# RELIANCE NATURAL RESOURCES LTD v. RELIANCE INDUSTRIES LTD

- **Citation:** [2010] 5 S.C.R. 704
- **Court:** Supreme Court of India
- **Decided:** 2010-05-07
- **Case number:** Civil Appeal No. 4273 of 2010
- **Bench:** K.G. Balakrishnan, B. Sudershan Reddy, P. Sathasivam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/reliance-natural-resources-ltd-v-reliance-industries-ltd-27063
- **Pages:** 222

## Headnote

Companies Act, 1956:
Sections 193, 194, 195, 293, 391, 392, 393 and 394 -
Gas Sales & Master Agreement (GSMA) - Entered into by
Reliance Natural Resources Limited (RNRL) with Reliance
Industries (RIL) on the basis of Memorandum of
D Understanding (MoU) arrived at between Ambani brothers -
Scheme approved by Company Court - Hence Sections 392
and 394 applicable - Power of the Court under Sections 391
to 394 wide enough to make necessary changes in the
Scheme - How&er, the power does not extend to making any
substantial or substantive changes to the Scheme - The said
E MoU does not fall under the corporate domain - Neither
approved by the shareholders nor attached to the Scheme -:
Thus technically the MoU is not binding - Nevertheless the
MoU formed the backdrop of the Scheme - Hence contents
of the Scheme to be interpreted in the light of the MoU -
F Suitable arrangement under Clause 19 of the Scheme - Must
be suitable for the interests of shareholders of RNRL and RIL
as also the obligation of RIL under the Production Sharing
Contract (PSC) and the broader national and public interest
- Article 21 of the PSC must be interpreted to give the power
G to the Government to determine both the valuation and price
of Gas - Government owns the gas till it reaches its ultimate
consumer - PSC shall override any other contractual
obligation between the Contractor and any other party - Gas
Sales & Master Agreement (GSMA) and Gas Sale &
H
704
RELIANCE NATURAL RESOURCES LTD. v.
705
RELIANCE INDUSTRIES LTD.
Purchase Agreement (GSPA) entered into with RNRL should A
fix the price, quantity and tenure in accordance with PAC -
Empowered Group of Ministers (EGOM) has already set the
price of gas for the purpose of PSC - Parties must abide by
this and other conditions placed by the Government policy -
Interests of the shareholders must be balanced -
This
B
balance cannot be struck by the Court as the Court does not
have the power under Sections 391 to 394 to create new
conditions under the Scheme -
RIL directed to initiate
renegotiation with RNRL within six weeks so that the interests
of the shareholders are safeguarded and finalise the same c
within eight weeks thereafter - Resultant decision should be
placed before the Company Court for necessary orders -
Constitution of India, 1950 -Article. 14, 39(b), 73, 77(3), 291,
298 - Oil field (Regulation & Development) Act, 1948 -
Territorial Waters Continental Shelf, Exclusive Economic 0
Zone and other Maritime Zones Act, 1976 - Petroleum and
Natural Gas Rules, 1959.
Constitution of India, 1950:
Directive Principles of State Policy - Article 39(b) -
Natural gas is a mate/'.ial resource-_.,,.,__ Natural resources are
E
vested with the Government as a matter of trust in the name
of the people of India - It is the solemn duty of the State to
protect the national interest - Natural resources must always
be used in the interests of th-e country, and not private
interests - Articles 73, 77(3).
F
Doctrines:
Public Trust Doctrine - Doctrine of Identification -
Applicability of.
The appeals have been filed against the judgment G
and order of the Division Bench of the High Court of
Bombay passed in Appeal in Company Application and
in Company Petition filed by Reliance Natural Resources
Ltd. (RNRL) and Reliance Industries Limited (RIL). The
Union of India has filed the SLP against the same
H
706
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A common order passed by the Division Bench of the
Bombay High Court. The matter mainly relates to Gas
Utilisation Po-licy and the Pricing Policy of the
Government and the Memorandum of Understanding
(MOU) entered into amongst the family members of the
8
promoter and its effect on RIL, apart from certain ancillary
issues.
c
D
E
F
G
H
In view of the rival contentions, the following issues
arose for consideration:
(a)
Wh~ther the Company Petition filed by RNRL
und~r Section 392 of the Companies Act, was
maintainable?
(b)
Even
if the
Company
Petition
was
maintainable,· whether the challe

## Text

_Characters 0–39,980 of 432,599. This is a partial read: ask again with offset=39980 for what follows._

A
B
c
[2010] 5 S.C.R. 704
RELIANCE NATURAL RESOURCES LTD.
v.
RELIANCE INDUSTRIES LTD.
