1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO. 844 OF 2007 IN COMPANY APPLICATION NO.1122 OF 2006 IN COMPANY PETITION NO.731 OF 2005 Reliance Industries Limited, a Company incorporated ) under the provisions of the Companies Act, 1956, having ) its registered office at Maker Chamber­IV, 3rd Floor, ) Nariman Point, Mumbai – 400 021. )..Appellants (Orig. Respondents) Versus Reliance Natural Resources Limited ) (Formerly Global Fuel Management Services Limited)) a Company incorporated under the provisions of the ) Companies Act, 1956, having its registered office at ) H Block, Dhirubhai Ambani Knowledge City, ) Navi Mumbai – 400 710 )…Respondents 2 (Orig. Applicants) WITH APPEAL NO. 1 OF 2008 IN COMPANY APPLICATION NO.1122 OF 2006 IN COMPANY PETITION NO.731 OF 2005 Reliance Natural Resources Limited ) (Formerly Global Fuel Management Services Limited)) a Company incorporated under the provisions of the ) Companies Act, 1956, having its registered office at ) H Block, Dhirubhai Ambani Knowledge City, ) Navi Mumbai – 400 710 )..Appellants Versus Reliance Industries Limited, a Company incorporated ) under the provisions of the Companies Act, 1956, having ) its registered office at Maker Chamber­IV, 3rd Floor, ) Nariman Point, Mumbai – 400 021. .. Respondents. 3 Mr. Harish Salve, Sr. Adv. With Dr. Milind Sathe, Sr. Adv., Mr. Suresh Gupte, Mr. Firdosh Pooniwala, Ms. Minakshi Grover, Mr. Kamaldeep Dayal i/by M/s. Junnarkkar & Associates for Appellant in Appeal No. 844 of 2007 and for Respondent in Appeal No. 1 of 2008. Mr. Ram Jethmalani, Sr. Adv. With Mr. Mukul Rohatgi, Sr. Adv. Mr. Mahesh Jethmalani, Sr. Adv. Mr. V.R. Dhond, Mr. Mahesh Agarwal, Mr. D.J. Kakalia, Ms. Manali Singhal, Mr. Saurabh Kripal and Ms. Bhavna Singh and Ms. Janki Thakkar i/by M/s. Mulla & Mulla for Appellant in Appeal No. 1 of 2008 for for Respondent in Appeal No. 844 of 2007. Mr. Mohan Parasharan, Additional Solicitor General with Mr. T.S. Doiabia Sr. Adv., Mr. Vinod Joshi, Dr. Shailendra Sharma, Mr. Sandeep Dere and Ms. Ratika Mehra for Intervenor/Union of India. CORAM : J.N. PATEL, & K. K. TATED, JJ. JUDGEMENT RESERVED ON 30th JANUARY, 2009. JUDGEMENT PRONOUNCED ON 15th JUNE, 2009. 4 ORAL JUDGMENT : (Per J.N. Patel, J.) . Appeal No. 844 of 2007 is filed by Reliance Industries Limited (RIL) against Reliance Natural Resources Limited and Appeal No. 1 of 2008 is filed by Reliance Natural Resources Limited (RNRL) against Reliance Industries Limited, aggrieved by the judgment and order passed by the learned Company Judge on 15th October, 2007 in the matter of Company Application No. 1122 of 2006 filed by Reliance Natural Resources Limited against Reliance Industries Limited. As the two appeals filed by the parties to the application are filed impugning the judgment and order of the learned Company Judge, these two appeals are being disposed of by a common judgment. Factual Matrix 2. The Company Application No. 1122 of 2006 came to be filed in Company Petition No. 731 of 2005 by Reliance Natural Resources Limited seeking appropriate orders and direction of the Company Judge for effective implementation of the scheme as a 5 result of decision of the Company Judge in Company Petition No. 71 of 2005 dated 24th October, 2005 which was filed to obtain sanction of the Scheme of Arrangement (the Scheme) between RIL i.e. Reliance Industries Limited and four other companies viz., (i) Reliance Energy Ventures Limited, (ii) Global Fuel Management Services Limited, (iii) Reliance Capital Ventures Limited and (iv) Reliance Communication Ventures Limited. The said petition came to be disposed of by the learned Company Judge by its order dated 9th December, 2005 sanctioning the scheme and inter alia directing that the shareholders of RIL would hold shares in each of the resulting companies in the ratio of 1:1 in addition to the shares held in the parent company (RIL). While sanctioning the the Scheme the learned Company Judge took notice of the salient features of the Scheme which reads as follows:­ (i) All the properties of the Demerged Undertaking transferred by the Petitioner Company immediately before the demerger become the properties of the respective Resulting Companies by virtue of the demerger; (ii) All the liabilities relatable to the Demerged Undertakings 6 being transferred by the Petitioner Company, immediately before the demerger become the liabilities of the respective Resulting Companies by virtue of the demerger; (iii) The properties and the liabilities, if any, relatable to the Demerged Undertakings being transferred by the Petitioner Company are transferred to the respective Resulting Companies at the values appearing in the books