The Final Showdown

Despite Reliance Anil Dhirubhai Ambani Group (ADAG) chief Anil Ambani's overture to his brother, Reliance Industries (RIL) group chairman Mukesh Ambani, to sort out their disputes through talks, the gas supply battle between the two is likely to be settled only in the Supreme Court. And the court is scheduled to start its hearings on the issue on 20 October. The Bombay High Court order of 15 June, which ruled in favour of Anil, has made the Reliance camp re-examine their arguments and change the grounds on which the case was being fought till date. "We knew where we made the mistake and what should be presented in the Supreme Court," says a senior RIL executive.

RIL has since submitted several new affidavits to change the basic contours of its arguments. Meanwhile, the Anil Ambani camp is taking a two-pronged approach. On the one hand, it has gone on an overdrive to tell the media precisely why Anil is being wronged by his brother, and how certain politicians and regulators are working in cahoots with Mukesh. On the other hand, Anil has also submitted several fresh affidavits in the Supreme Court to bolster his original arguments.

The Price Tussle
The case fought in the Bombay High Court largely focused on the family settlement of June 2005, when the Reliance empire — built by Dhirubhai Ambani and his two sons — was formally partitioned. Among other things, the family agreement laid down how much of the gas being produced by Mukesh's gas fields would be sold to Anil's companies — at what price and for how many years. The Mukesh camp had argued against following the conditions, saying it went against the government's gas utilisation policy. But this did not cut much ice in the high court.

Anil's lawyers successfully pointed out that the family memorandum of understanding (MoU) was signed before the policy changed. They also argued the agreement was a straight commercial contract between two companies — Mukesh-controlled RIL and Anil's Reliance Natural Resources (RNRL). Hence, by changing the terms of the agreement, RIL was in breach of contract.

In the Supreme Court, the Mukesh camp is likely to pursue a different tack in its arguments, if the affidavits filed so far are any indication. First, Mukesh's lawyers are likely to argue that the old gas utilisation policy has been changed. This cuts down on its flexibility to sell gas at the price as per the family agreement — at which Anil wants it to be sold. They are likely to argue that the policy change makes it impossible for RIL to honour its commitment to RNRL. Therefore, unless the government scraps the current policy, and goes back to the old one, the old agreement makes no sense.

But RIL is also playing a stronger card. It says the family agreement was never ratified by the board of RIL as argued by the Anil camp. It has filed affidavits by independent directors of RIL to that effect. Though there was a loose agreement between the brothers on the gas pricing and supply front, it was never turned into a concrete agreement between the two publicly listed companies — and, hence, no contractual obligation was being breached. The subtle shift it seeks to emphasise is that this is no family battle — it is a battle between two listed companies, and any move by RIL to appease Anil's companies would cause harm to RIL shareholders.

This point is important because the high court judgement specifically points, "RIL… has been unable to deny and, or, to place on record any contra material, to oppose the claim of (the) MoU." Hence, RIL is now carefully avoiding the link between MoU and the gas, and has stressed this point in its affidavit filed in the Supreme Court on 5 October. "The MoU was never presented to or approved by RIL's board of directors or shareholders, and is not legally binding upon RIL," says an RIL affidavit.

Where It Is Going
Meanwhile, both camps have argued that the other is going to make disproportionate profits out of the deal. Initially, Anil pointed out that changing the price of gas would put huge sums of money into Mukesh's pockets and also cause the government to lose substantial revenues.

The Mukesh camp countered that charge, saying sticking to the terms Anil wants would only benefit the younger Ambani since he does not plan to use the gas for power generation (Anil's Dadri power plant is still to be built), but sell it at a higher price in the open market. However, the Anil camp argues the agreement allows it to do so. RIL also brought out its own arguments why the government would lose huge sums if the gas was sold to RNRL at the price Anil wants.

WHAT RIL TOLD THE BOMBAY HC... The memorandum of understanding (MoU) recording family arrangement is a private document. Gas would be supplied from KG6 basin to the Dadri plant provided the project is set up and on the prevailing terms and policies of the government. ...AND WHAT IT IS LIKELY TO TELL SC RIL is not a signatory to the MoU and thereby is not bound by it. It has no obligation under the MoU. Gas will be supplied under the existing terms and conditions. A "suitable arrangement" is a necessity for future supply. The Ambani feud over pricing of gas may be finally reaching the final round.

ADAG, in its response to the Supreme Court, has said the MoU allows it to divert the gas for its other gas-based power projects. That is a point strongly contested by RIL in its affidavits filed in the Supreme Court since 15 June.

It is almost certain that Anil Ambani and RNRL would seek to keep the legal discussions stick to the issues examined by the high court. And Mukesh Ambani and RIL would simultaneously try to change the issues being examined completely, so that they do not end up losing the case as they did in the high court.

The Missing Trust
There is a feeling in the RIL camp that if the argument keeps focusing on the family agreement, they are on a sticky wicket. But if the issue can be forced to move, on the planks that RIL board never ratified the eventual family agreement, and also that the policy change has anyway made the family agreement on gas pricing redundant, they will be on a better pitch.

Interestingly, on 10 October, Saturday, RNRL filed a fresh affidavit in the Supreme Court, accusing RIL of "breach of fiduciary duties and criminal breach of trust". And the very next day, Anil Ambani used a public release to reach out to his brother and seek a dialogue between them to sort out the outstanding issues.

Even more interesting was RIL's and Mukesh Ambani's responses. They welcomed the talks, but showed enough scepticism that the overture was serious. As the Mukesh Ambani group said it was willing to sit down for talks provided ADAG stops maligning its board members.

At any rate, the gas battle is finally headed for end game. It will be interesting to see if the two camps can find newer tactics to use while arguing their cases.

m dot rajendran at abp dot in

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