(Civil Appeal No. 4273 of 2010)
MAY 7, 2010
[K.G. Balakrishnan, CJI., B. Sudershan Reddy and
P. Sathasivam, JJ.]
Companies Act, 1956:
Sections 193, 194, 195, 293, 391, 392, 393 and 394 -
Gas Sales & Master Agreement (GSMA) - Entered into by
Reliance Natural Resources Limited (RNRL) with Reliance
Industries (RIL) on the basis of Memorandum of
D Understanding (MoU) arrived at between Ambani brothers -
Scheme approved by Company Court - Hence Sections 392
and 394 applicable - Power of the Court under Sections 391
to 394 wide enough to make necessary changes in the
Scheme - How&er, the power does not extend to making any
substantial or substantive changes to the Scheme - The said
E MoU does not fall under the corporate domain - Neither
approved by the shareholders nor attached to the Scheme -:
Thus technically the MoU is not binding - Nevertheless the
MoU formed the backdrop of the Scheme - Hence contents
of the Scheme to be interpreted in the light of the MoU -
F Suitable arrangement under Clause 19 of the Scheme - Must
be suitable for the interests of shareholders of RNRL and RIL
as also the obligation of RIL under the Production Sharing
Contract (PSC) and the broader national and public interest
- Article 21 of the PSC must be interpreted to give the power
G to the Government to determine both the valuation and price
of Gas - Government owns the gas till it reaches its ultimate
consumer - PSC shall override any other contractual
obligation between the Contractor and any other party - Gas
Sales & Master Agreement (GSMA) and Gas Sale &
H
704
RELIANCE NATURAL RESOURCES LTD. v.
705
RELIANCE INDUSTRIES LTD.
Purchase Agreement (GSPA) entered into with RNRL should A
fix the price, quantity and tenure in accordance with PAC -
Empowered Group of Ministers (EGOM) has already set the
price of gas for the purpose of PSC - Parties must abide by
this and other conditions placed by the Government policy -
Interests of the shareholders must be balanced -
This
B
balance cannot be struck by the Court as the Court does not
have the power under Sections 391 to 394 to create new
conditions under the Scheme -
RIL directed to initiate
renegotiation with RNRL within six weeks so that the interests
of the shareholders are safeguarded and finalise the same c
within eight weeks thereafter - Resultant decision should be
placed before the Company Court for necessary orders -
Constitution of India, 1950 -Article. 14, 39(b), 73, 77(3), 291,
298 - Oil field (Regulation & Development) Act, 1948 -
Territorial Waters Continental Shelf, Exclusive Economic 0
Zone and other Maritime Zones Act, 1976 - Petroleum and
Natural Gas Rules, 1959.
Constitution of India, 1950:
Directive Principles of State Policy - Article 39(b) -
Natural gas is a mate/'.ial resource-_.,,.,__ Natural resources are
E
vested with the Government as a matter of trust in the name
of the people of India - It is the solemn duty of the State to
protect the national interest - Natural resources must always
be used in the interests of th-e country, and not private
interests - Articles 73, 77(3).
F
Doctrines:
Public Trust Doctrine - Doctrine of Identification -
Applicability of.
The appeals have been filed against the judgment G
and order of the Division Bench of the High Court of
Bombay passed in Appeal in Company Application and
in Company Petition filed by Reliance Natural Resources
Ltd. (RNRL) and Reliance Industries Limited (RIL). The
Union of India has filed the SLP against the same
H
706
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A common order passed by the Division Bench of the
Bombay High Court. The matter mainly relates to Gas
Utilisation Po-licy and the Pricing Policy of the
Government and the Memorandum of Understanding
(MOU) entered into amongst the family members of the
8
promoter and its effect on RIL, apart from certain ancillary
issues.
c
D
E
F
G
H
In view of the rival contentions, the following issues
arose for consideration:
(a)
Wh~ther the Company Petition filed by RNRL
und~r Section 392 of the Companies Act, was
maintainable?
(b)
Even
if the
Company
Petition
was
maintainable,· whether the challenge raised by
RNRL to the GSMA, that it is not a "suitable
arrangement" was maintainable particularly in
view ~f the fact that on merits, the Company
Judge had found, these objections to be
unsustainable?
(c)
Whether the MoU entered into amongst the
family members of the Promoter was binding
upon the corporate entity - RIL?
(d)
Whether the terms of the MoU are required_ to
be incorporated in the GSMA as held by the
Division Bench?
(e)
Whether the provisions in the GSMA requiring
Government approval for supply of gas to
RNRL is unreasonable and that its inclusion
renders lhe GSMA as not a "suitable
arrangemeR-1:" as contended by RNRL?
{f)
Having insisted upon a Gas Sale and
Purchase Agreement (GSPA) in conformity
with the NTPC draft GSPA dated 12th May,
2005 which· contained an unequivocal
RELIANCE NATURAL RESOURCES LTD. v.
707
RELIANCE INDUSTRIES LTD.
stipulation for Government approval for A
quantity, tenure and price, whether it is open
to RNRL to now contend that the Government
approval for supply of gas is not required and
further
that
the
provision
requiring
Government approvals should be deleted from
B
the GSMA/GSPA?
(g)
Whether it is necessary for this Court to go
into the interpretation of the provisions of the
PSC?
(h)
i. Whether the approval of the Government is
required to the price at which gas is sold by
the contractor under the PSC?
c
ii.
Whether the Government has the right to
regulate the distribution of gas produced D
which it has exercised by putting in place the
Gas Utilization Policy under which sectoral
and consumer-wise priorities (to the quantities
specified) have been identified and notified to
RIL?
E
iii.
Whether the Contractor has a physical share
in the gas produced and saved which it can
deal with at its own volition?
