Article 10 "Discovery, Development and Production", Article 15 "Recovery of Cost Petroleum", Article 16 "Production Sharing of Petroleum", Article 17 "Taxes, Royalties, Rental and Duties", Article 18 "Domestic Supply, Sale, Disposal and Export of Crude Oil and Condensate", Article 19 "Valuation of Petroleum", Article 21 "Natural Gas (Valuation of Natural gas)", Article 25 "Records, Reports, Accounts and Audit", Article 30 "Terms and Termination of Contract", Article 31 "Force Majeure", Article 33 "Sole Expert, Conci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 following years. For determining the extent of actual production of petroleum that can be recovered by the contractor, the costs, receipts and income etc. have necessarily to be converted as stipulated in article 16.5 of PSC into units of petroleum in equivalent terms using the prices as stipulated in article 21. The price of natural gas shall be determined as provided in article 21. 76. Another important factor based upon article 6 of the PSC as referred and relied is the Management Committee for review and its advisory functions on various important aspects which includes the annual Work Programmes and Budgets in respect of Exploration Operation and any revisions or modifications thereto; proposals for surrender or relinquishment of any part of the Contract area by the contractor; proposals for an Appraisal programme or revisions and any other matters required by the terms of the contract concerning inter-Party relationship. The following paragraphs provide that there are various subjects or matters for which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 clauses draft of GSMA/GSPA. 80. Therefore, without going into the technical and detailed aspect of the PSC at this stage itself one can see that the PSC and its contents are well within the knowledge of, in all respects, to the applicants and its officers. In spite of this, as recorded in clause 19, as it could not be finalised, both the companies as well as their shareholders agreed to approve the scheme and it was accordingly sanctioned by the Court. Having once accepted the scheme in all respects, but the same has been working smoothly except the issue in question, the submission of the applicants that they are not bound by the PSC terms is unacceptable. 81. In the present case, the respondents are not denying the rights and/or entitlement of the applicants as agreed, but the case is it is subject to GSMA/GSPA. The respondents are agreeing to sell the gas from their share to the applicants. Suitable arrangement 82. The Supreme Court of India in Municipal Corpn. of Delhi v. Qimat Rai Gupta [2007] 7 SCC 309, expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Global competitive bidding process initiated by the NTPC. The MOU itself provides that the agreement shall be in accordance with the International Best Practices and shall be bankable in International Financial market. All this background therefore culminated and reflected at the relevant time while framing and finalising the scheme with the rider of "suitable arrangement" for the supply of gas in question. Therefore, in totality, the Scheme, if read with the MOU, envisages a suitable arrangement to both parties need to be entered into, between RIL and RNRL for the supply of gas, taking into account the basic ingredients of contents and MOU i.e., price, tenure, liability etc. The intention is further reflected that RNRL would, in turn, engage in the business of supply of gas to REL and its affiliates for the purposes of generation of power. 85. In this background, the submission therefore that the formal document or arrangement must be or expected to be in line with the MOU in question; the imposition of such unilateral terms through GSMA and GSPA on RNRL cannot be said to be suitable arrangement as envisaged in clause 19 of the scheme has force and accepted accordingly. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made. There is no good reason why the courts should not give great weight to these further expressions by the parties, in view of the fact that they still have the same freedom of contract that they had originally. The American Courts receive subsequent actings as admissible guides in interpretation. It is true that one party cannot build up his case by making an interpretation in his own favour. It is the concurrence therein that such a party can use against the other party. This concurrence may be evidenced by the other party's express assent thereto, by his acting in accordance with it, by his receipt without objection of performances that indicate it, or by saying nothing when he knows that the first party is acting on reliance upon the interpretation (See Corbin on Contracts, vol. 3, pp. 249 and 254-255). (p. 36) 13. The real reason against taking into account the subsequent conduct of the parties is the rule which excludes extrinsic evidence in the construction of written contract." (p. 37) 90. In Tarapore & Co. v. Cochin Shipyard Ltd. 1984 (2) SCC 680, the Apex Court has observed, in paragraphs 35 and 38, the relevant portion of which reads thus : "35. Undoubtedly, if in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. v. B.T.P. Tioxide Ltd. [1982] A.C. 724 Lord Diplock said: '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.' Thus in Reardon-Smith Line Ltd. v. Hansen-Tangen [1976] 1 W.L.R. 989, Lord Wilberforce said: 'When one speaks of the intention of the parties to the contract one speaks objectively the parties cannot themselves give direct evidence of what their intention was and what must be ascertained is what is to be taken as the