No legal rights would flow to RNRL from MoU, asserts RIL

December 17, 2009 11:10 pm | Updated November 17, 2021 07:02 am IST - NEW DELHI

No legal rights would flow from the memorandum of understanding (MoU) to Reliance Natural Resources Ltd. (RNRL) as Reliance Industries Ltd (RIL) was not a party to the MoU, asserted senior counsel for RIL Harish Salve in the Supreme Court on Thursday.

Making his submissions before a three-Judge Bench of Chief Justice K. G. Balakrishnan, Justice B. Sudershan Reddy and Justice P. Sathasivam refuting RNRL’s contention that ‘suitable arrangement’ in the scheme was to be guided by the MoU, Mr. Salve said “MoU cannot be a guide for interpretation.”

Giving the reasons, Mr. Salve pointed out that the MoU was between three parties, namely, Kokilaben Ambani, Mukesh Ambani and Anil Ambani and RIL was not a party to the MoU. He said it was a settled law that the MoU would not bind the company unless its terms were expressly incorporated in the Articles or in a binding scheme.

Directors unaware

Mr. Salve said that the mere fact that the MoU was used as a guidance tool in drawing up the scheme could not justify it being used to interpret the scheme in a manner that would amount to engrafting its terms in the scheme. He said “despite the assertion of RNRL, there is nothing to suggest that the MoU was ever brought to the notice of the directors.”

He said that even if it be assumed that the MoU was binding, “it does not lead to the conclusion that the clause relating to the government approval is contrary to the MoU.” Further, he said there was nothing in the scheme that would suggest that the requirement of government approval was in any manner diluting the provisions of the scheme.

Mr. Salve said “on a correct interpretation of the production sharing contract, the price at which gas is sold is subject to government approval. Assuming, without accepting, that the approval of the price is only for valuation purposes, even then a clause that requires the price to be in conformity with that price which is approved by the government for accounting between the parties cannot be considered contrary to the requirement of entering into a suitable arrangement.”

He said if the contention of RNRL was to be accepted, then it must necessarily follow that RIL would either subsidise the purchase of gas by power plants or shift a larger part of the surplus on sale of gas to RNRL without any corresponding benefit to the power plant. If the gas is supplied to power plants at $2.34, as contended by RNRL, then the situation would be akin to RIL receiving gas at $4.20 and supplying the same at $2.34 there by not recovering $1.86 per million British thermal unit (mBtu) of gas supply. Arguments will continue on Friday.

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