(i)
In view of the Gas Utilization Policy and the
Pricing Policy of the Government, whether the
"Suitable Arrangement" for supply of gas to
Dadri Power Plant of REL can only be on the
same terms as are applicable to other anottees
of gas and that too to the extent of the quantity
of gas that may be allocated by the
Government as and when the Dadri Power
Plant is ready to receive gas?
Disposing of the matters, the Court
F
G.
H
"
708
SUPREME COURT REPORTS
(2010] 5 S.C.R.
A
HELD:
(Per - Sathasivam, J. for himself and K.G.
Balakrishnan, CJI):
(A) Maintainability of the company petition:
B
1.1. In the light of the stand taken by both parties, this
Court analyzed the relief sought for in the Company
Application and the relevant materials placed before the
Company Judge. Section 392 creates a duty to supervise
the carrying out of the compromise or arrangement. This
C power and duty was created to enable the Court to take
steps from time to time to remove all obstacles in the way
of enforcement of a sanctioned scheme. While
sanctioning, it shall anticipate some hitches and
difficulties which it can remove by the order of the
o sanction itself but clause 1 (b) makes it clear that this
power can also be exercised after the scheme has once
been sanctioned. So lo11g as the basic nature of the
arrangement remains the same the power of modification
is unlimited, the only limit being that the modification
E should be necessary for the working arrangement. [Para
28(x)] [791-D-F]
1.2. Section 392 is applicable to the Company
Application filed by Reliance Natural Resources Ltd.
(RNRL). This is more so because the Company Court has
F originally sanctioned the scheme under both Sections
391 and 394. The power of the Court under Section 392
is wide enough to make any changes necessary for the
working of the Scheme. Therefore, Court does have
jurisdiction over the present matter. However, it is made
G clear that the power of the Court does not extend to rewriting the Scheme in any manner. [Para 28(xi)] [791-GH; 792-A-B]
1.3. In the Companies Act, there is no provision
except Section 391 to Section 394 which deal with the
H procedure and power of the Company Court to sanction
RELIANCE NATURAL RESOURCES LTD. v.
709
RELIANCE INDUSTRIES LTD.
the Scheme which fall within the ambit of the
A
requirements as contemplated under these sections. In
the absence of any other provisions except Section 392,
it is difficult to accept the contention that the present
application under Section 392 of the Companies Act is
without jurisdiction. On the other hand, Section 391 to
B
Section 394 has ample power and jurisdiction to
supervise the scheme as sanctioned under the
Companies A!:t. As rightly observed by the Company
Judge, the exigencies, facts and circumstances, play
dominant role in passing appropriate order under c
Sections 391 to 394 after sanctioning of the Scheme. The
Company Court is not powerless and can never become
functus officio. Sections 391 to 394 are interconnected
and it can pass appropriate order for sanctioning of any
Scheme including of arrangement, demerger, merger and
D
amalgamation. Therefore, the application filed by RNRL
under Section 392 is maintainable. [Para 28(xii)] [792-B•
E]
Association of Natural Gas & Ors. vs. Union of India &
Ors. (2004) 4 sec 489 (CB), relied on.
E
Meghal homes (P) Ltd. vs. Shree Niwas Girni K.K. Samiti
& Ors. (2007) 7 SCC 753, held inapplicable.
State of Tamil Nadu vs. L. Abu Kavur Bai, (1984) 1 SCC
515; Safar Jung Sugar Mills Ltd. etc. vs. State of Mysore & F
Ors., (1972) 1 SCC 23; Tinsukhia Electric Supply Company
Ltd. vs. State of Assam & Ors., (1989) 3 SCC 709; Ramana
Dayaram Shetty vs. International Airport Authority of India &
Ors, (1979) 3 SCC 489; Food Corporation of India vs. Mis
Kamdhenu Cattle Feed Industries, (1993) 1 SCC 71; Miheer
H. Mafatlal vs. Mafatla/ Industries Limited (1997) 1 SCC 579
G
and S.K. Gupta & Anr. Vs. K.P. Jain & Anr. (1979) 3 SCC
54, referred to.
(B) Memorandum of Understanding (MoU)
2.1. It is clear that both parties acted upon the said
H
710
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A family arrangement/Mou dated 18.06.2005. The letters
and e-mails, further confirmed that there is an
arrangement made and agreed between the Reliance
Industries Limited (RIL) and Anil Ambani Group (RNRL),
it is also clear and show that the discussion between the
B group of officials was intended to expedite the
implementation of the MoU by producing a "suitable
arrangement". Though copy of the MoU was not part of
the record before the Company Judge, by consent, the
relevant portion was placed before the Division Bench at
c the time of hearing of the appeal. It cannot be accepted
that neither RIL nor its Board Members were aware of the
contents of the Mou. In fact, the Company Judge has
pointed out that a specific reference was made in the
Company Application No. 1122 of 20'06 and there is no
0 specific denial by the RIL. The Press Release at the
instance of their mother Smt. Kokilaben Ambani (Exh.
"D") about the family arrangement/MOU cannot be overlooked. It is clear that because of the efforts of Smt.