intention which reasonably people would have had if placed in the situation of the parties.' A similar point was made by Lord Reid in McCutcheon v. David MacBrayne Ltd. [1964] 1 W.L.R. 125, approving the following quotation from Gloag on Contract : 'The judicial task is not to discover the actual intentions of each party it is to decide what each was reasonably entitled to conclude from the attitude of the other.' It is therefore more accurate to say that the object of a court of construction is to ascertain the presumed intention of the parties, on the assumption that both part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the learned senior counsel for the respondents about the maintainability of this application under section 392 of the Companies Act, 1956. The learned senior counsel for the respondent contended that this Company Court has no jurisdiction under section 392 of the Companies Act, to read, into a scheme, sanctioned under section 394, provisions of family arrangement which was an extraneous document and was not placed before the shareholders of these respondents and of which no reference is made even in the scheme. He further contended that without prejudice to the above submission this Hon'ble Company Court has no jurisdiction to direct modification either of the scheme sanctioned under section 394 of the Companies Act or of any document executed in pursuance to such a scheme as such document was never before the shareholders or creditors. The learned senior counsel for the respondents further submitted that the construction of any Company (a) under a scheme of amalgamation or demerger or (b) transfer of whole or any part of the undertakings, property or liability of Company being re-constructed are matters essentially governed and sanctioned under section 394 of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch deal with the procedure and power of the Company Court to sanction the scheme which fall within the ambit of the requirements as contemplated under these sections. In the absence of any other provisions except section 392, it is difficult to accept the contentions as raised that the present application under section 392 of the Companies Act as filed by the applicant is without jurisdiction. The parties cannot be rendered remedyless. The Company Court, therefore, considering the scheme and purpose of Chapter-V and basically sections 391 to 394 has ample power and jurisdiction to supervise the scheme as sanctioned under the Companies Act. The respective scheme of sections 391 to 394 are as under : "391. Power to compromise or make arrangements with creditors and members.--(1) Where a compromise or arrangement is proposed - (a)between a company and its creditors or any class of them; or (b)between a company and its members or any class of them; the [Tribunal] may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound-up, of the liquidator, order a meeting of the creditors or class of creditors, or of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be an order made under section 433 of this Act. (3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of the Companies (Amendment) Act, 2002 sanctioning a compromise or an arrangement. 393. Information as to compromises or arrangements with creditors and members.--(1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391. ****** 394. Provisions for facilitating reconstruction and amalgamation of companies.--(1) Where an application is made to the Tribunal under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal - (a)that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies; and (b)that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a "tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the compromise or arrangement, to cease to have effect. (3) Within thirty days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration. If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees. (4) In this section-- (a)'property' includes property, rights and powers of every description, and 'liabilities' includes duties of every description; and (b)'transferee company' does not include any company, other than a company within the meaning of this Act; but 'transferor company' includes any body corporate, whether a company within the meaning of this Act or not." 100. The Bombay High Court in Larsen & Toubro Ltd. In re [2004] 54 SCL 461 (by Anoop V. Mohta, J.) has considered the Scheme of sections 391 to 394 of the Companies Act while sanctioning the Scheme of arrangement. 101. The title and purpose of section 392 to enforce compromise and arrangement and further the power of the Court to supervise the compromise and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the scheme under section 206 of the U.K. Act have tried to get over the difficulty by taking power in the scheme of compromise or arrangement to make alterations and modifications as proposed by the Court. But the Legislature, foreseeing that a complex or complicated scheme of compromise or arrangement spread over a long period may face unforeseen and unanticipated obstacles, has conferred power of widest amplitude on the Court to give directions and, if necessary, to modify the scheme for the proper working of the compromise or arrangement. The only limitation on the power of the Court, as already mentioned, is that all such directions that the Court may consider appropriate to give or make such modifications in the scheme, must be for the proper working of the compromise and/or arrangement. 