of account of the Petitioner Company immediately before the demerger; (iv) Each of the Resulting Companies issues shares to the shareholders of the Petitioner Company (except certain Specified Shareholders) in consideration of the demerger on a proportionate basis; (v) All shareholders of the Petitioner Company (except certain Specified Shareholders) shall become the shareholders of each of the Resulting Companies by virtue of the demerger; and (vi) The transfer of the Demerged Undertakings will be on a going 7 concern basis.” Thereafter considering the objections raised by persons interested in the subject matter and examining the scheme, the learned Company Judge considered the same in the light of the decision rendered by the Supreme Court in the case of Miher H. Mafatlal vs. Mafatlal Industries Ltd., AIR 1997 SC 506 and was pleased to deal with the objections raised in the matter and found that the various objections raised for sanctioning the scheme are untenable as 98.81% of the shareholders have in their commercial wisdom accepted the Scheme and observed that it is not for the Company Court to decide whether a better Scheme could have been proposed by the Company. The objectors have been unable to indicate as to how the Scheme is unfair or how they are prejudiced by the Scheme of Arrangement and came to the conclusion that the Scheme of Arrangement is fair and reasonable from the point of view of the commercial decision taken by an overwhelming majority of the shareholders. Further, that the Scheme cannot be said to be against public policy. In fact, it found that substantially there is no real objection to the Scheme but they are insisting that there should be a further and better disclosure of material particulars which the learned Company Judge 8 found have been sufficiently disclosed and thereby accorded its sanction to the Scheme after examining the same and directing the Petitioner Company and the resulting Companies to comply with the required provisions of law as pointed out by the Regional Director of Companies for which the Petitioner Company gave an undertaking and the company petition came to be allowed. One important factor of which note is required to be taken while dealing with this appeal is that when the sanction for the Scheme for demerger was sought by the companies, a very important issue was raised as one of the main objections that the Scheme was a family arrangement arrived at to the prejudice of the shareholders and the learned Company Judge held that it was unnecessary to deal with those objections as the objectors have confined themselves only to three contentions. Therefore, there can be no hesitation on the part of this Court to concur with the learned Company Judge while dealing with Company Application No. 1122 of 2006 that the Memorandum of Understanding between the two brothers with the mediation of their mother Mrs. Kokilaben Dhirubhai Ambani was an integral part of the Scheme for the reason that the Scheme for demerger was presented to the Court due to internal disputes between Ambani brothers after the dispute came to be settled through mediation of 9 their mother Mrs. Kokilaben resulting in the Memorandum of Understanding / Family Arrangement dated 18th June, 2005 and this fact was well within the knowledge of the shareholders of Reliance Industries Limited which filed the application for demerger of the Petitioner Reliance Industries Limited into two corporate groups led by Mukesh Ambani and Anil Ambani. We are required to observe this right at the beginning for the reason that one of the grounds raised in the appeal filed by Reliance Industries Limited being Appeal No. 844 of 2007 is that the Memorandum of Understanding recording family arrangement is a private document and could not have been considered by the Company Judge for the purpose of determining the issues raised in the Company Application No. 1122 of 2006 filed by RNRL and that the terms and conditions of the MOU cannot be considered in a company application as it does not fall in the corporate domain. 