Kokilaben Ambani, the mother of Mukesh Ambani & Anil
Ambani, the family settlement has been arrived at and
E followed by the Scheme of De-merger. It is also clear from
the materials i.e. exchange of letters and e-mails and the
deliberations by the officials of both entities and their
Board of Directors as well as the sharehold.ers have
agreed for the Scheme. Further it was demonstrated that
F after execution of MoU, both the parties have been
entering into contracts and agreements as an
independent entity. Except the gas supply agreement all
other companies as found are working and running their
G
affairs smoothly. [Para 30] [798-G-H; 799-A-E]
2.2. The MoU is not technically binding between RIL
and RNRL It is not in dispute that MoU is between three
persons and the personality of the company must be
construed separate from these persons. In the light of the
conduct of Mukesh Ambani, Chairman of RIL, MoU was
definitely the instrument which was the basis of the
RELIANCE NATURAL RESOURCES LTD. v.
711
RELIANCE INDUSTRIES LTD.
scheme. Therefore, it can be used .as an external aid for A
the interpretation of "suitable agreement" under the
scheme. To put it clear, the MoU is one of the ways in
which the intention of the parties can be made clear with
regard to what was considered suitable. Nevertheless,
there is no specific requirement that the Gas Sales and
B
Master Agreement (GSMA) must conform completely with
the MoU. [Paras 35, 36] [801-G-E]
2.3. Apart from the MoU, "suitable arrangement"
must be understood in the context of government
policies, Production Sharing Contract (PSC) between RIL
C
and the Government, national interest and interest of the
shareholders. Therefore, ~his court is of the view that MoU
is one of the means of construing suitability of the
arrangement and not the sole means. [Para 37] -[801-H;
802-A-B]
D
Kale & Ors. vs. Deputy Director of Consolidation & Ors.,
(1976) 3 SCC 119; K.K. Modi vs. K.N. Modi & Ors., (1998) 3
SCC 573; V.B. Rangaraj vs. V.B. Gopalkrishnan & Ors. AIR
1992 SC 453; Union of India vs. United India Insurance Co.
Ltd. (1997) 8 SCC 683; Assistant Commissioner,
Assessment-II, Bangalore & Ors. vs. Mis Velliappa Textiles
Ltd. & Ors, AIR 2004 SC 86 and J.K. Industries Ltd. & Ors.
vs. Chief Inspector of Factories and Boilers & Ors. (1996) 6
sec 665, referred to.
R. vs. Mc Donnell, (1966) 1 All. E.R. 193, referred to.
(C) Gas Sales & Master Agreement (GSMA) and Gas
Sales & Purchase Agreement (GSPA) - whether they
qualify as suitable arrangement:
E
F
3.1. The determination of "suitable arrangement"
G
must not only include the MoU but other considerations
also. Among various considerations, the prime aspect
relates to the role of the Government, the proper
interpretation of Production Sharing Contract (PSC)
relating to pricing and valuation, national interest relating
H
712
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A to the interest of consumers and protection of natural
resources. At the same time, the other consideration
must relate to the interest of RNRL, i.e., whether the
GSMA results in RNRL becoming a shell company and
whether the GSMA is a bankable agreement. [Para 43]
B [810-D-F]
3.2. The GSMA was put into the place in pursuance
of Clause 19 of the scheme. Clause 19 of the scheme
provides that in order to effectuate the demerger or RIL,
a suitable agreement has to be formulated. In other
C words, the position of RNRL is that "suitable
arrangement" within the meaning of Clause 19 is
supposed to be the MoU. Such an arrangement must be
suitable for RNRL. According to RNRL, since GSMA is not
a replication of the conditions of the MoU and that it is
D not a bankable agreement it will reduce RNRL into a shell
company. GSMA violates the scheme and must be
replaced taking into account the various points of
protestation raised by them. On the other hand, it is the
claim of RIL that since the Mou is not a binding
E document, there is no requirement that the GSMA must
replicate the MoU. [Para 44] [810-H; 811-A-D]
SUITABLE ARRANGEMENT:
3.3. There is a need to construct a suitable
F arrangement under Clause 19. The broader construction
of suitable arrangement is that the arrangement must be
suitable not only for RIL and RNRL but also suitable with
respect to the government's interest under PSC, in
consonance with the decisions of Empowered Group of
Ministers (EGOM) or any other gas utilization policy as
G well as larger national interest. This is because gas is an
essential natural resource and is not owned by either RIL
or RNRL. The Government holds this natural resource as
a trust for the people of the country. Supply of gas is a
matter of national interest and in the present case, due
H to the very nature of the companies involved, there are
RELIANCE NATURAL RESOURCES LTD. v.
713
RELIANCE INDUSTRIES LTD.
huge number of shareholders and people who will be
A
indirectly affected by the policies of the companies.
Therefore, the arrangement flowing from Clause 19 must
be suitable for interest of all the above-mentioned
persons. Keeping the said object in mind, Clause 19 must
be interpreted by taking into account 1) the interest of B
RNRL as reflected by the MoU; 2) the interest of the
shareholders of RIL and RNRL; 3) .the obligations of RIL
under PSC; 4) the national policy of gas including the
decisions of EGOM and Gas Utilization Policy; and 5)
broader national and public interest. [Paras 46, 47) [811- c
F-H; 812-A-B]
(D) PRODUCTION SHARING CONTRACT CPSC):
4.1. It is not permissible for RIL to enter into a
contract with RNRL to supply fixed quantity of gas as the
D
gas continues to be the property of the government _till
the time it reaches the delivery point and thus, RIL has
no right to dispose of the same without the express
approval of the Union of India. [Para 49) [813-D]
4.2. The Executive of the Union of India enjoys its
Constitutional powers under Article 73 and Article 77 (3)
in order to fulfill the objectives of the Directive Principles
E
of State Policy relating to distribution of Natural Gas. This
Natural Gas is a material resource under Article 39(b). In
view of this, along with the contemplation of a
Government's Policy for the utilization of Natural Gas
under Article 21.1, the Executive decided that distribution
would include within its ambit acquisition, including
acquisition of private owned material resources. The
framing of the "Gas Utilization Policy" in identifying the
G
priority sectors, and allocating the requisite quantities in
accordance with the needs of the said sectors and
subjecting marketing freedom to the order of priority and
guidelines framed is very much in accordance with law.