14. Sub-section (2) provides the legislative exposition as to who can move the Court for taking action under section 392. Reference to section 391 in sub-section (2) of section 392 merely indicates which compromise or arrangement can be brought before the Court for taking action under section 392. The reference to section 391 does not mean that all the limitations or restrictions on the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'arrangement'. The scheme of arrangement in question falls within the ambit of the provisions of sections 391 to 394 of the Companies Act and the rules made thereunder. The word 'arrangement' is not specifically defined under the Companies Act. This scheme of arrangement has the ingredients of demerger and reduction of share capital and scheme of arrangements with the concerned companies and trust, cannot be said to be beyond the purview of sections of the Companies Act. The scheme of arrangement in question, therefore, is maintainable. The word 'arrangement', though not defined specifically, has a wide range and ambit. The present scheme of arrangement is between the petitioner-companies and its shareholders and/or creditors and a trust. By that itself it cannot be said that the scheme of arrangement in question is not maintainable or not sustainable. The scheme is affecting the shareholders and the creditors as the cement division of the petitioners is being transferred to the transferee company. There is no objection raised even by the Regional Director about the maintainability of the scheme of arrangement. It is difficult to reject the whole scheme of arrangement like this, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions or modifications must be for the proper working of the compromise or arrangement. In S.K. Gupta v. K.P. Jain [1979] 49 Comp. Cas. 342, 351; [1979] 3 SCC 54 (SC), the Court further observed." 106. On the same line, Karnataka High Court has observed in Ind-Telesoft (P.) Ltd. v. Jawad Ayaz [2003] 43 SCL 478 as under : ". . . Sub-section (1)(a ) confers power on the Court to supervise the carrying out of the compromise or arrangement. Sub-section (1)(b) confers a discretion on the Court to issue such directions in regard to any matters or make such modifications in the compromise or arrangement as it may consider necessary of the proper working of the compromise or arrangement either at the time of making such order or at any time thereafter. Similarly, sub-section (2) expressly gives the Court the power to modify a compromise or arrangement. Parliament has conferred power on the Court not only to make modification at the time of sanctioning the scheme, but at any time thereafter during the period when the scheme is being implemented. The power seems absolute and of widest amplitude. Subsequent developments can also be taken into account for considering desirability of the mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent power available to the Court in connection with the Scheme of compromise and arrangement and such power cannot be fettered by the provisions contained in general law on a foundation that "So far as the Scheme of compromise and arrangement is concerned, it is to be supervised by the Court with a view to seeing that the Scheme of compromise and arrangement does not meet with rough weather or get impeded and that it is fully implemented." 110. He further relied on Mysore Electro Chemical Works Ltd. v. G.K. Paramashiv [1996] 86 Comp. Cas. 570 (Kar.) at page 578 that "When a Scheme has been sanctioned by the Court and the Company survives because of the Scheme, the persons who are entitled to certain benefits or entitled to certain rights under the Scheme certainly could approach the Court under section 392 of the Act to seek appropriate direction from the Court when the Scheme has not been worked out satisfactorily in the manner envisaged touching their rights." 111. In view of above, in my opinion, the company applications as filed are maintainable. The Company Court has jurisdiction to pass appropriate order or direction or to modify the Scheme but only on given facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived at in Larsen & Toubro Ltd.'s case (supra) is as under : "(e )All the experts/professionals submitted their report and opinion and accepted the scheme. These experts/professionals include financiers, Auditors, Chartered Accountants, bankers, creditors, financial institutions, and above all company managements, apart from unanimous majority decisions to support the scheme. ****** (i ) In the present case, no other alternative or possible view was explained or suggested, on any material issues, including that of share ratio. In my opinion, any view should not be given or expressed, as it will amount to thrusting and imposing decision against unanimous and majority decisions of the shareholders, creditors, financial institutions, such imposition is out of the court's domain. (j )In this competitive market, the corporate world with exhaustive strategies is a must. Companies know how to make or arrange and adjust their business to run with the national and international markets. Third person may not be in a position to provide them business strategies and, above all, companies know their respective shareholders' need, may not be bound by the views expressed by the third persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective Company's decision. It is difficult for the Court to express their opinion on such matters. The business adjustment or arrangement cannot be decided and/or thrusted or imposed by the Court specially when such arrangement or adjustment or such Scheme always means exigencies of the particular business, an insightful and unanimous or majority decision of the shareholders, Board of Directors, experts, creditors, secured or unsecured, within the frame work of law and Government policy. The judicial review of such commercial aspects is impermissible specially at this stage of settlement of draft or terms of any such contracts in these proceedings. 