IN THE SUPREME COURT OF INDIACIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (CIVIL) NO. 14997 OF 2009

IN THE MATTER OF:

Reliance Natural Resources Ltd. .. Petitioner

Vs.

Reliance Industries Ltd. .. Respondent

AFFIDAVIT ON BEHALF OF RIL IN REPLY TO THE SPECIAL LEAVE PETITION OF RNRL

I, Shri B. Ganguly, s/o (Late) Murari Mohan Ganguly, aged about

54 years, having my office at 5th Floor, Meridien Commercial Tower,

Windsor Place, New Delhi, do hereby solemnly affirm and state as follows:

1. I am the Senior Vice President of the Respondent. I am fully

conversant with the facts and records of the present case and am

authorised and competent to affirm this affidavit on behalf of the

Respondent.

2. In this affidavit, Reliance Natural Resources Limited, the

Petitioner abovenamed, is referred to as the “Petitioner” or

“RNRL” and Reliance Industries Limited, the Respondent

abovenamed, is referred to as the “Respondent” or “RIL” as the

context may require. Unless otherwise specified, the price of

natural gas referred to in USD or US$ throughout in this affidavit

is the price per one Million British Thermal Unit (MMBTU) of

thermal energy and quantity of gas is in Million Standard Cubic

Metres Per Day (MMSCMD).

3. I have read a copy of the Special Leave Petition (SLP) filed by

RNRL and am making this Affidavit in reply thereto. I crave leave

to file a further affidavit dealing with the SLP if RIL is so advised

or as the circumstances may require.

4. RIL has filed an affidavit to oppose the grant of any interim reliefs

on 17th July 2009. I repeat, reiterate and confirm the statements

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and averments made therein and crave leave to refer to the

same.

5. Unless specifically admitted by me hereinafter, all statements,

allegations and contentions contained in the SLP should be

deemed to have been denied by RIL as if the same were set out

herein and traversed seriatim.

6. RNRL has not made out any case whatsoever for grant of any

reliefs as prayed for or otherwise and the SLP filed by RNRL is

liable to be dismissed. RNRL has in fact made several baseless

allegations, raised several contentions that are clearly devoid of

any merit or substance whatsoever and has, purportedly in

support thereof, made various false and misleading statements.

SUBSTANCE AND REALITY OF RELIEFS SOUGHT BY RNRL

7. What RNRL demands in this case is contrary to the provisions of

the Production Sharing Contract (PSC - entered into between the

Union of India and RIL) and the Gas Utilisation Policy

promulgated and the consequent directives of the Government of

India.

(i) RNRL seeks a below-market gas price of USD 2.34. The

Government disapproved this price in 2006, and has

thereafter set a price of USD 4.20 applicable to all

customers.

(ii) RNRL seeks to obtain and/or reserve for itself more than

half of the current production for non-existent power plants

of Reliance Energy Limited (REL) and Reliance

Patalganga Power Limited (RPPL), even though the

Government has allocated KGD6 gas to existing priority

customers (who own existing facilities which are starved

for natural gas). The Government has so far allocated 44

MMSCMD to 47 customers. As against 28 MMSCMD (+12

MMSCMD) of gas sought by RNRL, the largest quantity

allocated to any single customer till date by the

Government is 5.7 MMSCMD to Ratnagiri Gas Power

Project Limited (Dabhol).

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(iii) RNRL demands a fixed quantity of gas, initially 28

MMSCMD (+12 MMSCMD) for a period of 17 years and in

future, 40% of all gas produced by RIL, despite the fact

that the Government is the owner of all natural gas

reserves and has total control over the quantities of gas

allocated to each customer according to national priorities.

(iv) RNRL demands a supply initially of 28 MMSCMD (+12

MMSCMD) of gas for 17 years despite the fact that the life

of production from the KGD6 field under the approved

Development Plan by the Government is only 12 years.

RIL cannot assume an obligation to supply gas it does not

have.

(v) RNRL is trying to subordinate the development of gas

which is the property of Union of India to delayed

development of its own power plants. RNRL is trying to

treat the KGD6 gas, a national asset, as a captive gas

supply source akin to a captive coal mine.

There is an irreconcilable conflict between what RNRL demands

and the current Policy and the legal regime put in place by the

Government.

8. RNRL seeks to obtain a lion’s share of the KGD6 gas despite the

fact that it has not built a single power plant since the demerger

and the ADAG group owns just one gas plant which consumes a

minuscule quantity of gas. RNRL has no right to do this inter alia

for the following reasons:

(i) By its own admission, RNRL has no contractual right to

trade in gas acquired pursuant to the demerger scheme

(or even as per the Memorandum of Understanding (MoU)

between the promoters).

(ii) Trading in gas is also barred by the Government’s policy

that KGD6 gas can only be sold to priority end users

(having existing facilities to consume gas) identified by the

Government.

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(iii) Because RNRL does not have existing plants capable of

using the gas, it is necessarily seeking to trade in gas

(which it is not entitled to do at all) and make enormous

profits based on the below-market acquisition price of USD

2.34.

(iv) RNRL, if at all, can get gas only for generation of power by

the power plants of REL and RPPL.

(v) Even if and when RNRL builds gas-powered power plants,

it has announced publicly in August 2006 that it intends to

make the plants pay market prices for gas and keep to

itself, the trading profit arising from sale of gas to power

plants of REL and RPPL.

In short, RNRL seeks to make windfall profits by buying gas at the

below-market price of USD 2.34 and selling it at higher prices.

9. RIL has developed the KGD6 gas fields, at a cost to date of Rs.

38,000 crores, (invested almost entirely post demerger) pursuant

to a PSC with the Union of India which owns the gas. The

Scheme of the PSC is that the entire investment is made by the

Contractor upfront and that the recovery of such investment and

returns, if any, are only from the sale proceeds of the

hydrocarbons produced and saved. RNRL’s demands, if granted,

would require RIL to breach the PSC, as RIL can sell gas only at

prices approved by the Government of India. One of the

consequences of the breach of the PSC could be its termination,

and any such breach would thus place in jeopardy the entire

investment made by RIL.

10. The only way gas supplies could be made to RNRL (as

demanded) would be if the Government were to approve supply

of this huge quantity of gas at below market prices – as is sought

by RNRL. If RNRL’s demands were granted, the Government

would lose large sums of money in profit sharing, royalties and

taxes. RNRL would reap a windfall at the expense of the

Government and RIL and its shareholders.

11. Contrary to RNRL’s claim, it is submitted that there is no

obligation that entitles it to the relief it seeks from RIL:

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(i) The Scheme of Arrangement (Scheme) pursuant to which

RNRL and other companies were demerged from RIL

provided that there would be a “suitable arrangement” for

the supply of gas for power generation. Prior to the

demerger, RIL had anticipated use of gas for power

generation – obviously this would have been subject to the

discipline of the PSC. All that the Scheme contemplates is

that (since the power business was demerged) post

demerger, a “suitable arrangement” for the supply of gas

for power generation would be put in place.

(ii) The expression “suitable arrangement” must, as of

necessity, be suitable to both parties, and compliant with

the legal cum policy regime in place. Besides it was to be

a “suitable arrangement” for supply of gas – and no more.

By no stretch of imagination can an arrangement that has

been disapproved by the Government, and that would

result in windfall profits to RNRL at the expense of the

Government and RIL be a suitable arrangement for supply

of gas but a lopsided arrangement for subsidy.

(iii) RNRL’s case that the Scheme virtually provided for a

concluded contract for supply of gas at a pre determined

price of USD 2.34, a fixed quantity of 28 MMSCMD and a

fixed tenure of 17 years is belied by the language of the

Scheme. If the Scheme intended to grant the above, it

would have said so in plain language – it is absurd to

suggest that the Shareholders would have ever granted

approval to such a Scheme.

(iv) RNRL rests its claim upon an MoU among members of the

promoter family of RIL, but as set out hereinafter, the MoU

expressly contemplated receipt of Governmental approvals

and such approval was denied in this case.

(v) In any event, the MoU is not binding upon RIL. The MoU

was never presented to or approved by RIL’s Board of

Directors (Board) or shareholders and is not legally binding

upon RIL. The Companies Act puts in place an elaborate

scheme of checks and safeguards in relation to contracts

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in which promoters and their families are interested, and

requires approvals to be granted. If sanctity is granted to

family MOU’s of this kind, as corporate agreements, it

would make a complete mockery of all the provisions

relating to corporate governance.

(vi) The majority of RIL’s shareholders are members of the

investing public, and RNRL improperly seeks to fasten

upon them obligations never approved by them or RIL’s

Board, the majority of whom are independent Directors.

12. RNRL claims that RIL is reneging on its obligations. This is not

so. RIL never assumed any obligation:

(i) to subsidise RNRL at the expense of the Government, RIL

and its shareholders

(ii) to create trading profits in RNRL by selling the gas on to

the power plants of REL and RPPL; or

(iii) to violate the directives and policies of the Government.

If and when, REL and RPPL’s power projects are ready to receive

gas and are allocated gas by the Government, subject to suitable

arrangements agreed to by the Parties and the terms of the PSC,

RIL is ready and willing to supply gas on terms approved by the

Government and the prevalent policies of the Government.

13. RNRL has not contented itself with pursuing these proceedings in

the Courts. Contrary to all norms of propriety, RNRL has

engaged itself in an extensive orchestrated campaign of

spreading misinformation through electronic and print media,

making allegations against the Government and RIL that RNRL

knows it could never sustain with evidence. I respectfully submit

that contrary to RNRL’s claims made in the media, RNRL is not

entitled to any of the reliefs sought herein.

RIL’S RESPONSE TO RNRL’S PRINCIPAL CONTENTIONS

14. In what follows, the terms “Anil Ambani Group” and “ADA Group”

refer to Shri Anil Ambani and his group of advisers. Similarly, the

terms “Mukesh Ambani Group” and “MDA Group” refer to Shri

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Mukesh Ambani and his group of advisers. The Anil Ambani and

Mukesh Ambani Groups were advising and/or conducting

negotiations on behalf of Shri Anil Ambani and Shri Mukesh

Ambani, respectively. Some members of the Anil Ambani and

Mukesh Ambani Groups were employees or consultants of

companies that belonged to the Reliance group of companies

before the demerger.

15. By way of introduction, the principal contentions raised by RNRL

and a short response to each of them are set out hereinbelow:

15.1 RNRL Contention: There was a solemnly committed binding

commercial obligation by RIL, its Board and the shareholders

under the Scheme (Sanctioned by the Court) read with the MoU

signed by its CMD for supply of a fixed quantity of gas for a fixed

tenure and for a fixed price. RIL is backing out from the above

firm commitment out of commercial greed to make windfall profit

of Rs. 50,000 crores at the cost of the common man.

RIL RESPONSE

15.1.1 At the outset, I submit that the MoU is not binding on the

corporate entity RIL. The following submissions are made

without prejudice to this contention.

15.1.2 RIL is supplying gas to the only existing gas-based power plant of REL.

(i) As a matter of fact, RIL is supplying gas to the only power

plant of REL (an affiliate of RNRL) as envisaged in the

Scheme. This supply is being made pursuant to a gas

supply agreement duly negotiated and entered into by REL

with RIL on terms approved by the Government.

(ii) This agreement was entered into after an allocation was

made by the Government under the prevailing Gas

Utilisation Policy. Gas supplies are being made under the

said agreement at the Government-approved price for a

period of five years. An arrangement such as this is

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precisely what was contemplated by the expression

“suitable arrangement” under the Scheme.

(iii) For REL’s gas-based power plant, gas prices are a pass-

through cost.

15.1.3 There is no unqualified obligation on RIL to supply gas as alleged.

(i) The MoU was not referred to or incorporated in the

Scheme. RNRL is first seeking to read the terms of the

MoU into the provisions of the Scheme as sanctioned by

the Court, which it is not entitled to do. RNRL is thereafter

seeking to interpret and construe the provisions of the

Scheme and the MoU as constituting an absolute and

unqualified obligation on the part of RIL to supply a fixed

quantity of gas to RNRL for a tenure as long as 17 years at

submarket rates.

(ii) Neither the provisions of the Scheme nor the MoU (read

and construed on their own or in conjunction with each

other) create any obligation or commitment on the part of

RIL to supply gas to RNRL at a predetermined fixed price,

tenure and quantity. Any such obligation can only arise

upon:

(a) negotiations between RIL and RNRL resulting in a

binding gas supply agreement that is suitable to

both parties; and

(b) the grant of relevant government approvals.

15.1.4 There are no binding obligations under the MoU.

(i) It was stipulated in the MoU that a binding gas supply

agreement would be finalised not later than 45 days from

the date of the said MoU.

(ii) The MoU did not create any obligation to supply gas

except under such binding gas supply agreement.

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15.1.5 The gas supply envisaged under the MoU was conditional.

(i) Without prejudice to the foregoing and in any event, supply

of gas contemplated in the MoU was:

(a) subject to adequate P1 reserves (i.e. proven

reserves) being available;

(b) subject to grant of applicable governmental and

statutory approvals; and

(c) for use only in the power plants of REL and RPPL.

(ii) It is undisputed that the Government has disapproved the

price of USD 2.34 in July 2006 on the grounds of the price

not having been derived on an arms length basis.

(iii) The parties recognised the fact that approvals of the

Government would be mandatory. A special stipulation to

this effect is contained in the section of the MoU dealing

with gas. This provision contemplated both parties

working jointly to obtain the necessary approvals.

(iv) A further stipulation in the MoU provided for an irrevocable

power of attorney in favour of Anil Ambani Group for this

purpose. This provision is a clear indication that not only

were the parties to the MoU aware of the requirement of

approvals but that they recognised that any supply of gas

would be subject to such approvals being granted. In fact,

even as the case was being argued before the Learned

Single Judge, an application was made by RNRL to the

government for grant of approval to the price – this letter

was not made “without prejudice”.

(v) Recognising the absolute necessity of such approvals, in

addition to the grant of a power of attorney to Anil Ambani

Group, the MoU stipulated that the ADA Group would also

have a claim for damages for any action taken in bad faith

for scuttling the obtaining of such approvals.

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(vi) Because the Government has disapproved the USD 2.34

price and did not make any allocation of gas to RNRL,

there can be no obligation to supply gas to RNRL.