Consequently, Article 21.1 and Article 21.3 should be read
in consonance with the Gas Utilization Policy and the
H
F
714
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A
latter is neither inconsistent with the provisions of the
Constitution, nor the Oil Field Regulation Act, 1948,
Petroleum and Natural Gas Rules 1959 and the Articles
of the Production Sharing Contract. To put it clear, both
in terms of the Gas Utilization Policy and the Production
B Sharing Contract, Government in the capacity as an
Executive of the Union can regulate and distribute the
manner of sale of Natural Gas through allotments and
allocation which would sub-serve the best interest of the
country. [Paras 51 and 52] [813-F-H; 814-A-D]
C
4.3. The price determined by the Government is not
the subject matter of either the Company Application nor
is it an issue which arises out of the impugned judgment.
There is no duly constituted proceeding where any
challenge has been laid to Government Policy, price
D fixation, grant or refusal of approval. Further, without
such a proceeding in existence and without NTPC being
a party in the present proceedings, any issue touching
upon the validity of price fixation or price formula does
not arise. The price of $ 4.20/mmbtu is based on the
E formula approved by the Government under its powers
pursuant to the terms of the PSC. The policy of the
Government is not under challenge or adjudication before
the Court. [Paras 53 and 54] [814-C-F]
4.4. In the instant case, the price formula was
F
approved by Government in September, 2007 when it was
expected that gas would be produced from the basin in
June, 2008. The utilization of 40 mmscmd of gas was
decided upon in the months of May, 2008 in terms of
sectors and units to which gas would be supplied. As the
G production stabilized and further volumes of gas were
known to become available, the government recently
decided on the utilization of a further volume of 19.826
(+0.875) mmscmd on firm basis + 30.00 mmscmd on
tailback basis in October, 2009. As emphasized earlier, it
H is up to the owner (the Government) to decide as to how
RELIANCE NATURAL RESOURCES LTD. v.
715
RELIANCE INDUSTRIES LTD.
to utilize the gas and at what price it can be sold and this
A
has been done in accordance with Production Sharing
Contract (PSC) which has a statutory basis. The PSC
under Article 21.1 makes it clear that the Contractor is
bound by the Government's policy for utilization of
natural gas. [Para 62] [819-E-G]
B
4.5. The position is that under Article 21.6.1 of the
PSC, the gas must be sold at an arm's length price.
Article 21.6.2 states that notwithstanding 21.6.1, if the gas
is sold not to the Government or its nominee, it must be
sold on the basis of "competitive arm's length sales in
C
the region for similar sales under similar conditions".
Importantly, Article 21.6.3 states that the basis on which
such prices are to be determined shall be approved by
the Government prior to the sale. In the present case, the
formula submitted by RIL was looked into by EGOM and
D
examined by the Committee of Secretaries and PM's
Economic Advisory Council. Due to this the price was
determined to be $ 4.20, on the basis of the formula, price
equivalent to 2.5 + (Crude Price-25)0.15. Another
important consideration to be kept in mind is that the PSC
E
overrides any other contract which may be entered into
for the supply for gas. This principle flows from the
following a) the natural resource, gas, is held by the
Government and trust on behalf the people. Therefore, for
legal purposes, the Government owns the gas till it
F
reaches its final consumer; b) the PSC is the basis on
which the contractor exercises his right over the supply
of gas. Since it is the very basis of such a right, the
contractor does not have the competent power to give
any rights which do not accrue to it under the PSC. [Paras
G
63, 64] [819-H; 820-A-E]
4.6. One of the main purposes of the PSC is pricing
and distribution of gas. Though there is "freedom of
trade" within the PSC, but this freedom is exercised by
the contractor through a transparent bidding process
H
716
SUPREME COURT REPORTS
[20101.5 S.C.R.
A and non-interference of the Governmen• in the
administration of gas supply. As a matter of P<>it:Y also,
the Government must be free to determine the J81uation
formula as well as the price. Therefore, keepi111g these
considerations in mind, the Government's interpretation
B of the PSC is valid. Thus the Government has tu power
to determine valuation as well as price for the purpose
of the PSC. [Para 65) [820-F-G]
c
State of Tamil Nadu vs. L. Abu Kavur Bai, (198') 1 SCC
515, relied on.