116. As noted, there is no problem insofar as the working of the Scheme as demerged companies as well as resulting companies, as they have been doing their respective business and/or managing the affairs of the respective entities smoothly and without any problem or objection. The respondents are not ready and/or accepting to change the terms and conditions particularly of the GSMA. 117. In such situation, the Company Court under section 392 or even otherwise, cannot impose and/or direct in either of the entitles to put or delete or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic)] Limitation of liability There is no cap on sellers liability as an liability in event of the breach or termination of the contract (p. 299) A cap on the sellers liability imposed under each of 6 months of RIL, gas supply at best assuming the contract period to be 17 years (p. 443) This clause needs to be deleted in GSPA. This is roughly equal to the monetary value concerns of order to assuage the concerns of RIL. This clause could be pressed into action only in case of a default for reasons beyond the control of RIL. Period of supply Gas is to be supplied for a fixed term of 17 years (p.270) Period of supply is uncertain. As per clause 3.1(b)(i ) of the GSMA, the A fixed period of 17 years, as provided in the NTPC's contract. Nature of the Contractual Term Provision in Scheme Provision in 12-1-2006 contract GSMA Proposed Revision term of the contract is to be calculated according to a formula which contains many variables and is, hence, uncertain (p.372). Annual contract quantity A fixed amount of gas is to be supplied during the currency of the contract (p.276) Annual quantity is uncertain. As per clause 3.1(c) of the GSMA, the quantity of gas to be suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall, subject to Article 3, come into force for all purposes and intents on the date of its execution and shall continue to be in full force and effect for 17 years from Start Date unless terminated earlier pursuant to the provisions of this Agreement (Vol. l.1/Pg.270)" 122. Both the learned senior counsel appearing for the parties have explained this formula during the course of the argument from their respective point of view. The applicant objected the same clause along with others. The submission in reference to this tenure clause is as under : "12. The plea of RIL that the tenure of the contract is based on the total supply of gas is also false and misleading. A simple analysis of the formula would demonstrate that the term of the contract has nothing to do with actual quantity of gas available but depends on artificial factors that can be manipulated by RIL to its own advantage. The main area of manipulation is the definition of CPR. 13. CPR has been defined (see p. 372, Volume II) as "Certified Proved Reserves attributable to the Initial Block KG-D6 Development Plan, in TCF". There are several mischievous aspects to this definition. First, the reserves have been restrict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a Certificate is essential before any banker would lend money for a power project. However, in the absence of a warranty, such a Certificate is meaningless." 123. To this the respondent's reply is as under : "5.12 Clause 5 of the draft at Exhibit-J read with Clause 3.1 thereof requires the GSMA to be valid in perpetuity unless it is mutually agreed to be terminated and further that each GSPA executed during the subsistence of the GSMA will have a term of 17 years. In this behalf, it is submitted as follows: (i)The lease in respect of KG-D6 would expire on 31st March, 2025. Accordingly, the GSMA dated 12th January, 2006 stipulates that it would remain valid till 18th June, 2015 and that the Tenure of all GSPAs executed during the subsistence of the GSMA dated 12th January, 2006 would, in any event, expire on 31st March, 2025. These respondents submit that it is inconceivable that a contractual commitment be made by these respondents to the applicants for supply of gas beyond the term of the lease in respect of KG-D6 block. (ii )The precise manner in which the Tenure of each GSPA is to be arrived at and fixed in the GSPA has been duly provided in the GSMA dated 12th January, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certified crude reserves attributable to such development plan. The CPR therefore as defined means certified proved reserves attributable to KGD-6 development plan in Trillion Cubic Feet (TCF). The respondents themselves submitted that this formula in no way restricts the block KGD-6. The insistence therefore that the available quantity "would have to be calculated" cannot be said to be beyond the MOU and/or the Scheme. The lease in respect of the KGD-6, if expire on 31-3-2025, the applicants cannot insist that respondents should supply and provide the gas even after 31-3-2025. It will depend on the facts and circumstances and subject to extension of lease. The fixation of price, if Government insists for value in the gas even for their own share for 5 years or more, the price of respondent's gas, therefore, would definitely affect by the said fluctuation and/or change in the price fixed by the State Government. The insistence of fixing the price at this stage itself by the applicants is therefore also not correct. The respondents, as noted, and considering