15.1.6 No obligation to supply gas can arise under the Scheme when terms remained to be negotiated after the Scheme had become effective.

(i) The Scheme did not create any obligation for supply of

gas. The Scheme did not provide the terms on which

supply of gas (if any) was to be made. The Scheme

simply stated that arrangements that were suitable would

be entered into for supply of gas.

(ii) If any gas was to be supplied or taken, it necessarily had

to be under arrangements suitable to both RIL and RNRL.

This is precisely what the Scheme stipulates.

(iii) It has been the contention of RNRL that the gas supply

agreement was to be negotiated between RIL and RNRL

after the control of RNRL was transferred to the ADAG.

Assuming that this is true, it is then obvious that the control

of RNRL could be transferred to the ADAG under the

Scheme only upon the Scheme becoming effective under

the provisions of the Companies Act, 1956. If this is true

then the stipulations contained in the Scheme cannot be

read to create an obligation for performance (by way of

supply of gas) -- the terms of such an obligation were (as

per RNRL) to be negotiated and agreed after control of

RNRL was transferred to the ADAG.

15.1.7 The Scheme does not give rise to an obligation to supply gas except under a suitable arrangement to be agreed upon by the parties.

(i) It is the case made out by RNRL that negotiations between

the Anil Ambani Group and Mukesh Ambani Group for a

binding gas supply agreement continued right from signing

of the MoU up to the Scheme and even thereafter – for this

purpose it relied upon “Exhibit F” to the Petition. As a

matter of fact, in the course of discussions that followed

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the MoU, the Anil Ambani Group started disputing the

terms of the MoU, specifically:

(a) whether applicable governmental approvals were

required; and

(b) whether supply of gas would be unconditional and

irrespective of the availability of adequate reserves

of gas to RIL.

(ii) These differences could not be resolved. The

correspondence (part of Exhibit “F” of the Company

Petition of RNRL before the Bombay High Court) shows

that right from 21st June 2005, the two groups had

communicated the differences they had on the terms of

supply of gas to each other. These differences continued

throughout.

(iii) In spite of continuing differences on key issues relating to

the gas supply agreement, the groups agreed to the filing

of the Scheme in the Bombay High Court. The groups

agreed to the language contained in Clause 19 of the

Scheme (providing that, if the Scheme were approved and

sanctioned, RIL and RNRL would thereafter enter into

“suitable arrangements” for supply of gas).

(iv) In light of this background, at all material times the groups

clearly understood that there was a likelihood of the

differences not being resolved and that mutually

acceptable arrangements might not be arrived at.

(v) As a matter of fact, in public disclosures made by RNRL, it

was clearly stated that there were continuing basic

differences in relation to supply of gas between RIL and

RNRL and that this constituted one of the “risk factors” for

prospective investors.

(vi) Apart from the foregoing, the requirement of Government

approvals was also referred to in these disclosures by

RNRL (albeit with certain disclaimers).

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(vii) In the absence of such approvals, there was no possibility

of any mutually accepted suitable arrangement being

arrived at (suitable arrangement in this context also implies

that it has to be acceptable to the Government).

(viii) Under the circumstances it cannot be contended that the

Scheme creates a “solemn committed binding commercial

obligation” to supply gas to RNRL for a fixed quantity of

gas for a “fixed tenure and at a fixed price” as alleged.

(ix) RIL has no ability to supply gas to any customer except in

accordance with the terms of the PSC and subject to price,

quantity and tenure as approved by the Government. This

is dealt with further hereinbelow.

15.1.8 RIL does not make a windfall profit of Rs. 50,000 crores at the cost of the Government and the common man as alleged by RNRL.

(i) RNRL is seeking to mislead this Hon’ble court by making a

blatantly false allegation that RIL stands to make a windfall

profit of Rs. 50,000 crores.

(ii) The true and correct facts are as follows:

(a) Per the terms of the PSC, as the cumulative

revenues exceed certain thresholds, the Contractor

receives a progressively significantly lower profit

share and the Government receives a progressively

higher profit share (ultimately the Government’s

share rising to 85%).

(b) Because of this significantly increasing Government

profit share, a substantial portion of the alleged

incremental revenue would, in fact, accrue to the

Government and not to RIL, as alleged.

(c) The essential characteristics of the Exploration &

Production (E&P) of hydrocarbon business are as

follows:

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(1) investments are capital intensive and carry

high risk;

(2) there is no certainty of exploration resulting

in commercial discovery; and

(3) failure to make a commercial discovery leads

to a loss of the entire investment.

(d) Of the 45 Blocks in which RIL has already invested

over Rs. 13,200 crores and made a further

commitment to spend approximately Rs.10,000

crores in conducting exploration and appraisal

activities, only two blocks have resulted in

commercial discoveries. Of the 45 blocks, 14 blocks

have been surrendered back to Government for

which Rs.1400 crores have been spent as

unsuccessful exploration expenditures.

(e) In Block KGD6 alone RIL has committed

approximately Rs. 38,000 crores till date of which

Rs.28,000 crores have been already spent.

(iii) (a) Looking to the nature of the E&P business, the rate of

return of Contractor who has made investments in

exploration/appraisal and development of a gas field

cannot be estimated with any degree of certainty.

(b) The exploration and appraisal expenses which do not

result in a commercial discovery have to be written off

altogether unless a Contractor is able to recover

these from the proceeds of sale of gas from the field

or the block where exploration/appraisal does lead to

commercial discovery.

(c) Even after reaching the stage of commercial

production, the behavior of a producing gas field and

the recoverable reserves therein cannot be predicted

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to a degree of certainty even with the help of latest

technology available;

(d) This is particularly so in gas fields located in the

terrain such as the terrain in which the gas field KGD6

is located. There are no remedial measures available

and there is nothing that a Contractor can do if the

field does not produce the gas at the rate or to the

extent anticipated by a Contractor.

(e) As a mater of fact, leaving aside the question of the

Contractor having certainty about the rate of any

return on investments, there is no certainty of a

Contractor being able to recover the investments

made by it at all in the exploration/appraisal and

development of a gas field.

(f) RNRL is attempting to mislead this Hon’ble Court by

alleging that Rs.50,000 crores will accrue to RIL as

the difference in revenue between the Government

approved price of USD 4.2 and the price of USD 2.34

(as claimed by RNRL) for 28 MMSCMD of gas over

17 years.

(g) The whole basis of this allegation is completely

erroneous.

(h) The life of gas field under development plan is 12

years from the date of commencement of production

of which more than 6 months are over. Admittedly,

RNRL’s power plants cannot be ready to consume

gas for at least another 3 years and RNRL can

receive gas only for a period of 8 years. The

difference in net revenue (net of capex and opex)

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adjusted for 8 years (even on the erroneous basis of

RNRL) works out to approximately Rs 23,800 crores.

(i) It is estimated that, out of the above Rs 23,800

crores, approximately 95% i.e., Rs, 22,600 crores

(including royalty , taxes and profit share) will accrue

or lost by the Government and approximately 5% i.e,

Rs 1,200 crores will accrue or lost by Contractors (RIL

and NIKO).  

(j) Thus, if the Government were to approve a price of

USD 2.34 for supply of 28 MMSCMD to RNRL, the

Government will incur a loss of Rs 22,600 crores and

RNRL will make a windfall profit of Rs 23,800 crores.

15.1.9 In fact it is RNRL (and not RIL) that is seeking to make a windfall profit of Rs. 50,000 crores at the cost of the Government and the common man.

(i) In light of the Government’s rejection of the proposed

terms of supply to RNRL in 2006 as not being on an arms

length basis, RIL cannot contemplate entering into any

agreement for sale on such terms.

(ii) If the Government were to approve the (preferential) price

of USD 2.34 as sought by RNRL, this entire alleged

incremental revenue of Rs. 50,000 crores would accrue to

RNRL as windfall profit to the detriment of the

Government, the common man and RIL.

(iii) This would be so because it is the stated position of RNRL

(GDR-Listing Particulars dated 23rd August 2006) that

RNRL will not supply gas to its affiliated power companies

at the preferential purchase price of USD 2.34, but instead

at then prevailing market prices. Such market prices may

exceed the Government-approved cap price of USD 4.20.

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A copy of the relevant pages of the said Listing Particulars of

the GDR dated 23rd August, 2006 is annexed as Annexure R-1 herewith and is also filed along with an application to

place additional documents on record.

(iv) GAIL has recently entered into a 10-year GSPA with a

public sector power company for supply of gas at an

average price of USD 9.40 at an assumed constant crude

price of USD 60/barrel for 10 years. In July 2008, the

crude price was over USD 140. If the price escalates to

such a level, the applicable gas price under this contract

would be USD 16.50.

(v) At such market price of gas in India, RNRL would make a

windfall trading profit (by selling gas to the power plants of

REL and RPPL) exceeding Rs. 21,000 crores per year,

aggregating to an astronomical amount, exceeding Rs.

350,000 crores over a period of 17 years, without RNRL

making any investment whatsoever or taking any risks.

(vi) Under the State Support Agreement signed in the year

2004 between Government of Uttar Pradesh and REL,

with respect to the Dadri Power Project, cost of fuel is a

pass-through with a fixed cost tariff of Rs. 1.25 per unit

(which curiously is twice the industry norm for gas-based

projects). This results in windfall and astronomical profit of

Rs. 70,000 crores to the power company alone. This is in

addition to the profits (as set out in paragraph (v) above)

which RNRL is seeking to make by selling the gas to Dadri

at the Government-approved price (or higher) having

procured it from RIL at USD 2.34.

(vii) Thus, all actions of RNRL are clearly motivated by

commercial greed, with the goal of pocketing trading

profits (by selling gas to the power plants of REL and

RPPL) far in excess of the alleged Rs. 50,000 crores

without making any effort or investment, all to the

detriment of the Government and the common man.

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(viii) This is proven beyond doubt by the fact that RNRL

contended before the Division Bench that, if RNRL does

not receive gas from RIL, it should receive cash payments

equal to the difference between the USD 2.34 price and

the price set by the Government. This confirms that

RNRL’s true objective is a long term stream of subsidy

payments at the expense of RIL’s shareholders.

15.2 RNRL Contention: RIL unilaterally imposed an unworkable and

one-sided agreement containing commercially unviable terms.

The GSMA and GSPA are bogus agreements thrust on RNRL

and were in violation of the MoU. These actions of RIL arose out

of pure greed and were an attempt to back out of the obligation to

supply gas.

RIL RESPONSE

15.2.1 The GSMA and GSPA are not unilateral and were not thrust on RNRL.

(i) The GSMA/GSPA does not impose any obligation upon

RNRL. The GSMA/GSPA obligates RIL to supply gas if its

terms are complied with, but it does not oblige RNRL to

take any gas. The GSMA/GSPA is in the nature of an

option which may be exercised by RNRL as it deems fit.

In light of this, it cannot be argued that the GSMA/GSPA

has been “thrust” on RNRL.

(ii) The MoU (even assuming arguendo that it was binding

upon RIL, which it was not) provided that a binding gas

supply agreement would be finalised not later than 45 days

from the date of the MoU.

(iii) It is admitted by RNRL that negotiations for such a binding

gas supply agreement were continued right from signing of

the MoU up to the Scheme and even thereafter. These

negotiations continued well beyond the stipulated period

and the Scheme was filed, sanctioned and made effective

without any such arrangement having been put in place.

This happened because Anil Ambani Group right from its

inception took a stance in the negotiations that was not

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only unreasonable but ran counter to the terms of the

MoU. These differences could not be resolved.

(iv) It was agreed between the Mukesh Ambani Group and the

Anil Ambani Group that:

(a) the Resulting Companies (including RNRL) were to

be under the control of RIL until the consummation

of the Scheme, with a majority of the Board being

RIL nominees;

(b) the decisions of the Board were agreed to be by

majority without any requirement of a unanimous

approval of any resolution placed before the Board;

and

(c) it was the responsibility of RIL to have the shares of

the Resulting Companies listed on the Stock

Exchange.

A copy of the term sheet and notes titled “Other Related

Issues” both dated 3rd August 2005 signed by the Sh.

Sandeep Tandon representing the Mukesh Ambani Group

and Sh. Gautam Doshi representing the Anil Ambani

Group are annexed as Annexures R-2 (Colly.) herewith

and also along with an application to place additional

documents on record.

(v) It was incumbent on RIL, as the Demerged Company, to

inform the shareholders of RIL (every one of whom was

becoming a shareholder of RNRL) of the details of such

“suitable arrangements” before the shares were listed on

the stock exchange. It was essential to put in place the

contemplated gas supply arrangement before the listing of

the shares. RIL satisfied this requirement in the form of

the GSMA and the GSPA. Once the agreement was

executed, RIL posted the agreement on its website.

(vi) Given the fact that the parties had been negotiating for

more than seven months, RNRL’s contention that the ADA

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group was not given adequate time to review the GSMA

and the GSPA is false and baseless.

(vii) The Information Memorandum filed by RNRL with the

Stock Exchange for listing of its shares contained the

terms of the GSMA/GSPA along with RNRL’s views on the

agreement and RNRL’s perceived risks associated

therewith.

(viii) The allegation that in taking the aforesaid action, RIL was

motivated by commercial greed and was attempting to

back out of the obligation to supply gas is completely false

and baseless. To the contrary, RIL in all sincerity put in

place the GSMA/GSPA, which contained the USD 2.34

price, and created the obligation to supply gas on the

terms stated therein, which were approved by the Board of

Directors of RIL as being suitable, fair and equitable to

RIL, the resulting company and the shareholders. RIL

submitted this price of USD 2.34 to the Government for

approval in 2006, even though this price was based on

events in 2003. Ultimately, the Government of India

rejected the price.

(ix) The fact that RNRL had accepted the GSMA is evident

from its submitting the GSMA to support its application to

build a gas pipeline form Kakinada to Dadri, evidenced

from the correspondence between Reliance Fuel

Resources Ltd (RFRL), an affiliate of RNRL, and the

Government, wherein it was stated that the source of gas

would be the KGD6 basin gas fields and that RFRL’s

parent company, RNRL, had entered into the GSMA with

RIL in this regard.