3. It is the case of RNRL that they were required to file Company Application No. 1122 of 2006 and to seek intervention of the Court for issuing appropriate orders and necessary directions to ensure smooth implementation of the Scheme in so far as it relates to the demerger of Gas Based Energy Undertaking from the original 10 company RIL to RNRL and in the Scheme approved by the Court the same has been demerged i.e., the “Gas Based Energy Resulting Company” or as the “2nd Transferee Company”. The dispute between the two companies relates to proper implementation of the transfer of the Gas Based Energy Undertaking from the original company RIL to the Applicant, earlier known as Global Fuel Management Services Ltd. 4. It is also contended that one of the arrangements between the two companies under the Scheme was that the gas will be supplied by the RIL to RNRL which would then be supplied by RNRL to REL and its affiliates and it related to exploitation of oil and gas reserves which belong to RIL in the KG D­6 Basin or elsewhere. According to the RNRL it was agreed between the parties that the gas of 28 MMSCMD which quantum could go to 40 MMSMCD in case the NTPC contract for 12 MMSCMD does not materialize, would be supplied at the same price and on the terms no less favourable to those applied to NTPC where a similar contract of supply of gas was to be executed and that an agreement to this effect came to be executed between RIL and RNRL on 12th January, 2006. It is this agreement dated 12th January, 2006 which 11 is not acceptable to the Applicant RNRL as according to the RNRL this agreement has been drawn by RIL on terms which are unfavourable to the transferee i.e., the Applicant which is evident from the fact that on the date the agreement was executed two out of three directors of the Applicant belonged to RIL group being an executive and consultant of RIL respectively. 5. It is the case of the Applicant that the agreement should have contained similar or same terms applicable to RIL's bid offering supply of 12 MMSMCD gas to NTPC (“NTPC Contract Terms”) and as the same does not conform to the same terms the agreement dated 12th January, 2006 is not only unfair and adverse but also commercially unviable for the Applicant. 6. It is the case of the Applicant that under the Scheme the gas to be supplied to the Applicant RNRL is primarily to be used as fuel in power generation plants of REL and its affiliates relying on the gas reserves of RIL and the availability of gas from the said reserves, 7. It is their case that the first of such plant is proposed to 12 be set up at Dadri, U.P., by REL the approximate cost of which is Rs. 20,000 crores but structured in such terms that it is unknown and it is uncertain whether gas would at all be available to the Applicant on setting up this plant after making huge investment and for how long and in what circumstances and, therefore, due to such uncertainty no prudent businessman can invest such huge sums of money and this defeats the very scheme sanctioned by this Court to demerge the Gas Based Energy Undertaking as this will be completely frustrated and, therefore, the jurisdiction of the Company Court is invoked to ensure the implementation of the scheme and the agreement and arrangement between the parties in true spirit. It is the case of the Applicant that they are required to approach the Company Judge to suitably modify the agreement dated 12th January, 2006 so as to make it commercially viable and in accordance with the NTPC Contract Terms so that the Applicant is secured about supply of gas to them and their associates so that they can proceed with their project at Dadri. In the application, the Applicant has highlighted the background facts leading upto (a) the scheme of arrangement, (b) reorganization and segregation of RIL's business and undertaking, (c) status of implementation of the scheme, (d) directions of the Company Court to make the scheme 13 workable. Thereafter the Applicant has pleaded on what basis the Court can ensure the smooth implementation of the scheme as the parties have failed to arrive at appropriate and suitable arrangement in spite of numerous meetings and voluminous correspondence which is annexed to the application as Exhibit “F”. The Applicant has put the blame on RIL having failed to evolve an acceptable, appropriate and suitable arrangement which would give effect to the Scheme and provide the basis for the existence of the Applicant by allowing it to step into the shoes of RIL as the supplier of gas for the Gas Based Power Projects of REL. 8. It is the case of the Applicant that the proposal of RIL to execute an agreement with the Applicant titled as “Gas Supply Master Agreement (GSMA)” to which is annexed a draft of an actual Gas Sale and Purchase Agreement (GSPA) to be entered into by RIL directly with entities engaged in or proposing to engage in generation of gas based power. It is contended that the GSMA was prepared by RIL and finalized and executed by RIL not only on its behalf but also on behalf of the Applicant without the terms thereof having been vetted by or even considered by REL or by Shri Anil Ambani or the nominee of Shri Anil Ambani on the Board of the 14 Applicant and this draft GSMA is not acceptable to the