4.7. The power of the Government under t .. PSC is
quite bread and includes the power to regulate fte price
and distribution of gas. Such a power .quir~s
determination of price of supply and not onlj for the
determination of the share of the Contractor but also for
D the Government. Thus keeping the objectives ofJhe P"SC
in mind, it would not be possible to restrict the1· wer of
the Government. The arrangement in purs
nee of
Clause 19 of the Scheme must be suitabl
or the
shareholders of RIL as well. The position of RU.:,
that if
E gas is sold at $2.34 that is at a price lower thaii the one
decided by the Government, there will be a d+onnect
between the actual amount which the Contractor.ill earn
from the sale of gas and the amount which will ~deemed
to have been earned by the Contractor under Vte PSC.
F Due to this, the Contractor would be losing out ot its own
profits which RIL claims would be halved. It is flso the
grievance of RIL that the Court must take into Jccount
the fact that the PSC provides for the legitimate ;ghts of
the Contractor to earn certain profits. If these P•fits are
G reduced to such a degree, it would affect the i'*rest of
the shareholders of RIL. [Para 66(1)(2)) [821-C-G]
BANKABLE CONTRACT:
.
5.1. While RNRL had all along been contending that
H for want of bankable gas supply agreement it could not
RELIANCE NATURAL RESOURCES LTD. v.
717
RELIANCE INDUSTRIES LTD.
establish a power plant including Dadri. In fact, money
A
has already been raised to the extent of $ 510 m for Dadri
Plant by way of External Commercial Borrowings. This
position was candidly accepted by RNRL. Reliance
Power Ltd., the company that is now promoting Dadri has
raised Rs.11000 crores from the public. The shortage of B
funds is an excuse - it is simply not true. Furthermore,
according to RIL, it is a fact that other gas based power
plants has been set up in the country without having any
long term supply of gas contrary to what is being alleged
by RNRL, and that the contention that <f SMA is not a c
bankable document is without any factual basis. [Paras
73, 7 4] [824-B-D]
5.2. In view of all the arguments and counterarguments regarding the unsustainability of the
arrangem~nt under the GSMA, it is not proper for the
D
court under Sections 391-394 to make modifications of
this nature in the Scheme. These changes must be
arrived at by the parties themselves through negotiation.
Furthermore, such negotiations must be done within the
ambit of the Government policies, including the overE
riding effect of the PSC (including the Development Plan
under Article 10.7), EGOM decisions and other related
national policies. [Para 76] [825-C-D]
(E) ROLE OF GOVERNMENT:
6.1. It must be noted that the constitutional mandate
is that the natural resources belong to the people of this
country. The nature of the word "vest'1 must be seen in
F
the context of the Public Trust Doctrine (PTO). Even
though this doctrine has been applied in cases dealing
with environmental jurisprudence, it has its broader G
application. This doctrine is part of Indian law and finds
application in the present case as well. It is thus the duty
of the Government to provide complete protection to the
natural resources as a trustee of the people at large.
[Paras 84, 85) [828-E; 829-H; 830-A]
H
718
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A
M. C. Mehta v. Kamal Nath (1997) 1 SCC 388, referred
to.
6.2. RIL's right of distribution is based on the PSC,
which itself is derived from the power of the Government
under the constitutional provisions. Thus the very basis
8 of RIL's mandate is the constitutional concepts, including
Article 297, Articles 14 and 39(b) and the Public trust
Doctrine. Therefore, it would be beyond the power of RIL
to do something which even the Government is not
allowed to do. The transactions between RIL and RNRL
C are subject to the over-riding role of the Government.
[Para 86] (830-B-C]
6.3. It is relevant to note that the Constitution
envisages exploration, extraction and supply of gas to be
D within the domain of governmental functions. It is the duty
of the Union to make sure that these resources are used
for the benefit of the citizens of this country. Due to
shortage of funds and technical know-how, the
Government has privatized such activities through fhe
mechanism provided under the PSC. It would have been
E ideal for the PSUs to handle such projects exclusively. It
is commendable that private entrepreneurial efforts are
available, but the nature of the profits gained from such
activities can ideally belong to the State which is in a
better position to distribute them for the best interests of
F the people. Nevertheless, even if private parties are
employed for such purposes, they must be accountable
to the constitutional set-up. [Para 87] (830-D-F]
Association of Natural Gas v. Union of India (2004) 4
G SCC 489 and Re: Cauvery Water Dispute Tribunal AIR 1992
SC 522, relied on.
7. The natural resources are vested with the
Government as a matter of trust in the name of the people
of India. Thus, it is the solemn duty of the State to protect
H the national interest. Even though exploration, extraction
RELIANCE NATURAL RESOURCES LTD. v.
719
RELIANCE INDUSTRIES LTD.
and exploitation of natural resources are within the
A
domain of governmental function, the Government has
decided to privatize some of its functions. For this
reason, the constitutional restrictions on the government
would equally apply to the private players in this process.
Natural resources must always be used in the interests
B
of the country, and not private interests. The broader
constitutional principles, the statutory scheme as well as
the proper interpretation of the PSC mandates the
Government to determine the price of the gas before it is
supplied by the contractor. The policy of the Government,
C
including the Gas Utilization Policy and the decision of
EGOM would be applicable to the pricing in the present
case. The Government cannot be divested of its
supervisory powers to. regulate the supply and
distribution of gas. [Para 91] (831-G-H; 831-A-E]
D
8.1. Though the Contractor (RIL) has the marketing
freed')m to sell the product from the contract area to
other consumers, this freedom is not absolute. The price
at which the produce will be sold to the consumer would
be subject to government's approval. The tenure of such
contracts can't be such that it vitiates the development
E
plan as approved by the government. Therefore, the
GSMA and the GSPA entered into with RNRL should fix
the price, quantity and tenure in :::ccordance with the PSC.