(x) RIL has now learnt that on 18th December 2006, after filing

the Company Application, RFRL addressed a

communication to MoPNG on the subject of seeking

authorisation for Kakinada Dadri pipeline project, wherein

it was stated that the GSMA was a valid and legally

binding document. A copy of the said letter dated 18 th

December, 2006 is annexed as Annexure R-3 herewith

1006

and also along with an application to place additional

documents on record.

(xi) Thus, contrary to its allegations, it was RNRL that was

motivated by pure greed and started disputing the need for

Government approval of the price, even though the MoU

stipulated that gas supply was subject to applicable

governmental approvals.

15.2.2 RNRL is wrong in contending that the GSMA/GSPA was an unworkable and bogus agreement containing commercially unviable terms.

(i) The GSMA/GSPA was not an unworkable and bogus

agreement containing commercially unviable terms as

alleged by RNRL. In fact it was the only possible

commercial agreement that met all the requirements of the

Scheme.

(ii) The terms of the GSMA/GSPA were negotiated over an

extended period and were in conformity with the principles

laid down in the MoU.

(iii) The Company Application filed by RNRL prayed for

substitution of the GSMA/GSPA with a new proposed

agreement which was annexed (Exhibit “J”) to the

Company Application. During hearing of the Company

Application, however, this contention was given up and the

challenge to the GSMA/GSPA was restricted to six points

of protest.

(iv) The learned Single Judge rejected on merits each of the

six points of protest raised by RNRL about the provisions

of the GSMA/GSPA.

(v) The GSMA/GSPA required certain Government approvals,

as did the MoU, which have not been forthcoming. As

stated above, the price of USD 2.34 has been rejected by

the Government.

1007

(vi) RNRL’s contention that the agreement was commercially

unviable is motivated by greed and its desire to make

unjustified and illegal gains in excess of Rs. 50,000 crores

by procuring supply of gas at the USD 2.34 price

previously rejected by the Government.

15.2.3 As a Contractor under the PSC, RIL is bound by the terms of the PSC and the policies of the Government.

(i) Without prejudice to the foregoing, RIL submits that RIL is

a contractor acting for the Government of India under the

PSC. Any commitment for sale of gas by RIL is governed

by the PSC and Government policies. As such, an

agreement for supply of gas can be suitable to RIL only if it

meets the following requirements:

(a) it is subject to availability of reserves and production

as per the Development Plan approved under the

PSC;

(b) it meets all conditions inherent in the provisions of

the PSC regarding production and sale of gas;

(c) it is at a price that has received approval of the

government under Article 21.6.3 of the PSC;

(d) it is in line with all directions received from the

Government under the Gas Utilisation Policy with

regard to tenure and quantity for entering into gas

supply agreements with end users receiving specific

allocation of gas from the Government; and

(e) designated customers are ready to consume gas,

since no reservation or trading of gas is permitted

by the Government under the Gas Utilisation Policy.

(ii) After execution of the GSMA/GSPA in January 2006, two

further events have occurred that have a direct bearing on

the supply of any gas to RNRL. These are:

(a) the rejection by the Government on 26th July 2006

of the price at which RNRL seeks to get gas; and

1008

(b) the Gas Utilisation Policy promulgated by the

Government of India on 28th May 2008.

These events are discussed below.

(iii) At the time that the PSC was signed in 2000, RIL hoped

and expected that (consistent with the general trends at

that time towards market driven pricing and away from

APM in the oil and gas field) the Government’s power over

pricing of gas produced from NELP Blocks would be

exercised in such a manner as to permit the Contractor

some degree of marketing freedom in setting the sales

price of the gas. Nevertheless, RIL recognised that this

decision was for the Government to make.

(iv) By the Empowered Group of Ministers (EGoM) decisions

of 2007 and 2008, the Government has determined that

the public interest requires a uniform and binding system

of gas allocation and pricing under NELP PSCs, which will

eliminate any possibility of different prices for different

customers, and which will allocate the gas to the sectors

that the Government has determined are of the highest

priority. RNRL was among the power producers and

fertiliser producers that repeatedly urged the Government

to do this. As shown below, the Government’s Gas

Utilisation Policy has deprived RIL of any allocation of gas

for its own needs. As a result, RIL has been forced to

purchase more expensive LNG for its captive

consumption.

15.3 RNRL Contention: (i) RIL has complete marketing freedom to

sell its share of gas at the price that it deems fit; (ii) Government

approval of the valuation under the PSC has no relation to the

price at which RIL can sell gas and (iii) valuation here is

analogous to valuation of property – Government charges stamp

duty on the basis of value determined for a circle.

RIL RESPONSE

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15.3.1 As a Contractor to the Government, RIL’s marketing freedom is subject to the provisions of the PSC and policies of the Government.

(i) RIL as contractor to the Government has an obligation,

under Article 21.6.1 of the PSC, to sell all gas produced

and saved from the contract area at “arms length prices”

for the benefit of parties to the PSC. No gas produced and

saved under the PSC can be sold and/or disposed of other

than at an “arms length price”. As shown below, the

Contractor does not have an entitlement to any physical

quantity of gas to sell or dispose of as the Contractor

deems fit.

(ii) RIL cannot sell gas to any party at any price as it deems fit

as alleged by RNRL. It is not open to RIL to segment the

market and create a preferential class of customers who

would receive gas at non-arms length prices in violation of

the provisions of Article 21.6.1.

(iii) Article 21.6.3 requires RIL to submit the basis and/or the

formula under which RIL has determined any particular

gas price (which must be an “arms length price” as

stipulated in Article 21.6.1) for approval by the

Government. This approval is required prior to the sale of

any gas whatsoever.

(iv) Similarly, treating gas very differently from Crude Oil and

Condensate, Article 21.1 of the PSC makes specific

references to the Gas Utilisation Policy. Even assuming

for the sake of argument (while emphatically denying the

same) that the Contractor under the PSC had an

entitlement to a physical quantity of gas that it could sell or

dispose of as it deemed fit, the same has been completely

taken away by the promulgation of the Gas Utilisation

Policy under which the Government allocates quantities of

gas according to the contracting priorities decided by the

Government.

1010

(v) The Government made this clear in its Press Note dated

25th June 2008 by stating: “The marketing freedom given

to Contractors under NELP would be subject to the order

of priority given in para 3 above and the guidelines given in

para 2 above.” A copy of the said Press Note dated 25 th

June, 2008 is annexed as Annexure R-4 herewith and

also along with an application to place additional

documents on record.

(vi) According to their express definitions in the PSC, “Cost

Petroleum” and “Profit Petroleum” do not accrue as

physical quantities or volumes to be divided between the

Parties. Articles 1.28 and 1.77 of the PSC, where these

terms are defined, make clear that these terms refer to the

“total value of petroleum produced and saved” and not

quantities. Therefore, “Cost Petroleum” and “Profit

Petroleum” accrue to the Contractor in monetary terms

and not as quantities that the Contractor is free to sell or

dispose of.

(vii) Article 15.11, which deals with the determination of the

Contractor’s “Cost Petroleum” entitlement, makes it clear

that “Cost Petroleum” is to be determined provisionally

every quarter on an accumulated basis. Final calculation

of the Contractor’s entitlement is based on actual

production quantities, cost and prices for the entire year,

and is to be done within 60 days of the end of each year.

Plainly such entitlements are only firmed up and calculated

long after the physical quantities have been sold.

Therefore, the mechanics of the PSC are such that

entitlements of the parties can occur only as a monetary

value and not as physical quantities.

(viii) The treatment of natural gas is different from the treatment

of Crude Oil and Condensate as far as entitlement to

physical quantities is concerned. The development,

marketing and regulation of natural gas and Crude Oil are

treated differently under the PSC as shown below:

1011

(a) The Government has a right under Article 16.4 to

take its entitlement of Profit Petroleum in kind.

(b) As far as the Contractor is concerned, the

Contractor has a right only in the case of Crude Oil

and Condensate to take its entitlement in physical

quantities.

(1) Article 18.5 gives each Contractor the right to

“separately take in kind and dispose of all its

share of Cost Petroleum and Profit

Petroleum” in the case of Crude Oil and

Condensate.

(2) There is no provision like Article 18.5 of the

PSC with respect to natural gas under the

PSC.

(ix) RIL currently requires about 20 MMSCMD of gas for its

captive consumption. RIL has not been allocated any gas

by the Government under the Gas Utilisation Policy and is

forced to purchase imported gas at significantly higher

prices. This clearly shows that RIL has no entitlement to

any physical quantities of gas even for its own captive

consumption.

(x) While RIL has been unable to receive an allocation for its

existing needs, RNRL is seeking an allocation for its non-

existent future needs. This is not allowed under the

Government’s policies. If the demerger had never

occurred, RNRL’s not-yet-existing power plants (in fact

nowhere in the horizon) would have been in the same

position and no special rights of any nature can be created

in favour of RNRL by the demerger.

(xi) The fact that RIL has not received any allocation from the

Government for its own captive consumption puts the lie to

RNRL’s arguments that RIL is simply seeking to hide

behind the Government’s policies for its own benefit. The

fact is that RIL, as a Contractor under the PSC, is required

1012

to adhere to the Government’s policies regardless of their

impact upon RIL.

(xii) The Government’s Gas Utilisation Policy and directions

thereunder are applicable to all gas produced from the

NELP I-VI blocks and does not exclude any gas from its

purview as being the Contractor’s entitlement.

(xiii) It follows from the foregoing that RIL does not have any

separate share of natural gas that it can sell or dispose of

as it deems fit. Marketing freedom under the PSC is not

absolute but rather circumscribed by the provisions of the

PSC and the policies and directions of the Government.

15.3.2 RNRL is wrong in contending that Government approval of the valuation for purposes of the PSC has no relation to the price at which RIL can sell gas.

(i) Article 21.6 of the PSC takes as its governing principle that

all gas sales shall be at arms length prices. Article 21.6.1

of the PSC provides: “The Contractor shall endeavour to

sell all Natural Gas produced and saved from the Contract

Area at arms-length prices to the benefits of Parties to the

Contract.”

(ii) To this end, Article 21.6.3 provides that the formula and/ or

basis for sale of all gas shall be approved by the

Government prior to such sales. The PSC makes clear

that, in granting this approval, “the Government shall take

into account the prevailing policy, if any, on pricing of

Natural Gas including any linkages with traded liquid fuels,

and it may delegate or assign this function to a regulatory

authority as and when such an authority is in existence.”

(iii) The Government’s policies are focused directly on the

actual allocation and sales prices of gas, and not just on

the valuation of gas for cost recovery purposes. The

Government made this clear in its Press Note dated 25 th

June 2008 by stating that “Contractors would sell gas from

NELP to consumers in accordance with the marketing

priorities determined by the Government. The sale would

1013

be on the basis of formula for determining the price as

approved by the Government.”

(iv) If (as RNRL contends) the Contractor were free to sell at

prices that have been disapproved by the Government,

then the Contractor would be empowered to set at nought

the natural gas pricing and allocation policies set by the

Government.

(v) Any sale of gas by RIL at a price that has not been

approved under Article 21.6.3 (thereby meaning that it is

not an arms length price) would expose RIL to a

contention by the Government that RIL had violated the

PSC. It was for this reason, among others, that RIL

submitted the price of USD 2.34 to the Government for its

approval, which was denied.

(vi) RNRL has relied on the fact that the heading of Article

21.6 of the PSC is “Valuation of Natural Gas.” This

reliance is misplaced because Article 35.6 of the PSC

expressly provides that “The headings of the Contract are

for convenience of reference only and shall not be taken

into account in interpreting the terms of this Contract.”

(vii) The above is the common interpretation of the provisions

of the PSC by the parties to the PSC. It is not open to

RNRL (which is not a party to the PSC) to seek to construe

the provisions of the PSC in a different manner, and any

such construction is not of consequence to the

interpretation of the terms of the PSC.

(viii) The parties to the MoU (even assuming arguendo that the

MoU were binding on RIL, which it is not) recognised that

Government approval would be mandatory for an

arrangement of this nature. A special stipulation to this

effect is contained only in the section dealing with gas.

Paragraph xii (a) of the “Gas Supply” section of the MoU

provides: “In relation to applicable governmental and

statutory approvals, without in any manner mitigating RIL’s

responsibility to jointly work towards obtaining such

1014

approvals, RIL will, if so required by the Anil Ambani

Group, give an irrevocable Power of Attorney to the Anil

Ambani Group/REL to apply for and obtain all such

governmental and regulatory approvals as are necessary

on its behalf.”

(ix) The MoU does not limit in any way the categories of

governmental approvals that are applicable and

necessary, or the parties to which they apply. Even if (as

RNRL contends) the Government’s approval of the sales

price were only necessary for valuation purposes, it would

still be an applicable and necessary governmental

approval within the meaning of the MoU.

(x) The MoU contemplated that the NTPC supply agreement

would provide general guidance for the parties to the MoU

and would, as far as possible, be the basis for the gas

supply contracts. The MoU also obligated Shri Mukesh

Ambani to provide a copy of the PSC, the latest version of

the draft contract with NTPC and also the correspondence

with NTPC to the Anil Ambani Group. In fulfilment of his

obligations under the MoU, Shri Mukesh Ambani provided

to the Anil Ambani Group the draft dated 9th May 2005 as

provided by NTPC, being the then existing latest draft. By

its e-mail of 27th July 2005 (Exhibit “F”), the Anil Ambani

Group took the position that the draft provided by NTPC

dated 9th May 2005 would be the draft of the proposed

GSPA between RIL and RNRL. The draft of 9th May 2005

expressly provided that the effectiveness of the GSPA was

conditional upon:

(a) approval of the Development Plan by the

Government under the PSC (which would

determine the quantity and tenure); and

(b) approval by the Government of the sale price of the

natural gas under the PSC.

(xi) In spite of the clear provisions of the MoU, the Anil Ambani

Group insisted upon an unconditional gas supply

1015

agreement without any stipulation relating to governmental

approvals being required.

(xii) On the other hand, the Mukesh Ambani Group continued

to maintain that supply of gas, if any, and the terms thereof

were both conditional upon approvals of the Government

under the PSC. RIL could not violate the PSC or suffer a

massive cost recovery penalty by agreeing to terms that

were disapproved by the Government.