the whole MOU and the Scheme and the purpose of demerging, bound to provide and supply gas to the resulting companies at least ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e commitment of 28 MMSCMD will not be complied, let alone any promised option volume. (6) Therefore, the quantity clause is lower than designed by RIL to make the Agreement completely un-workable. The quantity promised is 28 MMSCMD. However, what will actually be supplied, is a fraction of the same and in any event, would not exceed 25 MMSCMD. Further, ACQ is totally manipulable by RIL as the GSMA/GSPA as it stand today, allows RIL to enter into any number of fresh gas supply commitments for periods not exceeding five years even without proving that the available reserves are sufficient to meet the existing long-term commitments (such as to NTPC and RNRL) and the proposed five year commitments. Internationally, gas supply contracts are always for fixed guaranteed quantities. Gas being a fuel, if the quantity and continuous availability is not assured, the contract is not bankable and no capital investments can be committed." 127. The submission is, therefore, that such gas supply contracts are always fixed guaranteed quantities. In the present case, as agreed and gas being a fuel unless its quantity and continuous availability is not assured, such contract is not bankable and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposes to use part of its gas discoveries for the generation of power for which purpose an appropriate gas supply arrangement will be entered into between RIL and Global Fuel Management Services Limited, pursuant to which gas will be supplied to REL for their power projects, including Reliance Patalganga Power Limited, for the generation of power. The above-mentioned business of supply of gas to REL for their power project including Reliance Patalganga Power Limited, for generation of power as an integrated whole, constitute the Gas Based Energy Undertaking of RIL." "1.12 Gas Based Energy Undertaking" as described in item (i) of sub-clause (f) of Clause A of the Preamble means the Demerged Company's undertaking, business, activities and operations pertaining to supply of gas for the generation of power by Reliance Patalganga Power Limited and REL for their power projects (hereinafter referred to as "Gas Based Power". . .)." The affiliate 130. The insistence that affiliate company must be 51 per cent of shareholding in other company to exercise the control in order to make it an affiliate as defined in the GSMA is contrary to the other RIL agreements contemplated under the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if the prices of gas increases substantially RIL would be in a position to terminate the contract and can proceed to sell the gas in open market at higher price while paying nominal damages to the RNRL. The applicant thereafter would require to purchase the gas in open market at higher prices and would not be adequately compensated by RIL for any deliberate breach. The NTPC contract does not contain any such clause limits or capping the liability though subsequently sometime in December, 2005, the respondent-RIL has added this clause in the NTPC contract. The NTPC is also not accepting the same. The production and supply of such gas is depend on various other factors. The respondent-RIL is not the owner of the gas. Subject to terms and conditions of PSC and policy which itself are not of permanent nature and basically policies which changes from time to time, the insistence that the RIL should supply the gas uninterruptedly irrespective of its production and/or various other changes basically the prices, policies, environment apart from force majeure or frustration just cannot be overlooked. 134. Basically the principle of frustration and/or force majeure are normal clauses of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction and/or nature of business in question as it revolved around the complex commercial issues and are inter-connected and inter-dependent. However, it does not mean that the parties still cannot sit together and decide such clause and/or contract while finalising or dealing with such nature of transaction based upon Government policy and the laws of the land to make it "suitable arrangement" in the context of the scheme in question. Both the parties need to decide and settle all the clauses in such type of complicated and commercial transaction of supply of gas. The document should be integrated. All the clauses need to be connected and interpreted from the point of view of national and international level of contract. Sometime it may take years to settle and negotiate such type of contracts. In the present case, except for above clauses, basically the parties are in agreement, though these clauses themselves cannot be the matter of interpretation or decision and, therefore, the parties need to see and settle and negotiate the clauses which are of a commercial nature and specially when the Company Court has no authority and/or power imposed in such nature of transaction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and wisdom, it is very clear that no commercial person would take any risk, by breaching the terms and conditions of the PSC or such other agreements and invite termination notice or such other adverse action from the Government. The transaction of such nature i.e., gas production and supply and/or further transfer or sale of gas by the contractor to third person, out of the profit gas need every sort of protection and precaution. In such transaction and business where great financial and infrastructure