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Breaking: Mukesh, RIL win Reliance gas dispute but Ambanis likely to keep fighting case (UPDATE: download judgment)

Gas power
Gas power

The Supreme Court has ruled in favour of Mukesh Ambani-promoted Reliance Industries Limited (RIL) in its battle against Anil Ambani-controlled Reliance Natural Resources Limited (RNRL).

The bench decided two-to-one that the private memorandum of understanding (MOU) between the brothers was not binding on the companies, the shareholders or the Government, according to preliminary media reports, and that RIL and RNRL will have to renegotiate the prices of the gas supply agreement that has been subject of the dispute.

Chief Justice KG Balakrishnan, who is retiring on Tuesday 11 May, endorsed the judgement of Justice P Sathasivam in favour of RIL, with Justice B Sudershan delivering the bench's minority verdict.

Today's Supreme Court verdict overturned last June's Bombay High Court decicion in favour of RNRL.

Update 7 May 2010, 15:22: Click here to download the Supreme Court judgment.

M Dhruva & Partners partner Manthan Unadkat told Legally India, subject to reading the full judgment: "They have been asked to renegotiate the terms of the MOU – but not the quantum or tenure of the gas contract."

He added that the price for the supply of gas between the companies was now set at the Government-fixed price of $4.20 per million British thermal units (mBtu), although this was now subject to renegotiation between the companies.

The MOU between the brothers had set a figure of $2.34 per mBtu, although the Supreme Court has now held that this agreement was a private agreement between the brothers and was not binding on the companies or other parties.

ALMT partner Hitesh Jain told TV channel CNBC that the legal process was likely to be far from over. "They have eight weeks time in which they can negotiate a settlement – if there is no settlement, the matter goes to company law board. If parties are unable to resolve, they will enter into protracted legal battle."

"But if something has not been achieved in the last four years," he asked, "will it be achieved now? The floodgates of litigation have opened again [and] if parties are unable to reach a settlement then we are looking at a protracted, long legal battle."

LexCounsel partner Alishan Naqvee told Legally India that this could potentially be a landmark judgment that might affect other industries, speculating on preliminary reports of the decision, as it appeared to decide that Government policy retroactively applied to commercial agreements between parties.

All lawyers commenting said that it was too early to have a final analysis and understanding on the case before seeing the full judgement, which is understood to run to more than 200 pages and only be available later today.

J Sagar Associates (JSA) partner Somasekhar Sundaresan told TV channel CNBC TV18: "The Contract Act in India is very clear what are the grounds on which a contract is void. I am not sure whether what we've heard that MOU is per se ab initio void. It seems to be that the MOU can not be read in a manner that would override the scheme of arrangement [at the company but we] have to read the judgement before concluding that has far wider implications."

RIL executive director PMS Prasad told reporters after the judgment that the Supreme Court ruled that the MOU was not legally binding on the companies and the court has further said that renegotiations between the companies should take place

RNRL counsel Samir Parekh told media: "Whatever terms the parties have agreed to they will have to be made subject to Government policy."

The dispute has been in the courts since 2006 now. In November 2009, additional delays were caused after Supreme Court judge R V Raveendran recused himself from the bench citing a conflict of interest because his daughter worked at AZB & Partners.

Update 7 May 2010, 15:22: Click here to download the judgment in the case.

Read Mint's analysis of what the case means.

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