Applicant due to serious differences on critical issues all of which were unilaterally reflected in favour of RIL and that it is patently illegal and in breach of trust which RIL and its representatives had vis­a­vis the Applicant and the millions of persons who have become shareholders of the Applicant Company. The Applicant has relied upon various correspondence to support their case which has been highlighted in the application. This application was heard at length by the learned Company Judge and finally came to be decided on 15th October, 2007. The decision of the learned Company Judge thereafter is not only impugned by the Applicant RIL but also by RNRL taking exceptions to certain findings arrived at by the learned Company Judge. 9. In the midst of hearing, the Union of India sought intervention in the matter. Initially the application filed by the Union of India was contested by the parties on factual and technical grounds and this Court after hearing the learned counsel for the parties permitted the Union of India to join as intervener in the appeal and not as party respondent but for the limited purpose of assisting this Court in the matter relating to Production Sharing 15 Contract between the Union of India and Reliance Industries Limited with particular emphasis to Article 21 of the said contract as this Court was of the view that the pricing and distribution of gas has far reaching consequences and it is in the larger public interest for the court to seek assistance of the Union of India in this context. 10. We have heard the learned counsel for the parties and the learned Additional Solicitor General of India for intervener at great length. 11. While dealing with the Company Application No. 1122 of 2006 filed in Company Petition No. 731 of 2005, the learned Company Judge has examined the case in depth till the sanctioning of the Scheme by the Court leading to filing of Company Application No. 1122 of 2006. After referring to the pleadings of the parties and the various interim applications and orders and the documents, the learned Company Judge has come to the conclusion that RIL who is respondent in the said application have been unable to deny and/or to place on record any contra material to oppose the claim of MOU. This conclusion of the learned Company Judge was formulated on the basis of correspondence between the two 16 companies which emerged after the sanctioning of the Scheme for demerger and has been placed on record as Exhibit “F” collectively. It is a fact that the Memorandum of Understanding which is now tendered in appeal by consent of the parties and marked Exhibit­1 was not tendered by either of the parties basically on account of a solemn understanding between the two brothers Mukesh Ambani and Anil Ambani and their mother Kokilaben Dhirubhai Ambani that the bunch of correspondence tendered in support of the application Exhibit “F” is in reference to the articulation and finalization of the GSPA which was to be based on the terms and conditions as agreed between the parties in the Memorandum of Understanding. As one of the main grounds of challenge to the order of the learned Company Judge in this appeal is that when the Memorandum of Understanding (MOU) dated 18th June, 2005 between the parties was not produced before the Company Court, but the Company Judge has relied on the same. We may like to mention here that after filing of the Memorandum of Understanding Exhibit – 1, which was by consent of the parties, this Court being an appellate court could have remanded the matter to the Company Judge for fresh consideration of the application filed by RNRL but what we find is that even for want of MOU being filed before the Company Judge, 17 the relevant part of the MOU relating to the terms and conditions of which the parties were supposed to take into consideration while formulating the GSMA and GSPA in keeping with the terms and conditions of the Production Sharing Contract which was entered into between the Reliance Industries Limited and the Union of India for Block KGD6 in the year 2000 is already reflected in the correspondence Exhibit “F” collectively between the two companies. 