(xiii) This continued to be one of the key points of difference

between the Mukesh Ambani Group and the Anil Ambani

Group right up to the time at which the Scheme was

presented to the Court. In view of this position, both

parties agreed to file the Scheme with the provision that a

“suitable arrangement” in respect of supply of gas would

be negotiated and entered into.

(xiv) RIL has maintained all along that it would be exposed to

huge losses and the risk of being in breach of the PSC if it

assumed an obligation (as sought by RNRL) to supply gas

without approval of the Government. Accordingly, the

GSMA/GSPA was made conditional upon the grants of

approval contemplated under the PSC. As stated above,

RIL applied for governmental approval of the USD 2.34

price that RNRL now seeks, but the Government rejected

that price.

(xv) The Government’s Press Note dated 12th September 2007

communicating the approval for the price of natural gas

stated that the Government’s approval would “lead to a

gas price of US$ 4.20 per MMBTU at delivery point which

translates into a price of Rs. 172.20 per MMBTU at the

prevailing Indian Rupee-US dollar exchange rate. The

approved price is 8.32% lower than the price proposed by

the contractors.” If the purpose of Article 21.6.3 was only

to approve a figure for the purpose of valuation, the

Government would not have reduced the price proposed

by the Contractor and approved a lower price.

1016

(xvi) The minutes of the EGoM meeting held on 12th September

2007 to discuss the issues of commercial utilisation and

pricing of gas under NELP also recorded the intention of

the Government as follows: “It was agreed that the cap of

CP (Crude Price) may be pegged at US $ 60 instead of the

contractor’s proposal for US $ 65 and the corresponding

reduction in the prices (about Rs 1.50/MMBTU) should be

passed on to the consumers.”

(xvii) Clearly the Government in reducing the price proposed by

the Contractor was exercising its role as a regulator (and

not as party to the PSC) under Article 21.6.3. This action

of the Government clearly shows that its approval of the

price was not only for the purpose of valuation of the

Government’s share.

(xviii) Article 21.6.3 of the PSC contemplates that the discharge

of the functions of price approval could in the future be

assigned to a regulator appointed under appropriate

legislation. Pending such delegation, the PSC envisions

that the Government will exercise the functions of such a

regulator. Needless to say, a regulator must regulate the

price at which gas is actually sold at the delivery point and

not merely derive a notional value for the gas.

(xix) The Government also directed that the price of gas

determined according to the formula approved by it would

be uniformly applicable to all gas produced and sold from

NELP I–VI blocks to all users of gas across all sectors for

a period of 5 years.

(xx) It follows from the foregoing that the approval granted by

the Government via its Press Note dated 12th September

2007, under Article 21.6.3 of the PSC, related to the

approval of the sale price, which was the price to be used

for valuation.

(xxi) In view of the fact that: (a) pursuant to the Gas Utilisation

Policy under the PSC, there is no concept of the

“Contractor’s share” in relation to Natural Gas; (b) under

1017

the PSC, valuation price and sale price have to be one and

the same and all sales of gas have to be on an arms

length basis; and (c) the approval envisaged under Article

21.6.3 is for the purpose of approving the sale price of the

gas, the Contractor cannot sell the gas at a price less than

the price approved by the Government.

15.3.3 Price approval under the PSC is not analogous to the principle of a valuation for a stamp duty.

(i) The example of a stamp duty is unfortunate – such absurd

statements have no place in a pleading – least of all in this

Hon’ble Court.

(i) A stamp duty is a levy on a document that evidences a

transaction between parties.

(ii) The PSC, in contrast, involves exploration, development

and production of, inter alia, natural gas, which is the

property of the Union of India. Because of this, the PSC is

a public-private partnership between the Government and

the Contractor, involving sharing of profits and extensive

rights and obligations on both sides.

(iii) The analogy that RNRL attempts to draw is fallacious.

15.3.4 Contrary to RNRL’s contention, this case has a monetary impact on the Government.

(i) It is clear from the submissions in this affidavit, the

EGoM’s decisions and the Government’s submissions

before the Bombay High Court that the price for sale and

valuation are one and the same.

(ii) Under the PSC and the Oilfields (Regulation &

Development) Act, 1948 (ORDA), the Government not only

has the right to receive royalties and other taxes and levies

on all production, but also a progressive escalating profit

share as a party under the PSC.

1018

(iii) The sale price of gas determines the entitlements of the

parties to the PSC, and any lower sale price has huge

adverse implications for the Government’s revenues.

(iv) It is contended by RNRL that the Government’s

entitlement under the PSC is protected even if gas is sold

to RNRL at a lower price so long as the Government

values all of the gas at a higher price. This contention is

entirely baseless in view of the following:

(a) In view of the submissions herein, the Press Note of

the Government, submissions of the Government to

the Division Bench of the Bombay High Court and

the affidavits of the Government before this Hon’ble

Court, it is clear that the sale price and valuation

price of gas shall be one and the same. A lower

sale price will necessarily result in a significantly

lower Government take.

(b) Even assuming, arguendo, that it was possible for

the sale price of gas to be lower than the price for

valuation, in such a situation:

(1) the Government would stand to lose

substantial amounts by way of lower royalties

and taxes resulting from lower revenues; and

(2) this would also result in losses of

approximately Rs. 3,000 crore per annum

and would render the entire operations

unviable.

(v) The Government’s economic as well as strategic interest

in the project is vitally affected under all these

circumstances.

RNRL’s argument is based on the assumption that RIL would make

a profit even at a price of USD 2.34. This assumption is false as

shown below.

1019

15.4 RNRL Contention: RIL candidly admitted in court that even at the price of USD 2.34 per MMBTU, RIL makes a profit.

RIL RESPONSE

(i) I crave leave to refer to Paragraph 14(f)(iii)(7) of the

affidavit dated 17th July 2009. RIL emphatically denies that

it has conceded that it would make a profit if it sold gas at

USD 2.34.

(ii) The written submissions of RIL brought it out clearly that

RIL would incur losses of thousands of crores of rupees if

the gas were to be sold at a price of USD 2.34 and the

Government adopted USD 4.20 for purposes of valuation

under the PSC. These contentions of RIL were quoted

(Para 56) but then ignored by the Division Bench.

(iii) If RIL were to sell 28 MMSCMD of gas to RNRL at USD

2.34 for 17 years while the Government adopted USD 4.20

as the price for valuation, RIL would incur a cash loss of

Rs. 50,000 crores. This would result in RIL’s not even

recovering its investment in the exploration and

development of the Block. It would also make the project

completely unviable. By contrast, if this quantity of gas is

sold to RNRL at the Government-approved price of USD

4.20, a substantial part of the Rs. 50,000 crores would

accrue to the Government under the PSC.

(iv) During the period up to the Scheme, Shri Mukesh Ambani

was aware and had consistently taken the position that the

sale price for gas had to be approved by the Government

as the arms length price to be used for valuation under the

PSC. This has been RIL’s consistent position. It is

inconceivable to suggest that RIL conceded that it would

make a profit at USD 2.34 when the price of USD 4.20 was

the Government-approved gas price.

(v) Apart from the financial loss, if RIL were to supply gas to

RNRL on the terms it seeks, RIL would risk facing

proceedings from the Government leading to termination

of the PSC, since complying with RNRL’s desired terms

1020

would constitute a breach of the PSC and would be

contrary to the policies and directions of the Government.

Such a course of action would jeopardize RIL’s entire

investment in the project, which is on the order of Rs.

38,000 crores.

15.5 RNRL’S Contentions on orders of the courts below: Repeated Court orders have upheld the contentions of RNRL.

RIL RESPONSE

(i) RNRL is wrong in claiming that repeated Court orders

have upheld its contentions. This is borne out by the fact

that RNRL has appealed the judgments of both the Single

Judge and the Division Bench of the Bombay High Court.

(ii) The Order passed by the Single Judge (Justice

Khanvilkar) was an interim order that was later vacated by

the Division Bench by its Order dated 30th January 2009.

(iii) The Order and Judgment of the Single Judge (Justice

Mohta) dated 15th October 2007 refused all prayers of

RNRL with respect to the six points protested by RNRL,

including price, tenure and quantity of gas. The said

Judgment in no uncertain terms held that the gas supply

arrangement contemplated by Clause 19 of the Scheme

had to be suitable to both RIL and RNRL. The Judgment

also held that the agreement for gas supply had

necessarily to be in accordance with the PSC and the

policies of the Government.

(iv) The Division Bench in its Order dated 15th June 2009

concurred with the following findings of the Single Judge

(Paragraphs 184(6), (7) of the Single Judge’s Order):

(a) the terms of the gas supply agreement have to be

suitable to both the parties; and

1021

(b) the gas supply agreement has to be subject to

governmental approval in view of NELP, the PSC

and the Government’s policies.

15.6 RNRL contends that the NTPC price of USD 2.34 is not in debate and that RNRL is entitled to the same price.

RIL RESPONSE

(i) There was no debate between RIL and NTPC regarding

the USD 2.34 price provided it was approved by the

Government under the PSC. The USD 2.34 price

demanded by RNRL has been specifically rejected by the

Government for RNRL.

(ii) The draft GSPA with NTPC dated 9th May 2005, which

NTPC has prayed in the Bombay High Court that RIL be

ordered to execute, provides that the effectiveness of the

GSPA was to be subject to the fulfilment inter alia of the

following conditions precedent:

“(a) Approval of the management committee or the

relevant Government Instrumentality of the

development plan (which would determine quantity

and tenure) for block KG-DWN-98-3 pursuant to the

Production Sharing Contract dated 12 April 2000

between the Government of India, the Seller and Niko

Resources Limited in respect of block KG-DWN-98-3

(the "Production Sharing Contract") …

…

(d) Approval of the relevant Government

Instrumentality of the relevant element of the price,

pursuant to the Production Sharing Contract.”

(iii) It has been acknowledged by e-mail of 4th July 2005 that a

copy of the 9th May 2005 draft of the NTPC GSPA (along

with a copy of the PSC and the NTPC-RIL

correspondence) was handed over to the Anil Ambani

Group. Accordingly, RNRL was fully aware of the

1022

provisions of the PSC and specifically of the requirement

of Government approval of the sale price under the draft

NTPC GSPA.

15.7 RNRL contends that there was an unconditional obligation under the MoU for supply of 28/40 MMSCMD of gas for 17 years.

RIL RESPONSE

(i) In the first place, as explained above, the MoU was a

private agreement amongst the promoter family, and was

not adopted by or binding upon RIL.

(ii) Even if the MoU had been binding upon RIL, the fact that

there was no unconditional obligation under the MoU is

evident from the fact that the MoU expressly provided that

a binding gas supply agreement would be finalised and

entered into. Therefore the MoU by itself did not create

any obligation to supply gas until such time in the future as

a binding gas supply agreement was entered into.

(iii) The supply of gas under the MoU was subject to

availability of adequate proved reserves and subject to

Government approvals. Therefore the quantity of gas

supply must be subject to available gas reserves.

(iv) The Government approvals included, amongst others,

approval of the Development Plan, including the

production profile and life of the field. The approved

Development Plan provided a field life of 14 years from

first commercial production, with plateau production for 8

years. Based on the approved Development Plan, the gas

production is estimated to last for 12 to 13 years.

(v) RNRL is trying to change the basic nature of the gas

supply arrangement contemplated by the Scheme. Under

the Scheme, gas is to be supplied for the power plants of

REL and RPPL, not for trading or any other purpose.

1023

(vi) Without having built the power plants necessary to use the

gas it is demanding, RNRL is nonetheless demanding that

the gas be set aside for it.

(vii) The relief sought by RNRL for a firm commitment of a

stipulated quantity of gas for 17 years would require RIL to

reduce production and keep gas in the ground until RNRL

commissions a power plant, contrary to the public interest

and to the detriment of national economy.

(viii) Neither the Scheme nor the MoU requires RIL to await

RNRL’s setting up of a power plant, or to coordinate the

development and production of gas from the KGD6 gas

fields with RNRL’s commissioning of a power plant.

(ix) RNRL is trying to subordinate the development of gas

which is the property of Union of India to delayed

development of its own power plants. RNRL is trying to

treat the KGD6 gas, a national asset, as a captive gas

supply source akin to a captive coal mine. Plainly, this

could not have been a suitable arrangement envisaged by

the Scheme.

(x) It was envisaged under the MoU that gas production would

commence in the financial year 2008-09 and that the Anil

Ambani Group would have sufficient gas-based power

generation facilities to consume 50% of the annual

quantities of gas in the financial year 2008-09 and the

balance in financial year 2009-10. While RIL has

commenced gas production in April 2009, RNRL has gas-

based power generation facilities sufficient to consume

only 0.5 MMSCMD and failed to establish the required

facilities to consume 28/40 MMSCMD of gas.

(xi) In any event, the proposed arrangement has been

overtaken by the rejection of the gas price of USD 2.34,

approval of the gas price formula resulting in gas price of

USD 4.20 and the promulgation of the Gas Utilisation

Policy by the Government.

1024

15.8 RNRL’S Contentions on EGoM decisions: RNRL contends

that the prices and allocations determined by EGoM for the sale

of gas from the KGD6 field are subject to the court case filed by

RNRL against RIL in the Bombay High Court.

RIL RESPONSE

(i) The EGoM’s decisions on the price and allocation of gas

apply to the court case filed by RNRL against RIL.

RNRL’s contention to the contrary is nothing but an

attempt to mislead this Hon’ble Court. The EGoM minutes

on gas price provide that “[t]he decisions taken in this

EGoM meeting will be without prejudice to the NTPC vs

RIL and RNRL vs RIL cases which are separately

subjudice.”

(ii) The EGoM in its meeting dated 28th May 2008 made clear

that its price and allocation determinations were to apply

uniformly to all customers across all sectors for 5 years.

The EGoM in its meeting dated 23rd October 2008 stated

as follows: “Regarding the NTPC – RIL sales price, views

expressed by the Law Minister were noted. It was decided

that the verdict of the court should be awaited.” The Press

Note of the Government dated 4th December 2008

reiterated this position: “Regarding the NTPC-RIL sale

price, it has been decided that the verdict of the court

should be awaited.” The Government did not make any

exception in relation to RNRL. A copy of the said Press

Note dated 4th December, 2008 is annexed as Annexure R-5 herewith and also along with an application to place

additional documents on record

(iii) The EGoM in its meeting dated 8 th January 2009, in the

context of allocation of gas to various upcoming/proposed

power plants, including, inter alia, the Dadri Power project,

decided that, “subject to the availability of gas, necessary

allocation from RIL KG-D6 fields will be made to these

projects in the pipeline including Dadri Power Project as

and when they are ready to commence production. This

1025

will be without prejudice to the decision of the Court

cases.”

