All contracts entered into between private parties were subject to government approval and Reliance Industries Ltd. (RIL) could not supply gas to Reliance Natural Resources Ltd. (RNRL) at a price less than the price fixed by the government, argued senior counsel for RIL Harish Salve in the Supreme Court on Thursday.

Continuing his submissions before a three-judge Bench of Chief Justice K. G. Balakrishnan, Justice B. Sudershan Reddy and Justice P. Sathasivam, Mr. Salve said “the question one must ask is whether was I justified in saying that all the contracts are subject to government approval? Upon the interpretation of the production sharing contract (PSC); whether this interpretation is done by me {RIL} or the Government — it says that approval is justified and it is an absolute must for price fixation.”

Mr. Salve said “If the government chooses to impose the gas utilisation policy (GUP) upon us prior to the sale of gas — it creates a risk for me to sign without approval on two fronts. The scope for government cancelling my licence is huge and I cannot risk the cancellation of the PSC because I chose to supply without Government approval. If I don’t supply I run the risk of damages with the party contracted to and this creates another problem. And government approval was agreed to them by their own admission.”

He said “RIL’s approval for price stands at $4.20 and if RIL is compelled to sell at $2.34 then the difference comes out of its pocket because the valuation of the gas sold will be done by the Government at $4.20 The net loss per unit for RIL would be $1.86 and the difference would be payable by RIL. This certainly cannot be a suitable arrangement. We cannot sell below the government approved price and this would amount to a breach of contract.”

Mr. Salve conceded that at $2.34 “we do make a small profit. But after GUP we were free to sell the other gas which was not allocated at free market price and cover up for it. Now after the GUP we are forced to sell everything at $4.20. Even now if the government approves the price of $2.34 we are ready to supply.”

On the RNRL’s demand for immediate supply of gas from the KG basin, Mr. Salve said it could not be done in the absence of the proposed power plant according to the agreement reached between them. He said “There was assurance given for the supply of gas but the other side (Anil Ambani Group) failed to establish the power plant. Now they want to make money out of the gas which was never contemplated in the demerger scheme.”

At the end of the day senior counsel for RNRL Ram Jethmalani opposed RIL filing seven affidavits by its Directors without the permission of the court.

He said “the directors are open to cross examination, if the affidavits are allowed as part of the evidence.” Arguments will continue on Friday.

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