support is necessary based upon the existing policy of Government apart from various aspects of force majeure or natural calamities or adverse impact on environmental and/or field of national or international sale prices. These important facets which need to be respected by the contractor like the respondents. As noted, the Gover- nment has signed PSC with the contractor (including the respondent-RIL). After allotment of the block the respondents are now required to follow and take all necessary steps for the exploration and production. This includes the various compliances of various laws and policies. The financial support for the large infrastructure, experts, technical, engi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard on the record. The requisite guidelines on policy therefore is a must specially when the Government's profit share depends upon the same. The gas pricing formula and/or its principle for valuation purposes is very essential to consider the Government's share of profit petroleum. 144. The Government, therefore, need to take care of its share of profit. The share of profit petroleum/gas of Government further determined and decide the contractor's share of gas and price. Both are inter-linked for pricing as well as for quantity or quality. Therefore, the contractor's share of gas price just cannot be determined in isolation. The various factors as per the PSC apart from natural calamities and/or force majeure are quantity, delivery point, price floor and cap and end use. The fluctuation in economic/competitive market at national and international level also play very important role while determining the price. The gas demand which is a very important natural resource and as it is important source of energy for the development of the country, its commercialisation in this competitive market, need to be respected for the development of the country. The commercial aspect of all sort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor is free to commercially utilise the gas profit of his share. The Government cannot interfere with the commercial aspect of the contractor's transaction after getting Government's share. But to say that the Government has no say at all even in the gas price agreed between RIL and RNRL and/or such party is not correct. 147. The pricing factor of the Contractor and/or even otherwise, it cannot be decided in isolation without taking note of the various factors as recorded above, in that case unless both the parties agree for a particular price and if it is approved by the Government, then only such clause and/or agreement can be recorded and/or be treated as part and parcel of clause 19 of the Scheme and not otherwise. 148. The Government's revenue has direct link with the valuation of natural gas. The royalty on natural gas is depend upon the sales prices. The sales realisation after deducting the cost petroleum results into profit petroleum. The other related factor is of the Government's profit share. A contractor's price if on higher side than the minimum price fixed or valued by the Government, it will affect a share of profit petroleum to the Government. The contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducting the Government's profit share. The balance be reserved subject to the certificate as per PSC the contractor-respondent would be in a position to supply to the respective supplier's as agreed based upon valid and binding contract. In the present case, as contended 12 MMSCMD to the NTPC and 28 MMSCMD to the applicant, apart from the other ratio. Such supply therefore would also depend upon the actual recovery and certification of such gas share of the contractor. It is difficult for any party to make any confirm commitment without having the actual certified gas for such transfer and/or sale. This Court cannot direct the respondents to provide, supply the gas in such fashion without ascertaining the actual market position and actual availability of the gas. The positive direction from the Government to supply fixed quantity of gas out of their share and/or remaining shares to particular sectors and/or undertakings just cannot be overlooked. The respondents need to respect and consider the demand/or direction made by the Government, if occasion comes. 154. Further material aspect from the point of view of the contractor is that under the PSC, the contractor takes risk and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the gas is undervalued then the Government's entitlement to profit petroleum from the total production will be reduced. The contractor still off-take a greater volume of gas as it is cost petroleum entitlement. The amount of expenditure incurred for petroleum operation, under the provisions of PSC is therefore need to be strictly monitored, reviewed and audited from time to time. Therefore, the price at which such gas will be valued is also need to be produced by the Government to ensure all transactions are entered into on "arm's length basis" at arm's length price. The submission, therefore, that if RIL sales the gas at a price lower than the price acceptable to the Government and as in the present case, the Government has already rejected the same. Therefore, if RIL compelled to sell at the price as demanded by the applicant he would be paying a huge subsidy to the applicants, if Government insists for the market price for such sale. The respondents-RIL further cannot commit sale of higher quantity than it is entitled to under the PSC. There is force to some extent in the submission as raised by the learned senior counsel for the respondents as regards to the point of pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government policy. 