(iv) RNRL argues that, by using the words “without prejudice

to the decision of the Court cases,” the EGoM intended to

exclude RNRL from the scope of the gas pricing and

allocation policies adopted by the EGoM. Nothing could

be farther from the truth. The pricing and allocation

policies promulgated by the EGoM, by their express terms,

apply to all customers, including RNRL. Indeed, the

EGoM made this clear in the very paragraph quoted above

from the minutes of its meeting on 8th January 2009. By

using the “without prejudice” language, the EGoM was

simply recognizing the jurisdiction of the Courts over the

RIL-RNRL litigation, and deferring to the jurisdiction of the

Courts over the matter.

(v) This is confirmed by the position that the Government has

taken in this case, both in the Division Bench of the

Bombay High Court and in this Court. In both Courts, the

Government has maintained that the EGoM’s decisions as

to the price and allocation of natural gas apply to RNRL,

just as they do to any other customer, which is directly

contrary to RNRL’s arguments.

(vi) In 2006, prior to the filing of the present dispute before the

Single Judge of the Bombay High Court, the Government

rejected the USD 2.34 price for supply of gas to RNRL and

directed RIL to submit a revised price. Pursuant to this

directive, RIL conducted a bidding process to discover a

true arms length market price for the gas, and that

discovered price formula was submitted to the

Government for approval. The EGoM approved RIL’s

discovered price formula with certain modifications on 12 th

September 2007. Under the approved formula, the price

of gas can vary between USD 2.50 and USD 4.20

depending on the price of crude, which the EGOM has

capped for purposes of the formula at USD 60/barrel. The

decision of the EGoM applies uniformly to all customers

1026

across all sectors for all gas produced from NELP I-VI

blocks for a period of five years.

(vii) Based on the express rejection of the USD 2.34 price, by

no stretch of imagination can it be contended that the

EGoM had agreed to be bound by the outcome or

decisions of the Court in the proceedings filed by RNRL

against RIL, as is being falsely suggested by RNRL. The

error of RNRL’s position is further evident from the

Government’s submissions filed in the Bombay High Court

and before this Hon’ble Court, which reiterate the fact that

the price of USD 2.34 for gas supply to RNRL has been

rejected by the Government. These submissions have

been made by the Government subsequent to the EGoM

decisions.

15.9 RNRL contends that the Division Bench should have ordered execution of a binding gas supply agreement and that the Registrar of the Court should have executed the agreement on behalf of RIL.

RIL RESPONSE

(i) The decisions of the lower Courts have been consistent in

concluding that, in the absence of a binding agreement,

the parties needed to negotiate the arrangement under

which, if at all, gas could be supplied to RNRL. The

Courts have recognised that throughout there have been

differences on key terms between RIL and RNRL and the

Court cannot impose any terms on the parties that were

not negotiated and mutually agreed between them.

(ii) It is not the role of the courts to impose an agreement or

terms of an agreement upon parties who have not

consented to such an agreement or to such terms. Apart

therefrom, once a company has consummated a scheme

of demerger pursuant to Section 394 of the Companies

Act, 1956, the Act does not empower the Company Court

to direct entering into further agreements between the

company and one of the companies that has been

1027

demerged, neither as a matter of continuing supervision of

the implementation of the Scheme or otherwise.

(iii) The price and terms sought by RNRL have been

disapproved by the Government of India. The Scheme

provides for “suitable arrangements” being put in place for

supply of gas to power plants of REL and RPPL.

(iv) The Scheme stipulates that such arrangements must

necessarily be suitable for both parties, as the Single

Judge and the Division Bench have held. Arrangements

that include terms that have been disapproved by the

Government or are such as would impose ruinous losses

on RIL can, by no stretch of imagination, be said to be

“suitable arrangements” as contemplated by paragraph 19

of the Scheme.

(v) Due to the divergent views on the critical issues, the

parties were aware of the very real possibility that a

suitable agreement for supply of gas might not be put in

place before the Scheme was sanctioned.

(vi) In particular, RNRL’s shareholders were aware of the risk

that there might not be a gas sale agreement acceptable

to RNRL (as disclosed in the Information Memorandum)

and had proceeded to trade in the shares.

(vii) If the Courts were to impose a contract pursuant to Clause

19 of the Scheme that is not suitable to both parties, that

would amount to the Courts varying the terms of the

Scheme without requisite shareholder and creditor

approval. If the term “suitable arrangements” was meant

to include agreements granting substantial financial

benefits to RNRL at the expense of RIL (which it was not),

the explanatory statement should have disclosed that fully

and fairly, because otherwise, shareholders and creditors

would not have been able to make an informed decision.

(viii) I submit that apart from the contested issues set out

hereinabove, the parties were not ad idem on any of the

other provisions of the GSMA/GSPA, particularly as set

1028

out in Exhibit “J” to the Company Application (as filed) and

there was no question of the Court directing the parties to

execute any document by invoking principles analogous to

Order XXI Rule 34 of the Code of Civil Procedure 1908 or

otherwise.

(ix) Under the circumstances, I respectfully submit that the

High Court could not have directed the parties to execute a

contract/binding gas supply agreement or to modify the

GSMA (along with the draft GSPA) signed by them on

principles analogous to Order XXI Rule 34 of the Code of

Civil Procedure as is sought to be contended.

15.10 RNRL contends that the Court should have ordered immediate

supply of 28 MMSCMD of natural gas for at least three years at

USD 2.34 per MMBTU as the Dadri plant was delayed due to the

absence of a bankable agreement.

RIL RESPONSE

The Court should not order immediate supply of any quantity of gas

for any duration at any price whatsoever on the alleged ground that

the Dadri plant was delayed due to the absence of a bankable

agreement, for the following reasons. RNRL submitted no evidence

supporting its contention that the GSMA/ GSPA was not a bankable

document.

(i) This relief was not prayed for in the Company Application

as a final relief.

(ii) Having failed to set up any power plant capable of utilising

the gas it seeks from RIL, RNRL now seeks to make

completely impermissible and unjustified gains and profits

by seeking to trade in gas, which it alleges it is entitled to

receive from RIL, even though:

(a) neither under the provisions of the Scheme nor

under the provisions of the MoU (which in any event

do not apply to RIL) does RIL have any obligation

at all to supply any gas to RNRL for trading, and

RNRL has no right to trade in gas. RNRL’s only

1029

entitlement to gas, if any, was for use in its own (or

its affiliates) power plants;

(b) RNRL, before the learned Single Judge,

categorically gave up any entitlement or right to

trade in gas; and

(c) in any event, no trading in gas by private entities is

permissible under the extant policies of the

Government, and producers of gas are required to

supply gas only to entities that will actually use the

gas.

(iii) If permitted to trade in gas, as RNRL now seeks to do,

RNRL would make illegal and unjustified gains and profits,

which it is not entitled to do.

(iv) Under the Scheme (and also under the MoU, which in any

case is not binding on the corporate entity RIL), gas is to

be supplied only for the power plants of the named

affiliates of RNRL, and not for purposes of trading. In fact,

pursuant to a suitable arrangement, RIL is already

supplying gas to REL’s gas-based power plant at

Samalkot.

(v) RNRL has argued that, if it does not receive the gas

supply agreement that it seeks, it will be a “shell

company”. This argument is without merit. Pursuant to the

Scheme, RNRL received various types of assets including

the shares of RPPL formerly owned by RIL. Having

received these assets, RNRL cannot contend that it is a

“shell company”. It was envisioned that RNRL was to

develop gas-based power plants capable of utilising the

gas to be supplied. The fact that RNRL has failed to do so

as a result of its own business priorities does not mean

that RNRL is a “shell company”.

(vi) RNRL’s argument that it has been unable to set up a

power plant because of the absence of a bankable

agreement is refuted by the facts on record, which show

that funds of over Rs 45,000 crores have been raised or

1030

tied up for this purpose but RNRL has failed even to start

construction of a power plant.

(vii) There is no provision in the Scheme that required that a

“suitable arrangement” for the supply of gas should be

“bankable” for either party.

(viii) Even under the MoU (which is not binding on RIL), there is

no provision requiring gas supply arrangements to be on

terms that enable RNRL to finance its projects solely on

the basis of such gas supply arrangement on a non-

recourse basis (i.e. without RNRL assuming any liability for

the financing). No requirement exists for RIL to enter into

a one-sided gas supply arrangement that is bankable only

for RNRL, let alone one that is bankable on non-recourse

terms so that the lender does not have any recourse to the

credit of RNRL, REL and its affiliates. Moreover, RNRL’s

argument ignores the fact that “bankable” means bankable

not only for RNRL but for RIL as well.

(ix) RNRL seeks to blame RIL for RNRL’s delay in the setting

up of the power plants, claiming that the agreements given

by RIL for supply of gas were not bankable, and solely for

that reason, RNRL could not raise the funds necessary for

setting up any power plant. The facts are completely to

the contrary. It is a matter of public knowledge and record

that REL and its affiliated company, Reliance Power Ltd.,

have failed to establish a single power plant so far in spite

of having raised nearly Rs. 20,000 crores for that purpose

in addition to achieving financial closure of about

Rs.25,000 crores. Further, RNRL, REL and its affiliates

have not identified any documents or other record

evidence demonstrating that financing by any bank was

refused based on the gas sale agreements executed by

RIL.

(x) REL raised a sum of USD 360 million by external

commercial borrowings (ECB) for the very same purpose,

i.e. setting up of the power plant, on the basis that the

Dadri power plant was in an advanced stage of

1031

implementation. Having utilised the proceeds of the ECB

for purposes other than the purpose for which the amount

was raised, REL is facing proceedings by way of a show

cause notice issued by the Reserve Bank of India for mis-

utilisation of the proceeds of the ECB. Having been left

with no alternative but to admit the above facts, REL has

applied for compounding the offence, on account of which

the Reserve Bank of India has levied a penalty of Rs.

124.50 crores on REL.

(xi) The alleged non-bankability of the gas supply

arrangements is nothing but an excuse to somehow

explain complete non-action and unexplained and

inexplicable delay on the part of RNRL to set up any gas-

based power plant. Several gas-based power plants, viz.

Torrent Power, GVK Power, Gautami Power, etc., that

have been set up, as well as others under implementation,

have been established without any “bankable” agreements

or long term linkage to an identified source of gas supply.

In any event, a “bankable” agreement does not require RIL

to enter into gas supply arrangements designed to satisfy

RNRL’s wish to finance its power plants on a non-recourse

basis, i.e. without recourse to RNRL or its affiliates’ assets.

15.11 RNRL contends that the Court should have given effect to the

Scheme as the only alternate remedy to non-implementation of

the Scheme under Section 392 was to wind up RIL.

RIL RESPONSE

(i) Winding up is a remedy for companies that are not viable.

This obviously does not apply to RIL.

(ii) The courts order winding up only in circumstances where

an obligation remains unfulfilled and there is no other

alternative available to make good the promise. The

Courts in this case rightly recognised this in not ordering

any remedy of this nature. The Scheme envisaged

entering into a suitable arrangement for supply of gas to

the power plants of REL and RPPL. Presently REL has a

1032

single gas-based power generation facility in Andhra

Pradesh (Samalkot). Pursuant to such suitable

arrangement, RIL has entered into a gas supply

agreement to supply gas to this power plant and

commenced supply of gas.

(iii) The EGoM by its decisions dated 8th January 2009 has

decided that subject to availability of gas, necessary

allocation from KGD6 gas fields will be made to the Dadri

project of ADAG as and when it is ready to commence

generation of power.

(iv) If and when the Dadri project is ready to receive gas and is

allocated gas by the Government, subject to suitable

arrangements, RIL is ready and willing to supply gas on

terms approved by the Government.

(v) Given the above, there is no requirement for any alternate

remedy under Section 392.

THE MOU BETWEEN THE PROMOTER FAMILY MEMBERS OF RIL IS NOT BINDING ON RIL

16. RNRL’s entire case is based on its argument that:

(i) the MoU signed among the promoter family members on

18th June 2005 is binding on RIL; and

(ii) the MoU has to be read into the Scheme.

17. RNRL has based this contention on two erroneous presumptions:

(i) The actions of Mr. Mukesh Ambani, Chairman and MD of

RIL, bind the Company to the same extent as if done by

the Company itself and therefore, RIL is bound by the

terms of the MoU.

(ii) The RIL Board was fully aware of the details of the

settlement between the promoters. This knowledge,

coupled with the fact that the Board acted on this

knowledge, makes the MoU binding on RIL.

1033

18. The above contentions of RNRL are completely wrong for the

following reasons:

(i) Shri Mukesh Ambani and the other family members who

signed the MoU did so in their personal capacities and not

on behalf of RIL.

(ii) In terms of Section 293 (1) (a) of the Companies Act,

1956, any sale or disposal of any undertaking or

substantially the whole of the undertaking of any Company

can be done only by the Board of the Company with the

prior approval of the shareholders. This is not a power

that can be exercised by the Chairman and MD, under the

Companies Act, 1956. The Companies Act also does not

allow delegation of such a power by the Board.

(iii) In accordance with these principles, the MoU itself

provided that the demerger would be carried out by a

scheme of arrangement, which would be conditional upon

receipt of necessary approvals from the companies

involved, meaning approval of the Board of RIL and the

approval of the shareholders of RIL.

(iv) The doctrine of identification propounded by RNRL is not

applicable in cases such as the present case. The present

case involves a scheme of arrangement that must be

approved by the shareholders as a class. In such cases,

the doctrine of identification cannot operate.

(v) It is an undisputed fact that the Board of RIL did not

approve the MoU at any of its Board meetings, and the

MoU was never placed before the Board for approval.

(vi) At its meeting on 18th June 2005, the Board of RIL was

informed by Shri Mukesh Ambani that “the broad contours

of the amicable resolution as suggested were that Shri Anil

Ambani should be responsible for the energy, telecom and

financial services businesses of Reliance Industries

Limited and its associate companies and the Chairman

should continue to remain in-charge of other businesses

including petrochemicals, oil and gas, refining and

1034

textiles.” Other than this very general outline, the Board

was not informed about the contents of the MoU nor was a

copy of the MoU ever placed before the Board.