[Para 92(F)(a)] [835-E-F]
8.2. The EGOM has already set the price of gas for
F
the purpose of the PSC. The parties must abide by this,
and other conditions placed by the Government policy.
The GSMA/GSPA deeply affects the interests of the
shareholders of both the companies. These interests
must be balanced. This balance cannot be struck by the
G
court as the court does not have the power under
Sections 391-394 to create new conditions under the
scheme. In view of the same, RIL is directed to initiate
renegotiation with RNRL within six weeks the terms of the
H
720
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A GSMA so that their interests are safeguarded and finalize
the same within eight weeks thereafter and the resultant
decision be placed before the Company Court for
necessary orders. [Para 92(F)(b)] [834-G-H; 835-A]
8.3. While renegotiating the terms of GSMA, the
B following must be kept in mind:
c
D
(1)
The terms of the PSC shall have an over-riding
effect;
(2)
The parties cannot violate the policy of the
Government in the form of the Gas Utilization
Policy and national interests;
(3)
The parties should take into account the MoU,
even though it is not legally binding, it is a
commitment which reflects the good interests
of both the parties; [Para 92(F)(c)] [835-B-D]
8.4. The parties must restrict their negotiations within
the conditions of the Government policy, as reflected inter
alia by the Gas Utilization Policy and EGOM decisions.
[Para 92(F)(d)] [835-D-E]
E Per (Sudershan Reddy, J.): (Sathasivam, J. and
Balakrishnan, CJI expressing dissent on (i) exercise of
jurisdiction u/s 352 of Companies Act. 1956 and (ii) nature
of the MoU and not taking it into account the
renegotiations):
F
1.1. There are no completely unregulated free
markets for natural gas anywhere in the world. By
framing an overarching analytical framework, it can be
observed that every jurisdiction grapples with three sets
of issues relating to ensuring: (1) adequate supplies to
G meet overall energy and industrial needs; (2) equitable
access across all sectors, especially those which have
implications for quality of life; and (3) equitable pricing,
even if market forces are allowed to play a much larger
role. Three more issues are emerging with respect to
ensuring: energy security of the nation; energy defense
H links; and inter-generational equities. Under conditions
RELIANCE NATURAL RESOURCES LTD. v.
721
RELIANCE INDUSTRIES LTD.
of scarcity, these latter factors may indicate a greater A
need for emphasis on conservation a.s opposed to
current consumption. It would appear that markets, with
their emphasis on current consumption and short run
profits may lead to faster depletion, and consequently
necessitate far greater and indeed a primary role for the
B
State in coordination and making choices between
different objectives and value premises. While markets
and private initiatives have an important role in garnering
financial resources, developing and bringing new
technologies to practical
use, expanding the c
infrastructure, and increasing supplies by identification
of and e:ltraction from new sources, if unmonitored and
completely unregulated markets are also capable of
causing great inequities, in access, overpricing and
sometimes even under pricing (if externalities, such as
D
environmental costs, are not taken into account) the
resources. [Para 77] [877-A-E]
·
1.2. The principal themes in production sharing
contracts would appear to be that the sovereignty over
the petroleum produced continues to be with the nation,
E
and the contractor bears varying levels of and forms of
risk with respect to exploration activities and what is
allowed to be recovered as costs (called Contract Costs)
.and to what extent in each year (called Cost Petroleum).
[Para 84] [882-B-C]
F
1.3. The natural gas, under dispute in these
proceedings, is being mined from deep beneath the sea
bed, off the eastern shore of India. Thus, it is a resource
that falls squarely within the purview of Article 297 of the
Constitution of India and is explicitly noted so in the PSC.
G
Article 297 of the Constitution declares that "All lands,
minerals and other things of value underlying the ocean
within the territorial waters or the continental shelf or the
exclusive economic zone shall vest in the Union, to be held
for the purposes of the Union". This Article of the
H
722
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A Constitution is unique as it is the only such provision in
the Constitution that addresses a particular inclusive set
of potential resources in a particular class of geographic
zones. It goes on to say that the limits of those
geographic zones "shall be such as may be specified, from
s time to time, by or under any law made by Parliament." One
needs to appreciate the purport and meaning of Article
297 of our Constitution as increasingly these resources
in the geographic zones specified by it are going to be
tapped, because of technological developments
c enhancing the capacities of the nation. [Para 87] [883-EH; 884-A-B]
1.4. While the word "vest" could normally partake of
at least a portion of the full bundle of rights associated
with ownership, the phrase "shall vest" as used in Article
o 297 of the Constitution implies a deliberate, and not an
incidental act by a body at the various constitutional
moments that have informed our Constitution. That body
is the people as a nation. It is now a well established
principle of jurisprudence that the true owners of "natural
E wealth and resources" are the people as a nation. It is the
people of India, the true owners, who have vested, the
inclusive set of potential resources in a particular class
of geographic zones, in the Union, and that it is an act of
trust and of faith, with a specific set of instructions.