161. Another facet is that as per the MOU itself in reference to price and commercial terms it has been agreed that "the firm quantity 28 MMSCMD/40 MMSCMD at a price no greater than NTPC price" and further "option gas at the market rates" and "other commercial terms, same as those of NTPC contracts and further shall be in accordance with the international best practices" and further "and lastly shall be bankable in international financial markets". It is very clear even from the above clauses that the parties have agreed for price and commercial terms in accordance with international best practices and such documents' transactions shall be bankable in international financial markets. The price of NTPC should be restricted to the applicants, as claimed, at least up to 28 MMSCMD and/or 40 MMSCMD in case NTPC contract does not materialise or cancelled, still the pricing policy of Government and the requirement of PSC, including the other statutory approvals and joint co-operation in this respect by both the entities as agreed by, even as per the MOU need to be complied with by both the parties and even now as per the Scheme. 162. Principally the parties are bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the respondents-RIL being contractor in pursuance to the PSC, remained under the control of Mukesh D. Ambani having object to commence the production and sale of gas and further as REL has announced setting up of Gas Based Power Generation of India, RIL proposed to use part of its gas discovered for the generation of power for which purpose an appropriate gas supply arrangement agreed to be entered into between RIL and Global Fuel Management Services Limited (now applicant) pursuant to which gas agreed to be supplied to REL for their power projects including Reliance Patalganga Power Limited, for the generation of power. This business of supply of gas to REL for their power projects is an integrated and/or constitute the Gas Based Energy Undertaking of RIL. The intention therefore throughout was even under the scheme to reorganise and segregate the business and undertakings to provide focussed management attention. In this background, it was necessary that RIL should have given full and proper opportunity to the applicants before passing such resolution hurriedly on 11-1-2006 and before executing such GSMA and GSPA in question. As per clause 19 as recorded the suitable arrangemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r decision in the present case cannot be said to be bona fide. The Resolution dated 12-1-2006 without new Board of Directors of resulting companies therefore is not as per the agreed terms of the scheme. 167. The circumstances are glaring on the record. The decision as taken hurriedly on 12-1-2006 raises various doubts and as contended also that it is one sided and in the interest of RIL and not in the interest of RNRL or resulting companies as it was by the Board of Directors of the RIL, the trustee company after the scheme, but before the nomination and/or formation of Board of Directors of the applicant. The procedure as followed to adopt or resolve or to execute the GSMA was unfair and unjust. The Court, therefore, in such circumstances, need to consider whether the parties have committed any basic breach of the clauses of the scheme which is creating hurdle and/or resulting into smooth working of the scheme as sanctioned. In this backdrop, meeting as held and the decision as taken hurriedly by the RIL, in my view, is not as per the sanctioned scheme and it is in the breach of the said scheme. Bankable document 168. The learned senior counsel for the applicants has rightly p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory Authorities and if necessary, even the layman should understand specially when we talk about free, fair and transparent documentation. The expert engineers or technician in the field, though are involved in finalising such documents, yet when it comes to the Banks or even to the Regulatory Authorities, it is desirable that the documentation should be clear, plain, unambiguous and without any doubt. The learned senior counsel for the applicants therefore is right in contending that in GSMA or GSPA various important clauses in reference to price, tenure, cap liability, supply of quantity and clauses of damages are very complicated and difficult to understand and/or explain to layman or third person. In a technical and the transactions of such nature, the understanding between the two parties basically two entities to the contract is normally sufficient. Both entities have their respective expertised technicians of national and international level. Therefore, once we talk about the Bankable document for finance, then though parties or one of the entities may be expert in drafting such agreement based upon the alleged international practice, still, unless such formula or such cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g various evidence on the record by invoking appropriate forum and the proceeding, but certainly not in these applications as raised. These submissions therefore is misconceived and untenable. 