The Memorandum of Understanding (MoU) entered between the two Ambani brothers and their mother could not override government policy in the allocation of gas, argued senior counsel for Reliance Industries Ltd (RIL) Harish Salve in the Supreme Court on Wednesday.

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 MoU does not become binding on the board of directors of RIL simply because negotiations are not going to a favourable end for one side of the negotiators.”

“How can the MoU be binding on the company while negotiations have not been completed? How can the MoU also override government policy? By their {RNRL} own admission in their correspondence and we {RIL} reaffirm that the MoU remains a guiding tool for the scheme of demerger. It was brought into the corporate domain by the Scheme,” Mr. Salve argued.

Mr. Salve said “The MoU itself states that the scheme of demerger will be approved by the board of directors. This was also subject to requisite permissions and approvals from the two companies and the government. The Division Bench of the Bombay High court incorrectly said that we must take the terms of the MoU and apply them on the scheme of demerger. Even previous case studies have proven that private agreements between shareholders of a company cannot be binding on the company.”

Mr. Salve explained that the scheme of demerger proposed a suitable arrangement for the purposes of gas supply to the power plants to be promoted by the demerged company. The two companies meant for power generation that were part of RIL were RPPL (Reliance Patalaganga Power Ltd.) and BSES, which was later renamed as Reliance Energy. He said that even if the companies had not demerged and if it had remained with RIL — the power plants would still be allocated gas as per the GUP only. “Right now even RIL is not getting gas and is subject to allocation and is buying expensive gas at spot prices.”

The suitable arrangement was that the demerged entity would be given gas at the point of delivery and the demerged entity was to arrange for off take and transportation of gas from the delivery point to the power plants. The demerged entity could have earned some marketing margin and transportation charges if it had set pipelines. The objective was never to allow trading profits to the emerged entity. He will continue his arguments on Thursday.

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