F Those instructions are inscribed, nay genetically
encoded and hardwired, in the commands "to be held"
"for the purposes of the Union." The core and pure
purport of the word "hold" is to conserve, to preserve
and to keep in place and it only secondarily means 'use'
or 'disposal'. The fact that the phrase "be held" is used
G in Article 297 of the Constitution, whereas in Article 298
of the Constitution, in its immediate neighborhood, the
word "hold" is used in conjunction with abilities to
"acquire" and "dispose" is significant and a clear
indication of the intent of the supreme drafter of the
H
RELIANCE NATURAL RESOURCES LTD. v.
723
RELIANCE INDUSTRIES LTD.
Constitution - the people. The use of a series of words
A
in a Constitutional setting clearly implies that they are
being used precisely, so that overlapping meanings are
to be set aside and the purer and the core meanings be
delineated. The phrase "be held" when viewed along
with the phrase "shall vest", which vesting was done by
B
the people as a nation, can only mean that it was used
as a. lock to conserve, to preserve and to keep in place.
And the key to that lock is also there in the same Article
of the Constitution: "purposes of the Union" which can
only mean the integrity, unity and development of the c
nation. [Paras 88, 89) [884-C-H; 885-A-C]
1.5. Within the context of international law, there has
emerged a body of thought under the broad rubric of
Human Rights, that the people as the true owners of
natural wealth and resources, ought to exercise a
D
"permanent sovereignty" i.e., the power to make laws,
over such resources to ensure national development and
well being of the people. The responsible use of such
natural resources for the well-being of the people of a
nation has been seen as an important aspect of E
maintenance of international peace and a part of their
right to self determination. Further, these rights of the
people as Nations have been secured by many struggles
for self-determination over millennia. Those rights
encompass the freedom of self-determination through a
democratic order within the boundaries of the nationstate and the imperative of such self-determination in
inter-se and yet interdependent zones of co-existence
between nation-states. [Para 90) [885-D-F]
F
1.6. The concept of equality, a necessary condition
G
for achievement of justice, is inherent in the concept of
national development that we have adopted as a nation.
India was never meant to be a mere land in which the
desires and the actions of the rich and the mighty take
precedence over the needs of the people. The ambit and
H
724
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A sweep of our egalitarian ideal inheres within itself the
necessity of inter-generational equity. Our Constitutional
jurisprudence recognizes this and makes sustainable
development and protection of the environment a precondition for the use of nature. The concept of people as
B a nation does not include just the living; it includes those
who are unborn and waiting to be instantiated.
Conservation of resources, especially scarce ones, is
both a matter of efficient use to alleviate the suffering of
the living and also of ensuring that such use does not
C lead to diminishment of the prospects of their use by
future generations. The statutory matrix dealing with
natural gas and other petroleum resources also clearly
indicates the importance of such permanence of
sovereignty. The Territorial Waters Continental Shelf,
0
Exclusive Economic Zone and Other Maritime Zones Act,
1976, the Oilfields (Regulation & Development) Act, 1948
and the Petroleum and Natural Gas Rules, 1959, all
emphasise the importance and duty of the Gol to
conserve and develop mineral oils, including natural gas.
E [Paras 94, 95) [887-D-H; 888-A]
CIT v Enron Oil and Gas India Ltd. (2008) 305 ITR 75;
Kumari Shrilekha Vidyarthi v. State of UP. (1991) 1 SCC 212;
Mahabir Auto Stores v. Indian Oil Corpn., (1990) 3 SCC 752;
UC of India v Consumer Education & Research Center.
F (1995) 5 SCC 482; Rai Sahab Ram Jawaya Kapur & Ors. v.
State of Punjab, 1995(2) SCR 2; State of Madhya Pradesh
v. Thakur Bharat Singh, 1967 (2) SCR 454; Poonam Verma
v. DOA. (2007) 13 SCC 154; Union of India & Ors. v. Asian
Food Industries, (2006) 13 SCC 542; Kusumam Hotels (P)
Ltd. v. Kera/a SEB. (2008) 13 SCC 213; NTPC Ltd. v.
G Reshmi Constructions, Builders & Contractors. (2004) 2 SCC
663; Madhav Rao Jivaji Rao Scindia v Union of India (1971)
1 SCC 85; J.K. Industries Ltd. v. Chief Inspector of Factories
& Boilers (1966) 6 SCC 665; Indian Bank v .Godhara Nagrik
Coop. Credit Society Ltd. (2008) 12 SCC 541; Union of India
H
RELIANCE NATURAL RESOURCES LTD. v.
725
RELIANCE INDUSTRIES LTD.
v. United India Insurance Co. Ltd. (1997) 8 SCC 683;
A
Assistant Commissioner, Assessment-II, Bangalore & Ors. v.
Mis. Velliappa Textiles Ltd. & Ors. AIR 2004 SC 86; L/C v.
Escorts Ltd (1989) 1 SCC 264; Mohta Alloy & Steel Works v
Mohta Finance & Leasing Co. Ltd. (1997) 89 Comp. Cases
227; S.K. Gupta v. K.P. Jain (1979) 3 SCC 54; Miheer H.
B
Mafatlal v. Mafatlal Industries. (1997) 1 SCC 579; Meghal
Homes (P) Ltd. v. Shree Niwas Gimi K.K. Samiti & Ors.