The Supreme Court on Friday suggested to the Union government that it would be ideal if projects relating to gas and other natural resources were exclusively handled by Public Sector Undertakings rather than giving it to the private sector.
A Bench of Chief Justice K.G. Balakrishnan and Justice P. Sathasivam in its judgment said: “It is the duty of the Union to make sure that these resources are used for the benefit of the citizens of this country. Due to shortage of funds and technical know-how the government has privatised such activities through the mechanism provided under the production sharing contract. It would have been ideal for the PSUs to handle such projects exclusively.”
Writing the judgment, Justice Sathasivam said: “Natural resources must always be used in the interests of the country, and not private interests. The broader constitutional principle, the statutory scheme as well as the proper interpretation of the PSC mandates the Government to determine the price of the gas before it is supplied by the contractor.”
The Bench held that the policy of the government, including the Gas Utilisation Policy and the decision of EGOM would be applicable to the pricing in the present case. The government could not be divested of its supervisory powers to regulate the supply and distribution of gas.
The Bench was of the view that in a constitutional democracy like ours, the national assets belong to the people.
“The government holds such natural resources in trust. In the present case, the government owns the gas till it reaches its ultimate consumer. The PSC shall over-ride any other contractual obligation between the Contractor and any other party.
“Though the Contractor (RIL) has the marketing freedom to sell the product from the contract area to other consumers, this freedom is not absolute. The price at which the produce will be sold to the consumer would be subject to government's approval. The tenure of such contracts can't be such that it vitiates the development plan as approved by the government. Therefore, the GSMA and the GSPA entered into with RNRL should fix the price, quantity and tenure in accordance with the PSC.”
The EGOM has already set the price of gas for the purpose of the PSC. The parties must abide by this, and other conditions placed by the government policy.
On whether the MoU was binding on the parties or not, the Bench said: “The MoU was signed as a private family arrangement or understanding between the two brothers, Mukesh and Anil Ambani, and their mother. Contents of the MoU were not made public, and even in the present proceedings, they were revealed in parts. Clearly, the MoU does not fall under the corporate domain — it was neither approved by the shareholders, nor was it attached to the scheme. Therefore, technically, the MoU is not legally binding.
“While renegotiating the terms of GSMA, the following must be kept in mind: The terms of the PSC shall have an over-riding effect; the parties cannot violate the policy of the Government in the form of the Gas Utilization Policy and national interests; the parties should take into account the MoU, even though it is not legally binding, it is a commitment which reflects the good interests of both the parties; the parties must restrict their negotiations within the conditions of the Government policy, as reflected inter alia by the Gas Utilisation Policy and EGOM decisions.”
Justice Reddy in his judgment wanted the Centre to frame a comprehensive policy/suitable legislation with regard to the energy security of India and supply of natural gas under PSCs. He said the RNRL and ADA group always knew that government approvals were necessary and subsequently it was aware that under the PSC the GoI had a right to frame policy and approve the formula/basis applicable to the sale of all gas produced from KG D6.
