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A case study on RIL Vs RNRL Dispute Legal Aspects of Business Submitted by: Nida Majeed Roll No: 103 Section: B Course: PGDM Submitted to: Prof. Navin Shrivastava Brief Summary Power shortage, in India, is not unheard of. Such grim is the outlook that India is expected to miss its 2012 power generation target by nothing less than 60%. Hence India, once again, started to look at Natural Gas to cater for this deficiency. Successful exploration of gas from KG basin was widely anticipated as a s
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     A case study on RIL Vs RNRLDispute Legal Aspects of Business Submitted by: Nida Majeed Roll No: 103  Section: B  Course: PGDM  Submitted to: Prof. Navin Shrivastava    Brief Summary     Power shortage, in India, is not unheard of. Such grim is the outlook that India is expected to miss its2012 power generation target by nothing less than 60%. Hence India, once again, started to look at Natural Gas to cater for this deficiency. Successful exploration of gas from KG basin was widelyanticipated as a solution to all lacunas persisting today. As a result, India or Reliance Power planneda under construction, gas fired power plant, one of the single largest gas fired power plant (5500MW) in the world, in Dadri, UP. However complications started immediately after the death of Mr.Dhirubhai Ambani. Family feud between Ambani sons ± Mr. Mukesh and Mr. Anil unveiled for  public interpretation.Considering the mammoth size of Reliance conglomerate ± then Rs 100,000 Crore, about 2% of Indiaµs economy a lot was at stake, it was imperative to reach an amicable and agreeable solution tothe dispute. Mother Kokilaben played an important part to reach at amicable solution. The agreementcontained a clause named Gas Supply Master Agreement (GSMA). According to GSMA, RIL (partof Mukesh Ambani group) was to supply gas at subsidized rate of $2.34 per million British thermalunits for a period of 17 years. The amount of gas would be equivalent to 28 Million Metric StandardCubic Meter Per Day (mmscmd) from the KG basin.Reliance Natural Resource Ltd. (RNRL) Of Anil Ambani in 2006 claimed that Reliance IndustriesLtd. (RIL) Of Mukesh Ambani had reneged on part of a promise under the demerger agreement tosupply gas from Krishna-Godavari basin to the RNRL¶s planned power stations. RIL then argued theagreement was subject to government approval and that in 2007, a ministerial committee set a priceof $4.29/mmBtu. The feud was never settled for good. It was painfully visible by the fact that RILwas never intending to supply gas at a contractual price when it will be making a loss.In November 2008, RNRL filed company application, over gas supply, taking dispute with RIL tocourt. The Bombay High Court upheld the maintainability of RNRL¶s plea and asked RIL to supplygas to the latter. The court asked the two parties to enter into an agreement within a month along thestipulated ruling. The HC also said the parties can approach Kokilaben Ambani ² the mother of theestranged industrialists Anil and Mukesh Ambani to reach an arrangement.Following this, both the companies ± RIL and RNRL moved to Supreme Court. It admitted the petitions. Such a dramatic turn of events forced the GOI to take a stand. The government has filedthe affidavit as an intervener which means that it gets to assist the court in coming to a conclusion.Oil and petroleum ministry filed a petition in court claiming that KG basin and its natural assets are     public property, and hence, no MOU regarding the same is legally valid unless the GOI hasconsented to the MOU. On this ground, it requested the Apex court to declare the MOU null andvoid. Supreme court hearing will be on the 20 th October regarding this case. T imeLine    J uly 2002 - Dhirubhai Ambani, a school teacher's son and founder of the Reliance businessempire, dies. Mukesh Ambani becomes chairman and managing director of RelianceIndustries Ltd, and Anil Ambani is made vice-chairman.     Nov 2004 - Feud between the brothers becomes public.    J une 2005 - Family reaches a settlement to split the Reliance group in a deal brokered bytheir homemaker mother, Kokilaben. Memorandum of Understanding was signed betweenthe brothers, which included provision of providing natural gas from RIL to RNRL at lower  prices.    2006 - Formal split takes place, with Mukesh taking control of flagship Reliance Industries,with interests in petrochemicals, oil and gas exploration, refining and textiles. He has sincelaunched a retail venture. Anil gets telecoms, power, entertainment and financial services.The Anil Dhirubhai Ambani Group includes Reliance Communications Ltd, RelianceInfrastructure Ltd, Reliance Capital Ltd, Reliance Natural Resources Ltd (RNRL), andReliance Power Ltd.    December, 2006 ± RNRL goes to Bombay High court against RIL on Krishna- Godavari Natural gas issue.    J une 15, 2009 - Mumbai's High Court directs Reliance Industries and RNRL to enter a gassupply agreement within a month. Notwithstanding Government policies and the provisionsof the PSC, the order observes that the provisions of the MOU are binding on the parties. TheMOU, as per the judgment, provides that 12 mmscmd will be given to NTPC, 28 mmscmdwill be given to RNRL and the remaining, at the option of ADAG, will be shared betweenRIL and RNRL in the ratio of 60:40. The MOU also stipulates that this share of gas will beapplicable to gas not only from reserves of KG D-6 field, but also from other fields to beexplored and operated by RIL, even consequent to future bidding by RIL.    J uly 18, 2009 - The government filed a petition before the Supreme Court, made a case for scrapping the gas supply agreement between RIL & RNRL.       J uly 23, 2009 - The Petroleum Ministry filed a special leave petition, seeking direction for declaring as 'null and void' a memorandum of understanding between RIL and RNRL that provides for gas supply.    October 20, 2009 - The Supreme Court will hear the government's petition for admissibility,as also the cross-appeals by RIL and RNRL. Ag reements or Contracts present in Reliance Gas Row    P roduction Sharin g Contract ( P SC) between RIL and Government: Under the government's New Exploration and Licensing Policy (NELP) there is a production sharingcontract (PSC) between RIL and Government signed in April 2006, which sets out the terms andconditions under which RIL operates its lease of Gas fields in KG-D6, including the share of revenues that would accrue to the Government.    MOU between RIL and RNRL: In 2005, RNRL and RIL signed a memorandum of understanding (MOU) on the terms under whichgas would be supplied for the RNRL¶s Dadri power project in UP. This MOU specified that the priceat which the gas would be supplied would be the same as the price at which RIL would supply gas toan NTPC project. In 2004, RIL made successful bid for NTPC to supply gas at a price of $2.34 per mmbtu. Le g al Complications involved in the case    Contract A ct: Contract & MOU : A contract is an agreement, enforceable by law. Every promise and every set of promises forming theconsideration for each other is an agreement. All agreements are contracts if they are made by thefree consent of parties competent to contract, for a lawful consideration and with a lawful object, andare not hereby expressly declared to be void.A memorandum of understanding (MOU) is a legal document describing a bilateralagreement between parties. It expresses a convergence of will between the parties, indicating anintended common line of action, rather than a legal commitment. It is a more formal alternative to agentlemen¶s agreement, but generally lacks the bind power of a contract.   However in some cases,depending on the exact wording, MOUs can have the binding power of a contract; as a matter of law,contracts do not need to be labelled as such to be legally binding. Whether or not a document
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