12. The conclusion arrived at by the learned Company Judge that the MOU / Family Arrangement and this must have a binding effect on the two companies after sanctioning of the Scheme for demerger is assailed on the ground that the Company Judge has taken into consideration decisions rendered by the Supreme Court in the case of Kale & others vs. Deputy Director of Consolidated & ors. (1976) 3 SCC 119, K.K. Modi vs. K.N. Modi & ors., (1998) 3 SCC 573, AIR 1998 SC 1297 was not correct as these authorities relate to the Memorandum of Understanding entered between the family members of Late Dhirubhai Ambani. At the most it is only a family arrangement between various members of Ambani family. By placing reliance on the decision rendered by the Supreme Court in the case of V.B. Rangaraj v. V.B. Gopalkrishnan & ors., 1992 (63) 18 Company Cases 201 = AIR 1992 SC 453 and other cases like Spindel Fabrik Sussen vs. Sussen Textile Bearings Ltd., 1989 (2) CLA 202; Rolta India Limited vs. Venire Industries Ltd., (2000) 24 SCL 13 = (2000) 100 Company Cases 19 (Bombay); Il & FS Trust Company Ltd., vs. Birla Perucchini Ltd., (2003) 4 Company Law Journal 131 (Bombay) in order to demonstrate that the MOU between the family members relating to the family arrangement operates in the private / personal domain and is not binding on a corporate body and as the said MOU Exhibit – 1 does not fall in corporate domain it could not have been considered to be the basis of a “suitable arrangement” to be entered into between the two companies formulating GSPA and GSMA. It has been turned down by the Company Judge on the basis of the correspondence between the two companies which is filed on record as Exhibit “F”. It was submitted on behalf of the Applicant that as the correspondence between the officials of the two companies (Exhibit ­ F ) is an admission by the parties and can be treated as pleadings which are not disputed and in clear terms refers to the MOU as the basis of finalizing an agreement between the parties as contemplated under Clause 19 of the Scheme to arrive at a suitable arrangement which is incorporated in Part VI of the Scheme of Arrangement for demerger 19 under Sections 391 to 394 of the Companies Act, 1956 – Sanction by the Court – particularly Clause 19 of the Scheme relates to the agreements and specifically mentions that the resulting companies will have the right to use the “Reliance” brand and logo and suitable agreements will be entered into in this regard. Further, suitable agreements would also be entered into in relation to (i) non­competition in relation to the business of the Demerged Undertakings and the Remaining Undertaking; (ii) supply of gas for power projects of Reliance Patalganga Power Limited and REL with the Gas Based Energy Resulting Company; and (iii) Transfer of leasehold rights of RIL to the relevant Resulting Company with respect to the relevant Demerged Undertaking. (Emphasis supplied). This led the learned Company Judge to hold that when the parties have acted upon the said MOU and principally by moving such Scheme of Arrangement, which has resulted into demerged company like the respondents and transferee company like the applicants and others, they are bound by the basic terms of the MOU subject to arrangement for its actual implementation on such suitable terms and conditions and that the GSMA and GSPA ought 20 to be on the lines of the MOU and that it has to be in consonance with the production sharing contract with the Union of India. 13. In the context of valuation of natural gas, the learned Company Judge has referred to the various Articles which have bearing on the GSMA and GSPA to be signed between the parties and with special emphasis on Article 21.6 which relates to valuation of natural gas under the Production Sharing Contracts. It has held that as per the Production Sharing Contract, the price of natural gas shall be determined as provided in Article 21 and then went on to conclude that as the production sharing contract and its contents were well within the knowledge of the two companies and its officials and in spite of this as recorded in clause 19 of the Scheme of Demerger could not be finalised, both the companies as well as the shareholders agreed to approve the Scheme and it was accordingly sanctioned by the Court and having once accepted the Scheme in all respects which has been acted upon and has been working smoothly except the issue in question i.e., GSMA and GSPA between the two companies, they cannot deviate from the terms and conditions of the production sharing contract entered with the Union of India and they are bound to enter into a suitable 21 arrangement for sharing the gas by entering into a GSMA/GSPA as per the broad outlines on which they have agreed to translate it into GSMA/GSPA and further held that a suitable arrangement cannot be understood in the context that it can be imposed by one company on the other though the issue of suitability of arrangement cannot be beyond the Scheme and the government policy pertaining to supply of gas as it was clear to both the parties even on the date of sanction of the scheme that the draft agreements and/or