(vii) At its meeting on 18th June 2005, the Board of RIL

authorised the Corporate Governance & Stakeholders’

Interface Committee, which was comprised of independent

directors of RIL, to formulate a scheme of arrangement to

demerge the Company. The Board appointed legal,

accounting, and investment banking experts to assist the

Committee in preparing the Scheme.

(viii) The Committee prepared a draft scheme of arrangement

that was approved by the Board, with modifications, at its

meeting on 5th August 2005. The MoU was not part of the

draft scheme of arrangement and was not presented to the

Board in connection with its approval of the scheme. The

Board had also considered the draft scheme of

arrangement at its meeting on 2nd August 2005. A copy of

the relevant extract of the minutes of the Board meeting of

2nd August 2005 and the minutes of the Board meeting of

5th August 2005 is annexed as Annexure R-6 (Colly.) herewith and also along with an application to place

additional documents on record.

(ix) While the Committee was preparing the draft Scheme,

representatives of the Mukesh Ambani Group and the Anil

Ambani Group were discussing the terms of the gas

supply agreement contemplated in the MoU. For this

purpose, representatives of the Mukesh Ambani Group

were informed by Shri Mukesh Ambani of the key

elements of the gas supply portion of the MoU. Early in

the discussions it became clear that the two groups were

not in agreement on the terms of the gas supply

agreement, including the fundamental questions (a)

whether governmental approval was required, and (b)

whether the agreement would be unconditional and

irrespective of availability of adequate reserves of gas to

RIL. Accordingly, with the consent of both groups, the

1035

Scheme provided that there would be “suitable

arrangements” for the supply of gas to REL and RPPL but

did not otherwise specify the terms of such suitable

arrangement. These matters were left to the future.

(x) This explains how some employees of RIL came to learn

the key elements of the gas supply portion of the MoU.

There is no mystery about this (as RNRL tries to suggest),

and it is not inconsistent with the fact that RIL never

agreed to be bound by the MoU.

(xi) Shri Anil Ambani resigned as a Director of RIL on 18 th

June 2005. Shri Mukesh Ambani took no part in the

Board’s consideration and approval of the Scheme.

Therefore, none of the Directors who considered and

approved the Scheme was a party to the MoU. The

majority of the Directors of RIL who approved the Scheme

were independent Directors not employed by RIL or any of

its affiliates.

(xii) The RIL Board approved the Scheme because it was

convinced that it would be in the best interests of and

would benefit the millions of shareholders of RIL. It is

undisputed, and subsequent events confirm, that the

implementation of the Scheme enhanced the value of the

holdings of the millions of shareholders of RIL.

(xiii) A scheme of arrangement may only be put to the

shareholders of a Company for their approval by the board

of directors of the Company in question. The promoter

family directors could not, therefore, by themselves have

approved the Scheme and recommended it to the

shareholders of RIL without the consent of the

independent directors of RIL who constituted more than

half of the RIL Board at that time.

(xiv) Simply because the Board approved the Scheme, it does

not follow that the Board was aware of the details of the

MoU, or much less that the MoU binds the corporate

entities. Similarly, the fact that there were discussions of

1036

the possible terms of a gas supply agreement with relation

to the MoU does not mean that the Board was aware of

the details of the MoU. In fact, the Board did not have

detailed knowledge of the MoU.

(xv) Finally, it must be noted that the Scheme took effect as

between RIL and the shareholders as a class and could

not have become effective without the approval of the

shareholders. The shareholders were not furnished with a

copy of the MoU and were not made aware of its terms.

19. Thus, the contention of RNRL that the MoU binds RIL and its

shareholders is wrong and has no legal basis.

20. To reiterate:

(i) Admittedly, neither RNRL nor any of its affiliates have set

up any power plant capable of receiving any natural gas at

all.

(ii) At the heart of the current dispute is an attempt by RNRL,

without having set up a power plant, to corner a minimum

of 28 MMSCMD of gas (which amounts to 77% of current

gas production from the KGD6 field and 35% of the

expected peak production of 80 MMSCMD of gas) at a

submarket price of USD 2.34 (being the price that has

been rejected by the Government of India). RNRL’s

attempt is motivated by greed and a desire to make

unjustified and illegal gains and profits from trading huge

quantities of gas (to the power plants of REL and RPPL),

to the loss and detriment of RIL and its shareholders.

(iii) Under the formula approved by the Government of India,

the current price of KGD6 gas is USD 4.20, which is being

paid by all other customers, including producers of fertiliser

and power. The differential, per annum, between the price

at which RNRL seeks to buy gas and the current price

according to the formula approved by the Government

would be on the order of Rs. 50,000 crores.

1037

(iv) Apart from the foregoing, if RNRL were to succeed in

achieving its objective, it would deny the other customers

in vital sectors of the industry access to gas at prices

approved by the Government. Power and fertiliser units,

which have existing facilities and are in immediate need of

natural gas to operate at their capacity, would be forced to

expend additional amounts on the order of Rs. 25,000

crores per year in buying expensive alternate fuels. Over

the course of 12 years (which is the projected life of the

field) these industries in vital sectors of the economy would

have to expend approximately Rs. 300,000 crores more on

required fuel.

(v) As stated above, RNRL and its affiliated companies have

failed to set up a single power plant. Notwithstanding this,

RNRL has been demanding that RIL enter into a firm

commitment for supply of gas to RNRL and that RIL

commence immediate supply of 28 MMSCMD of gas to

RNRL at a submarket price to enable it to trade in gas.

Moreover, RNRL is seeking a firm commitment from RIL

for supply of gas for a term of 17 years, even though the

estimated life of reserves from the fields developed so far

is only 12 years.

(vi) The totally unjustified demand made by RNRL is in utter

disregard of the following facts:

(a) The Government has already rejected RIL’s

proposal under the PSC for supply of gas to RNRL,

including the price of USD 2.34 sought by RNRL;

(b) RIL can only supply gas to Government-approved

entities at Government-approved prices, in

accordance with the Gas Utilisation Policy and the

PSC between the Government and RIL;

(c) the Government has approved a price formula that

is applicable uniformly to all customers of gas

across all sectors of industry, and which is valid for

1038

a period of five years for all gas produced from

NELP I-VI blocks;

(d) neither the Scheme nor the MoU envisaged supply

of gas at a price other than the price approved by

the Government, as that would be in breach of the

PSC and would mean RIL subsidizing the supply of

gas to RNRL while incurring a loss on the order of

Rs. 50,000 crores.

21. While, as stated above, RNRL has failed to set up any power

plant, RIL has invested more than Rs. 38,000 crores (out of which

Rs. 36,000 crores was invested after the demerger) and has set

up and commissioned the KGD6 project for production of natural

gas. RIL’s partner in the KGD6 project, Niko Resources, a

Canadian company, has invested an additional Rs. 4,000 crores

to this project till date. RIL has raised Rs. 28,000 crores as debt

to fund the project, without any “bankable” agreements for off-

take of gas.

22. Production from the KGD6 field has commenced and gas is being

produced and sold in accordance with the directions of the

Government under the Gas Utilisation Policy. The Government

has directed RIL to supply gas to existing gas-based plants,

including to power plants, which RIL has done. RIL has executed

appropriate agreements and made firm commitments to almost

all gas-based power plants that have the necessary pipeline

connectivity and has commenced the supply of gas, including to

the only gas-based power plant of REL situated in Andhra

Pradesh.

23. All gas being supplied by RIL to all customers, including to REL,

is on identical terms and conditions under standard industry

agreements, at the price and for the tenure established by the

Government.

REPLY TO THE PETITION

24. At the outset, I submit that none of the questions of law sought to

be raised in the SLP are or can be deemed to be questions of law

much less substantial questions of law.

1039

25. The questions of law are in the nature of an application for

execution of the judgment and findings thereof as misinterpreted

by RNRL.

26. Each of the so called questions of law is in effect the contention

of RNRL and had been dealt with by me in this affidavit.

27. Without prejudice to the foregoing, I now proceed to deal with the

statements, allegations and contentions of RNRL in its SLP.

28. At the outset, I respectfully submit that RNRL, in its SLP has

sought to create an impression that price, tenure, quantity and

limitation of liability were the only contested issues between the

parties as regards the GSMA/GSPA executed between the

parties on 12th January 2006 and that the High Court has ruled in

favour of RNRL on all aspects of all contested issues. The fact of

the matter is quite to the contrary.

PARAGRAPH-WISE RESPONSE TO RNRL’s SYNOPSIS AND LIST OF DATES

29. Without prejudice to the foregoing, I shall now deal with the

statements, allegations, contentions and submissions made in

the synopsis and list of dates, several of which are either contrary

to the facts and documents on record or are false and misleading.

The replies have the same serial numbering as that of the

Synopsis of RNRL.

A. It is denied that there is a “commercially binding

agreement” for supply of gas between RIL and RNRL

incorporated in the Scheme or otherwise. The facts on

record and the terms of the Scheme itself, as well as the

correspondence exchanged between the parties, clearly

show that there was no meeting of minds between the

parties on the principal terms for supply of gas by RIL to

RNRL. The Division Bench erred in suggesting that RIL

has any “share of gas” that it can dispose of as it deems

fit. After the promulgation of the Gas Utilisation Policy, all

gas produced by RIL has to be sold only to the parties to

whom the Government has allocated gas. RNRL’s claim

that the Gas Utilisation Policy does not have any impact on

1040

the Government’s share of gas or its rights and

entitlements is wrong, as brought out in this reply.

B. The contents of Paragraph B are denied. In particular

there has been no firm commitment to be backed out of. It

is not RIL but RNRL that seeks to make a windfall trading

profit of Rs. 50,000 crores (by selling gas to the power

plants of REL and RPPL) without having made any

investment for setting up gas-based power plants. Several

power plants in India are currently buying gas from third

parties at an approximate rate of between USD 6 and 10.

However, the Government-approved price of USD 4.20

makes KGD6 gas the cheapest available market based

gas in the country.

C. The contents of Paragraph C are denied. By its own

admission, RNRL would not be supplying gas at the

purchase price but rather at the then prevailing market

price, which could well exceed the price of USD 4.20

approved by the Government. It follows therefore that

RNRL would not be supplying low cost power to the

common man and instead would be making windfall

trading profits (by selling gas to the power plants of REL

and RPPL).

D. The contents of Paragraph D of the Synopsis are denied.

There is no solemnly committed binding commercial

obligation by RIL, its Board and Shareholders under the

Scheme. The Scheme provides for negotiating and

entering into suitable arrangements in the future. The

MoU was signed by Shri Mukesh Ambani in his personal

capacity and not on behalf of RIL. Accordingly, the MoU is

not binding upon RIL. Furthermore, the MoU forms no part

of the Scheme.

E. In Paragraph E of the synopsis RNRL purports to

characterize the Scheme and the Company Court’s

approval thereof. RIL craves leave to refer to the Scheme

and the Orders of the Company Court thereon to ascertain

the true meaning and correct legal effect thereof and

1041

denies the interpretation sought to be placed thereon by

RNRL. In particular, RIL denies that the prices and terms

sought by RNRL are required by the Scheme or are

necessary to effectuate its terms. The non-objection by

the Government was given solely with respect to the

Companies Act, 1956, and did not in any way relate to the

prices and terms of the gas supply agreement, which were

not set forth in the Scheme.

F. I deny the correctness and veracity of the meaning and/or

purport sought to be given to the Scheme or the Judgment

and Order of the learned Single Judge of the High Court,

or the Judgment and Order of the Division Bench of the

High Court in paragraph F of the Synopsis. I crave leave

to refer to the Scheme and the Judgment of the Courts

below to ascertain the true meaning and correct legal

effect thereof.

G. RIL denies the contents of Paragraph G, and specifically

denies that the Judgment of the Division Bench completely

protects the interests of the Government. The fact that the

Government has filed an SLP seeking review of the

Division Bench Judgment is proof that RIL’s freedom to

market and sell the gas is circumscribed by the provisions

of the PSC and the policies adopted by the Government

from time to time as to the supply of gas. The Government

has the power to regulate and approve (or disapprove) the

prices at which RIL sells the gas, and the Government has

specifically disapproved the price at which RNRL seeks to

buy gas from RIL. RIL specifically denies that there is any

separate “share of gas” that RIL is free to sell as it deems

fit.

H. RIL denies Paragraph H and the contentions therein.

RNRL has sought to mislead the Court in stating that the

Scheme contemplated RIL being bound to supply gas to

RNRL from “its share”. RIL denies that it has any separate

share of gas that it can dispose as it deems fit, and denies

that the Scheme requires it to do so. RIL denies that it will

1042

make a profit if it sells gas at a price disapproved by the

Government and further states that it has never made any

such admission before the Bombay High Court. Nothing in

the Scheme requires RIL to sell gas at a price that the

Government has disapproved.

I. RIL denies the assertion of RNRL that the MoU was a

corporate settlement. Such an assertion is not only

palpably false and incorrect but is contrary to RNRL’s own

pleadings and submissions before the High Court. As

pleaded, it has been the case of RNRL that the MoU was a

family settlement between three family members. I

therefore respectfully deny that the MoU was a “corporate

settlement” and binding on RIL.

J. In response to Paragraph J of the Synopsis, RIL denies

that the MoU was ever recorded, accepted or approved by

the Board of RIL, and further denies that the Board of RIL

at any time acted upon the MoU. The Board of RIL merely

noted, in their Resolution dated 18th July 2005, that the

following information was provided to the Board by the

Chairman:

(a) Smt. Kokilaben Ambani, with the help of some

family well-wishers, has been instrumental in

settling the differences among the family members

and the promoter directors.

(b) The broad contours of the amicable resolution as

suggested were that Shri Anil Ambani should be

responsible for the energy, telecom and financial

services businesses of Reliance Industries Limited

and its associated companies and that the

Chairman should continue to remain in charge of

other businesses, including petro-chemicals, oil and

gas refining and textiles.