172. The applicants-company have several Gas Based Power Plants/Projects including Dadri Project (7480 MW), Shahapur Project in Maharashtra (4000 MW). The total requirement of gas for these projects and/or such other projects subject to finalisation of the agreement between RNRL and RIL would be RNRL's lookout which include the purchase of gas from the market if available at the market price other than 28 plus 12 MMSCMD as noted above. The RIL is under obligation to supply the gas subject to the settlement and suitable terms and conditions as per the MOU and/or the Scheme. It is true that as per the Scheme to start with any such power project and specially in reference to the undertakings of the RNRL, it is necessary to secure the basic infrastructure, raw material and necessary permissions and approvals for the RNRL also. In the present case, it appears that gas is the basic raw material. Unless agreed and provisions are made and/or commitment is recorded to have a regular supply of gas, ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility and/or non-supply of gas for various bona fide and genuine reasons beyond the control of the RIL and against any Government policy. 174. The applicants in a way are challenging some of the terms of the agreements of GSMA and GSPA which have been, according to the respondents, duly executed between the parties in view of the majority decision taken on 11/12-1-2006. As per clause 3.3 of GSMA these agreements are draft GSMA and required further negotiation and/or final agreement at the time of sale and purchase of the gas on such terms and conditions agreed in future. The respondents can commit supply of gas based upon the possible quantity of gas produced on yearly basis. The respondents-RIL preferably must commit to supply the gas if available to RNRL to achieve the object and purpose of the scheme itself and to see that the RNRL or its undertaking establishes and develop. It is in the interest of both the companies/entities that after investments huge amount in such projects and after deducting the Government's share as contemplated under the PSC, the RIL/contractor should be in a position to cover up the investments already made for the protection and exploration of the ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll respects must be handling through their expert and/or consultants, there is no question of giving direction to appoint an expert and/or seek opinion from the expert at this stage of the proceeding. The parties are at liberty, all the time, to have opinion on these clauses from all angles. 177. Therefore, the relief as claimed just cannot be granted in favour of the applicants. At the same stroke the GSMA and/or GSPA clauses as imposed are also not liable to retain. The suitable arrangement be made considering the events prior and post to MOU and the Scheme. The Company Court is not expert and has no say and in fact should not express its own or say any such technical and complicated nature of transaction, business and/or clauses of gas supply agreement or such other agreement having national and international markets policies. A suitable arrange- ment also therefore means the parties must themselves see and settle and put-forth their submission for proper and suitable working of the scheme specially when the scheme has been working smoothly except for this gas supply agreement. Interim orders 178. As noted, the applicants have prayed for interim relief of injunction in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, however, resisted the said letter by letter dated 15-6-2007 and tried to point out the correct factual and legal position and further requested to approve the price as sought. Company Application (Lodging) No. 721/07 (i.e., 695/2007) was filed on 19-6-2007. By order dated 20-6-2007 this Company Court has observed as under : "that in the event, the respondents (the appellants herein) taking benefit of the observations made in paragraph 20 of my order dated 3rd May, 2007 were to commit itself in relation to any gas produced to third party, that will be subject to the outcome of the main Company Application No. 1122 of 2006. This position needs to be clarified which, in fact, will be stating the obvious. Ordered accordingly." 180. The original respondents-RIL have also challenged the order of grant of interim relief in terms of prayer (a) in Company Application No. 1123/2006 dated 3-5-2007 i.e., in Appeal No. 440/2007. The respondents, therefore, have also filed the Appeal No. 441/2007 and challenged the said order also. The Division Bench, after hearing both the parties on 18-7-2007 has observed in the following paragraphs as under : "2. Upon hearing the learned counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re cannot claim and/or halt the entire sale and supply of gas by the respondents in this proceeding. I am convinced that pursuance to the events, MOU and the sanctioned scheme unless these agreements in question are finalised, in view of the observation made in this judgment, the parties need to follow the orders passed by this Court on 3-5-2007, 20-6-2007 and 18-7-2007as recorded. However, the parties are at liberty to take out appropriate proceedings, if so advised. Admittedly the applicants-RNRL has not challenged any part of the order dated 3-5-2007. 182. As I am deciding the main matter, all other applications arising out of and related to the same proceeding are also need to be disposed of accordingly. It is difficult to keep pending those company applications in view of the disposal of the present application as the Division Bench of this Court in Appeal Nos. 440/2007 and 441/2007 arising out of interlocutory order in C.A. No. 1123/2006 and C.A. No. 695/2007 has in fact permitted to proceed with the hearing of Company Application No. 1122/2006. 183. Thus for the present purpose I have come to the following conclusions and passing the resultant order: 184. The conclusions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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