(c) The Board further noted that the Chairman had

placed before the Board a copy of the press

statement issued by Smt. Kokilaben Ambani

1043

concerning the said amicable settlement. The

Press Statement of Smt. Kokilaben Ambani did not

refer to or annex the MoU.

K. To the extent that Paragraph K purports to characterize

the Scheme, RIL denies the interpretation sought to be

given thereto by RNRL. RIL craves leave to refer to the

provisions of the Scheme to determine the true meaning

and correct legal effect thereof. To the extent that

Paragraph K purports to characterize the MoU, RIL denies

that it does so accurately, and specifically denies that the

MoU is part of the Scheme or is binding upon RIL as

alleged or at all.

L. RIL denies that Paragraph L accurately characterizes the

MoU, and specifically denies that the MoU is binding upon

RIL or forms any part of the Scheme.

M. RIL denies that Paragraph M accurately characterizes the

MoU, and specifically denies that the MoU is binding upon

RIL or forms any part of the Scheme.

N. To the extent that Paragraph N purports to characterize

the Scheme, RIL denies the interpretation sought to be

given thereto by RNRL. RIL craves leave to refer to the

provisions of the Scheme to determine the true meaning

and correct legal effect thereof. To the extent that

Paragraph N purports to characterize the MoU, RIL

specifically denies the interpretation sought to be given

thereto and further denies that the MoU is a part of the

Scheme or is binding upon RIL.

O. RIL denies the contents of Paragraph O, and specifically

denies that RIL has violated any of the terms of the

Scheme. The negotiations between the Mukesh Ambani

Group and the Anil Ambani Group did not result in any

agreement on the arrangements for the envisaged gas

supply.

1044

P. RIL denies the contents of Paragraph P, and specifically

denies that the actions taken on 11th January 2006 violated

the Scheme.

Q. RIL denies the contents of Paragraph Q, and specifically

denies that the agreement of 12th January 2006 violated

the Scheme and further denies that the MoU is part of the

Scheme. RIL agrees that the gas supply arrangements

had to be suitable to both RIL and RNRL and states that

the agreement of 12th January 2006 constituted such a

suitable arrangement as was envisaged by the Scheme.

R. RIL denies the statements and allegations contained in

Paragraph R, and specifically denies that RIL would make

a profit at the price of USD 2.34 if such price is

disapproved by the Government (as has in fact occurred).

RNRL’s references to NTPC’s litigation against RIL are

simply an attempt to prejudice this Hon’ble Court by

making misleading references to an unrelated proceeding

that is sub judice.

S. RIL denies the contents of Paragraph S, except that RNRL

commenced a proceeding before the Company Court. RIL

craves leave to refer to the record of that proceeding to

ascertain the true meaning and correct legal effect thereof.

T. RIL denies Paragraph T, specifically including its

pejorative characterisation of RIL’s positions, and craves

leave to refer to the record of the proceeding before the

Company Court and the Orders passed from time to time

to determine the true meaning and correct legal effect

thereof.

U. RIL denies the statements, allegations and contentions

contained in Paragraph U, and craves leave to refer to the

record of the proceeding before the Division Bench of the

High Court to determine its true meaning and correct legal

effect. The Government’s affidavit and submissions before

the Division Bench were not contrary to the decisions of

the EGoM. The various answers (referred to by RNRL)

1045

provided in the Parliament of India were prior to the EGoM

decisions.

V. Paragraph V consists of legal arguments, and as such is

denied. RIL respectfully submits that the GSMA/GSPA is

a suitable arrangement as contemplated by the Scheme. I

crave leave to refer to the GSMA/GSPA to ascertain its

true meaning and correct legal effect thereof. There is no

question of any “volte face”, because the fact that there

were negotiations for a possible gas supply agreement

with relation to the MoU does not mean that RIL had

agreed to or was bound to the terms of the MoU.

W. RIL denies that Paragraph W completely or accurately

describes the Judgment and Order of the Division Bench

of the High Court of Bombay dated 15th June 2009 and

craves leave to refer to said Judgment and Order to

determine the true meaning and correct legal effect

thereof.

X. RIL denies the contents of Paragraph X, and in particular

denies that the Division Bench of the High Court made a

final and definitive determination that the parties had

agreed upon the price and other terms sought by RNRL,

and RIL craves leave to refer to the Judgment and Order

of the Division Bench of the High Court of Bombay dated

15th June 2009 to determine the true meaning and correct

legal effect thereof.

Y. RIL denies the contents of Paragraph Y, and in particular

denies that the Division Bench of the High Court made a

definitive determination that the parties had agreed upon

the price and other terms sought by RNRL. RIL craves

leave to refer to the Judgment and Order of the Division

Bench of the High Court of Bombay dated 15 th June 2009

to determine the true meaning and correct legal effect

thereof.

Z. RIL denies the contents of Paragraph Z, and submits that

it has filed an SLP before this Hon’ble Court against the

1046

Judgment and Order of the Division Bench of the High

Court of Bombay dated 15th June 2009.

AA. Unless specifically admitted, all statements, allegations

and contentions contained in the List of Dates should be

deemed to have been denied by RIL. In particular, and

without limitation, RIL identifies the following inaccuracies

contained in RNRL’s List of Dates:

(a) It is incorrectly stated that on 17 th June 2004 RIL

accepted the Letter of Intent issued by NTPC. It is

submitted that on 17th June 2004 RIL simply

acknowledged the receipt of the Letter of Intent

issued by NTPC.

(b) It is incorrectly stated that on 17 th June 2005 RIL

started a dispute with NTPC in relation to the gas

supply arrangement in anticipation of the MoU,

which was to be signed on the next day. It is

submitted that such an allegation is neither made in

RNRL’s pleadings before the High Court nor is it

borne out by any facts of record. The allegation is

denied, and RIL submits that RNRL is seeking to

inject an incorrect and unrelated issue into the

present proceeding.

(c) It is incorrectly stated that the MoU signed on 18 th

June 2005 provided that RIL would supply RNRL 28

plus 12 MMSCMD gas for 17 years at a price of

USD 2.34 per MMBTU. This contention is incorrect,

contrary to the record and misleading.

PARAGRAPH-WISE RESPONSE TO THE GROUNDS IN RNRL’S SPECIAL LEAVE PETITION

30. Without prejudice to the foregoing, I shall now deal with the SLP

Paragraph-wise.

31. Referring to Paragraphs 1 and 2 of the Petition, RIL respectfully

submits that none of the questions framed for consideration of

this Hon’ble Court are either substantial questions of law or

1047

questions of general public importance. It is respectfully

submitted that all the purported questions of law only pertain to

the operative part of the impugned Order and Judgment directing

(1) renegotiation of the contract between the parties; (2)

approaching Smt. Kokilaben Dhirubhai Ambani; (3) an option to

RNRL to restitute itself by enforcing the indemnity or filing a claim

for damages and; (4) an option to RNRL to approach the

Company Court for modification of the Scheme. None of these

questions sought to be raised in the SLP are issues of law, much

less substantial questions of law or questions of general public

importance.

32. Referring to Paragraph 5 of the Petition and the grounds on

which leave to appeal to this Hon’ble Court is sought by RNRL, I

respectfully submit as follows:

(i) Referring to grounds (a) to (d) in Paragraph 5 of the

Petition, I submit that the question of what would constitute

a “suitable arrangement” within the meaning of Clause 19

of the Scheme is essentially a matter of contract and

agreement between the parties. It is in fact the grievance

of RIL (raised in the grounds included in the SLP filed by

RIL against the impugned Judgment) that the High Court

has erred in dealing with the three terms as to (i) quantity,

(ii) tenure and (iii) price of gas supply in the manner it did,

whilst directing the parties to renegotiate a contract for

supply of gas to the power plants of RNRL’s affiliates. I

respectfully submit that the High Court, as a Company

Court exercising jurisdiction under Section 392 of the

Companies Act, 1956, had no power to modify a scheme

of demerger of a company as approved almost

unanimously by 99.9998% of shareholders and creditors

and sanctioned by the Court under Section 394 of the

Companies Act, 1956. Nor does the High Court have the

power to make or stipulate a contract or any terms of a

contract which terms were not part of the Scheme. I say

that the Scheme had been propounded by the Board of

RIL in order to demerge four businesses of RIL into four

resulting companies. The nature of arrangements for

1048

supply of gas for power projects of RPPL and REL was

left, by the shareholders approving the Scheme, to the

Board of RIL. I say that the Board of RIL did in fact put in

place a suitable arrangement for supply of gas for the

power projects of RPPL and REL keeping in view all the

facts and circumstances, including: the commercial and

technical aspects of such supply; the fact that suitability

must be determined from the point of view of both entities;

and, importantly, the need to comply with the PSC and the

Government’s policies. I respectfully submit that no

arrangement for supply of gas to RNRL that would expose

RIL to the risk of being in default or breach of the

provisions of the PSC or the extant policies of the

Government of India could be considered suitable from

RIL’s point of view under any circumstances, particularly

where, as here, RIL has invested approximately Rs.

38,000 crores in the KGD6 block, substantial portion of

which has been invested after the demerger. The

collective decision of the Board made in this context and

background is not, in any event, a justiciable matter. I

respectfully submit that in any event a Company Court

exercising jurisdiction under Section 391, 392 and 394 of

the Companies Act, 1956 cannot make, amend or modify

any contract (or any part thereof) between the parties to

the Scheme.

(ii) Referring to grounds (c) and (d) in Paragraph 5 of the

Petition, I deny that in the absence of proper relief in the

form of a binding gas supply contract, the Scheme would

not be effective, as RNRL contends. I submit that the

Scheme sanctioned by the court was for the demerger of

four specified undertakings of RIL on a “going concern”

basis as of the effective date. I say that the suitable

arrangements were in fact put in place in the form of the

GSMA/GSPA. I further submit that the Scheme was not

dependent upon “suitable arrangements” postulated in

Clause 19 being worked out between the parties as

alleged. I submit that the demerger, so far as the gas-

based energy undertaking is concerned, is the demerger

1049

of the undertaking as defined in Clause 1.12 and transfer

of assets as specified in part A of Schedule 2 of the

Scheme, both of which have been duly completed, and

nothing has remained executory insofar as the

implementation of the Scheme is concerned. RIL says

and submits that the Scheme sanctioned under Section

394 of the Companies Act, 1956 has been fully worked out

and completed in all respects because the shares of the

resulting companies were distributed to the shareholders

and the resulting companies including RNRL were listed

on the Stock Exchange. Any disputes between the

transferor and transferee company after completion of the

demerger and transfer of undertakings, as between the

company and its transferee, cannot be resolved by the

Company Court in its supervisory jurisdiction under

Section 392 of the Act. It is submitted that the Court, upon

accomplishment of demerger and transfer becomes

functus officio as regards such demerger and transfer and

does not retain any jurisdiction under Sections 392, 394 or

otherwise to modify or amend any terms of such demerger

or to introduce any new terms that were not a part of the

Scheme.

(iii) Referring to ground (e) in Paragraph 5 of the Petition, I

deny the suggestion that the Hon’ble Division Bench has

not taken into account the fact that the parties had already

attempted to negotiate a contract up to 12 th January 2006

and thereafter pursuant to the Order of the Learned Single

Judge, but to no avail. RIL respectfully submits that the

directions passed by the Court are expressly stated

(Paragraph 324 of the impugned order) to be in

consideration of:

(a) “the parties having failed to settle the terms and

conditions resulting in RNRL approaching the

Company Court for seeking effective

implementation of the scheme for gas based power

projects”; and

1050

(b) “further even after the decision of the application by

the Company Judge, the parties having failed to

arrive at ‘suitable arrangements’.”

The Hon’ble Division Bench has not reversed the

conclusion of the Learned Single Judge that the Company

Court under Section 392 of the Companies Act cannot

direct or dictate to maintain or amend or modify and/or

insist on a particular clause or clauses of such supply

agreement or other such commercial agreement or

contract.

(iv) Referring to ground (f) in Paragraph 5 of the Petition, I

deny that it was due to the stand or approach of RIL that it

was impossible to arrive at a negotiated settlement. I say

that there was no such contention raised by RNRL before

the High Court. I say that no material was placed before

the Hon’ble the Division Bench as to the positions taken by

the parties when the parties attempted to arrive at a duly

negotiated agreement. I say that the ground as regards

the purported impossibility of a negotiated settlement due

to the stand and approach of RIL, which raises a pure

question of fact, cannot be raised in the guise of and as a

substantial question of law, particularly where, as here, the

ground is raised for the first time before this Hon’ble Court

in the manner sought to be done.

(v) Referring to grounds (g) to (k) in Paragraph 5 of the

Petition, I deny that the provisions of Rule 34 of Order XXI

of the Code of Civil Procedure can be invoked in the

instant case as is sought to be done. I submit that the

Order of the Company Court sanctioning the Scheme

which inter alia contains a stipulation for suitable

arrangement in relation to “supply of gas for power

projects of RPPL and REL with the Gas Based Energy

Resulting Company,” is not in the nature of a decree for

execution of such document and, in the circumstances, no

question of any neglect or refusal to obey the Order arises.

I deny that the Hon’ble Division Bench was required to

1051

direct execution of the document in the manner prescribed

in the order. I deny that the Registrar of the Court or some

expert could have determined the exact terms of the

suitable arrangement in conformity with the findings of the

Judgment as is sought to be contended. I respectfully

submit that, because the findings of the Learned Single

Judge as mentioned hereinbelow have not been reversed

or dissented from by the Hon’ble Division Bench, the

Hon’ble Division Bench could not have directed the

Registrar or any expert to determine the exact terms of the

arrangement of the parties. Such findings are as follows:

(a) the reliefs as claimed and as referred to in Exhibit

“J” cannot be granted;

(b) there is therefore no question of giving direction to

appoint an expert and/or seek opinion of an expert

at this stage of the proceedings;

(c) the Company Court is not an expert in, has no say

over, and cannot dictate the terms of a gas supply

agreement or other technical, complicated

transaction of this nature; and

(d) a suitable arrangement therefore means that the

parties must themselves settle such terms.

(vi) Referring in particular to ground (j) of Paragraph 5 of the

Petition, I submit that the ground has been raised without

any basis. At no stage in any proceedings in the Courts

below did RNRL adduce any evidence whatsoever to show

that the gas supply arrangement in the form of the

GSMA/GSPA was not “bankable”. RNRL did not adduce

any material before the Courts below to show that it was

due to the nature of the GSMA/GSPA that RNRL had been

unable to raise the necessary financing for the project or

that, without such “bankable” gas supply arrangements,

RNRL would be “a shell company”. As a matter of fact, the

learned Single Judge has clearly dispelled this latter

contention of RNRL.

1052

(vii) Referring to ground (l) in Paragraph 5 of the Petition, I

submit that the indemnity clause in the Scheme, viz.

Clause No. 24, applies in the case of “non-fulfilment of any

or all obligations under this Scheme by any party towards

any other party.” The suggestion that the indemnity clause

is designed to protect a party from a loss or damage

suffered by it, and not to obtain damages for actions not

performed by another party, is incorrect.

(viii) Referring to grounds (m) and (o) in Paragraph 5 of the

Petition, I deny the suggestion that damages are not an

adequate remedy for RNRL (assuming for the sake of

argument, while emphatically denying, that there was any

breach on the part of RIL or that RNRL has suffered any

loss on account of such breach or that RIL is liable for any

damages). I respectfully submit that the supply of gas

relates to sale and supply of movable property and there is

no question of the relief of “specific performance” being

granted. RIL submits that RNRL has not adduced any

evidence or material in support of the contention to the

contrary. I submit that natural gas is an article of

commerce and can be obtained from other sources. In

fact, the averments sought to be made in ground (o) of

Paragraph 5 of the Petition are contrary to the publicly

stated position of RNRL. In a letter to the Fertiliser

Ministry dated 30th June 2009 (three days prior to the filing

of the SLP), which contained several baseless allegations,

RNRL in fact stated that natural gas was not in short

supply and that the allocation to Fertiliser Companies

would not be adversely affected if RNRL was successful in

getting any quantity of gas from the KGD6 gas field.

Relevant extracts from the said letter are reproduced

hereinbelow:

“F. Sufficient Gas Available from KG Basin

10. As per the approved Development Plan of KG

Basin and various submission made by RIL. Gas

production would increase to 80 MMSCMD within this

1053

year, which is expected to further increase to 120

MMSCMD, which is higher than the current domestic

production of gas. The Judgment of Hon’ble Bombay

High Court has directed RIL to supply only 28

MMSCMD gas to RNRL. Therefore, we believe that

there will be sufficient gas available to meet the

requirement of fertilizer sector, which has been

allocated around 15 MMSCMD from KG Basin. It

may be noted that as per media reports even the

current allocation of gas not being fully utilized by the

designated consumers and some allocated

consumers have contractual issues. Hence, it is

unlikely that the Judgment would affect the gas supply

to fertilizer companies in any manner even while

meeting the RNRL requirement.”

(ix) Referring to ground (n) in Paragraph 5 of the Petition, I

respectfully submit that the High Court has erred in

attributing to Counsel for RIL the statement that “even

today RIL would make a profit if it supplied gas at US $

2.34.” I say that what was submitted by Counsel for RIL

was that any sale price, including USD 2.34, may have a

profit element if the price is approved by the Government

for computing the “Cost Petroleum,” since recovery of

costs incurred by the Contractor would also be at that

price. Counsel for RIL had expressly submitted that, in the

face of the Government-approved sale price of USD 4.20

per MMBTU, the sale price of USD 2.34 in the case of

RNRL would entail a huge loss to RIL, with RIL not even

being able to recover its incurred costs. The fact that the

statement attributed to Counsel for RIL has not been

recorded correctly is amply demonstrated by the fact that

the said statement is contrary to all the submissions made

by RIL and placed before the Division Bench in writing. As

a matter of fact, the submissions made by Counsel for RIL

are recorded in Paragraph 56 of the impugned Judgment

itself. I deny that for the reasons stated or otherwise the

Hon’ble Division Bench should have ordered RIL to

execute a binding agreement, as contended by RNRL.

1054

(x) Referring to ground (p) in Paragraph 5 of the Petition, I

deny that Counsel for RIL had conceded any particular

clause on limitation of liability. I submit that there is thus

no question of ordering any alteration of the clause on

limitation of liability as alleged or at all.

(xi) Referring to ground (q) in Paragraph 5 of the Petition, I

deny that the Hon’ble Division Bench has held that the

definition of “affiliate” in the PSC was correct or

appropriate for being incorporated in the GSMA as alleged

or at all. I respectfully submit that the Hon’ble Division

Bench has come to a finding that the meaning attributed

by RIL to the term “affiliate” in the GSMA was in

consonance with the definition provided of the term

“affiliate” under Article 1.3 of the PSC. Moreover, the

Scheme provides for “suitable arrangements” for the

supply of gas only to certain named affiliates of RNRL,

thereby eliminating any need for a definition of “affiliate”. It

is respectfully submitted that, under the circumstances,

there was no question of the Hon’ble Court directing

alteration of the GSMA’s definition of the term “affiliate”.

(xii) Referring to ground (r) in Paragraph 5 of the Petition, I

respectfully submit that there is no question of the High

Court directing immediate supply of natural gas “for atleast

[sic] a period of 3 years” (or for any other period) at the

rate of USD 2.34 per MMBTU of 28 MMSCMD (plus 12

MMSCMD if no agreement is reached with NTPC). I say

that no power plant is in existence and in a position to

receive any gas and no such power plant can come into

existence within the next three years. I say that on

RNRL’s own showing, Dadri Power Plant is to be

commissioned (if at all) in stages/modules. I say that even

Module 1 of the Dadri Power Plant, as conceptualised,

which might be in a position to receive some quantity of

gas, cannot be completed and commissioned earlier than

in 2013. I say that RIL has filed an expert’s affidavit

setting out the above position, stipulating and explaining

the estimated time needed for a project such as the Dadri

1055

Power Plant to reach completion. I say that apart from a

bare denial, there has been no effective answer to the

above averments. I submit that, under the circumstances,

there is no question of the Hon’ble Court directing

immediate or any supply of natural gas “atleast [sic] for a

period of 3 years” or otherwise, which is obviously being

insisted upon for trading. RIL denies that RNRL was

unable to effectively implement the Dadri project for the

reason of lack of an appropriately structured gas supply

contract. In fact, RNRL’s affiliates have raised

approximately Rs. 20,000 crores and additionally tied up

Rs. 25,000 crores for power projects, including the Dadri

project. I deny that the gas supply arrangement between

RIL and RNRL was not bankable. I repeat and reiterate

that, because the Government rejected the price of USD

2.34, there is no question of any supplies having to be

made at that price. Apart therefrom and more importantly,

in view of the Gas Utilisation Policy promulgated by the

Government of India, under which the Government

stipulates the contracting priorities and allocates the

quantities of gas to various users of gas, there is no

question of any gas being supplied to RNRL at any price,

unless such quantity of gas is allocated to RNRL by the

Government. Apart from the foregoing, trading of gas by

private entities is not permissible at all, and all producers

of gas must supply gas only to actual users of gas. In any

event, RIL is not obliged to supply any gas to RNRL for

trading at all and as stated above, RNRL has specifically

given up its contention of being entitled to trade in the gas.

(xiii) Referring to ground (s) in Paragraph 5 of the Petition, I

deny the suggestion that the Hon’ble High Court found the

definition of “affiliate” in the PSC to be just and/or

reasonable. I deny that the concept of “affiliate” implies

control of one company by another, which need not be

exercised by a majority shareholding in another company.

I deny that this control can be exercised through

management control, contract or substantial, though not

majority, shareholding in a company. Moreover, the

1056

Scheme provided for “suitable arrangements” for supply of

gas only to certain named affiliates of RNRL.

(xiv) Referring to ground (t) in Paragraph 5 of the Petition, I

deny the suggestion that Reliance ADA Group has been

unable to set up the Dadri Power Plant due to any breach

on the part of RIL of the sanctioned Scheme, for all the

reasons set forth in paragraph (xii) above. ADAG’s

professed concern for the public interest in mitigating

power shortages rings hollow in light of the fact that since

it came into existence in 2005, despite raising

approximately Rs. 20,000 crores and additionally tying up

Rs. 25,000 crores for its power projects, it has not built a

single MW of power.

(xv) Referring to ground (u) in Paragraph 5 of the Petition, I

deny that by its past conduct or otherwise RIL has made it

evident that it would not negotiate in good faith. I deny

that, in any event, the MoU is binding on the corporate

entity RIL. I deny that the effort of RIL has been to stymie

the progress of RNRL or the Reliance ADA Group, and I

deny that RIL has not negotiated with RNRL in good faith

and that it has sought to impose a “big brotherly” attitude

on RNRL. I say that these allegations are not contained in

any of the pleadings of RNRL, and thus there is no

question of the Hon’ble Court entertaining these

allegations.

(xvi) Referring to ground (v) in Paragraph 5 of the Petition, I

deny that Reliance ADA Group has suffered huge losses

or damages on the order of several thousands of crores, or

any other amount, on account of delay in setting up of

power projects. In any event, for the reasons set forth in

paragraphs (xii) and (xiv), I deny that any such alleged

delay has been on account of violation of any term of the

Scheme by RIL or can otherwise be attributable, in any

manner whatsoever, to RIL or any actions of RIL.

(xvii) Referring to ground (w) in Paragraph 5 of the Petition, I

deny the suggestion that under Section 392 of the

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Companies Act (or otherwise) the result of failure to

implement the Scheme is winding up of the company. It is

respectfully submitted that a court only has discretion to

wind up a company under Section 391, in the event that a

compromise or arrangement sanctioned under that section

is not working satisfactorily, with or without modification. I

submit that this discretionary provision does not apply to a

scheme of demerger sanctioned under Section 394 of the

Act, and certainly not to the facts and circumstances of the

present case. I respectfully submit that the submissions

made in ground (w) are false, and in fact are known to be

false by RNRL.

(a) In fact, the Information Memorandum filed by RNRL

with the Stock Exchange stated as follows, under

the part entitled “Risk Factors”:

“The said deviations [in the GSMA/GSPA], if

not amended appropriately, are likely to

materially impact and jeopardize our entire

business, operations and financial condition.

We propose to take appropriate steps to have

the aforesaid agreements suitably amended,

so as to bring the same in line with the agreed

position to protect the interests of more than 20

lakh shareholders, but there is no certainty that

such amendments will be made, and/or that

the agreements will be implemented at all, and

this may adversely impact our company and

our shareholders. Also See ‘About Reliance

Natural Resources Limited - Gas Supply

Agreement with RIL’.”

(b) The above statements were reiterated in the part of

the Information Memorandum entitled “About

Reliance Natural Resources Limited.”

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(c) In any event, I deny that RIL has or is responsible

for any non-implementation of the Scheme as is

sought to be suggested or at all.

(xviii) Referring to ground (x) in Paragraph 5 of the Petition, I

deny that for the reasons alleged or otherwise the Court

ought to have directed RIL to agree to supply gas to RNRL

according to the NTPC terms. In any case, RNRL does

not even want the NTPC terms, which NTPC has asserted

as agreed on 9th May 2005, as these terms specifically

provide for Government approval of the price.

33. Referring to Paragraph 6 of the Petition, I deny that there is any,

much less a prima facie, case in favour of RNRL as alleged or at

all. I have affirmed and filed an Affidavit in reply to the

Application for interim reliefs on 17th July 2009 before this

Hon’ble Court, and I repeat and reiterate the contents thereof. I

deny that, for the reasons alleged or for any other reasons, RNRL

will suffer irreparable harm or any loss or prejudice if RIL enters

into contracts with third parties. I submit that RNRL is not in a

position to receive any gas from RIL. As set out in detail in RIL’s

affidavit dated 13th January 2009 filed before the High Court,

even the first module of RNRL’s plant is not expected to be ready

to receive natural gas for producing power any time before 2013.

It is respectfully submitted that on the other hand, RIL has

commenced its commercial production of gas around 1st April

2009 and has entered into various agreements for sale of natural

gas with various consumers from fertiliser and power sectors, in

accordance with the interim order passed by the Hon’ble Division

Bench at the conclusion of the hearing of the Appeal on 30th

January 2009. This interim order, which itself is based on the

various policy decisions of the Government of India regarding

utilisation of natural gas and its pricing in larger public interest,

permits RIL to enter into contracts for sale of natural gas to

Government nominated entities and at a price approved by the

Government. The interim order also records the circumstances

of various fertiliser and power plants in both public and private

sectors being starved of adequate supply of natural gas and

having been shut down or not operating to their full capacity or

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being compelled to move to expensive alternative fuels. Further,

the interim order adequately protects RNRL by directing RIL to

incorporate into its gas supply agreements with third parties a

suitable term providing that the contracts are subject to the

outcome of the pending cases, particularly, the pending disputes

between RIL and RNRL, and NTPC and RIL. RNRL, admittedly,

is not in a position to receive any gas and will not be in such a

position in any conceivable time frame. I deny that RNRL has

immediate or any need for supply of gas as alleged or at all. I

deny that RIL’s interest in supplying gas is purely commercial. I

deny that the balance of convenience is in favour of the grant of

interim reliefs as claimed by RNRL. I deny that Reliance ADA

Group has been unable to set up a gas-based power plant in the

last three years because of any alleged wrongful conduct of RIL.

I deny that failure to direct RIL to supply gas to RNRL would

enable RIL to take advantage of its own alleged wrong. I deny

that failure to grant interim relief as claimed by RNRL would

severely impact its right to the gas in the manner alleged or

otherwise. I deny that after the High Court Judgment RIL has

showed any contempt for the directions of the High Court or that

its objective is to delay or drag on a final resolution for the

reasons alleged or otherwise. I deny that it is just or fair, or that

the balance of convenience requires, that this Hon’ble Court pass

urgent ex-parte interim orders to protect the interest of RNRL or

its shareholders.

34. Referring to Paragraphs 7 and 8 of the Petition, I deny that RNRL

is entitled to any of the reliefs claimed therein.

35. In light of the foregoing, I respectfully pray that RNRL’s SLP be

dismissed with costs.

DEPONENT

VERIFICATION:

I, the deponent abovenamed, do hereby verify that the contents of

paras 1 to 35 of my above affidavit are true to my knowledge, no part of it

is false and nothing material has been concealed therefrom.

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Verified at New Delhi on this the 06th day of October 2009.

DEPONENT

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