HIGH
COURT OF
Reliance
Natural Resources Ltd.
v
Reliance
Industries Ltd.
Anoop
V. Mohta, J.
Company
Application No. 1122 of 2006
and
Company Petition No. 731 of 2005
October
15, 2007
Section 392 of the Companies Act, 1956 - Compromise and arrangement - Whether even though there is a power available to Company Court to pass appropriate order including modification of scheme for smooth working as contemplated under section 392, but business adjustment or arrangement cannot be decided and/or thrusted or imposed by Court specially when such arrangement or adjustment for such scheme always means exigencies of particular business, an insightful and unanimous or majority decision of shareholders, board of directors, experts, creditors bath secured and unsecured, within framework of law and Government policy - Held, yes - Whether, however, it does not mean that parties to arrangement cannot sit together and decide such clause and/or contract while finalizing or dealing with such nature of transaction based upon Government policy and laws of land to make it suitable arrangement in context of scheme in question - Held, yes - Whether it is not domain of Court to pass such directions merely because parties have failed to arrive at settlement and/or failed to finalise such technical & complex tax terms and conditions, in spite of discussions prior or even after scheme sanctioned by Court - Held, yes
Pursuant to a new policy (NELP) announced by the Government, which, for the first time, provided various petroleum blocks for exploration, development and production of petroleum and gas to private parties/entities, the respondent -company, in consortium with another contractor successfully bid for one particular block (KG’D-6) and entered into a profit sharing contract (PSC) in respect thereof with the Government on 12-4-2000. as per said PSC, all the expenses relating to the said exploration were to be borne by the contractor, who could recover the same from the petroleum/gas actually produced and sold by it subject to the adjustment and the terms of profit sharing between the Government and the respondent. While the exploration activities were still in progress, the respondent’s founder ‘D’ who set up various other companies including the appellant for different projects, died. Sometimes there after, differences started between his two sons over the Management and control of the group companies since both of them were looking after the affairs of the group companies including the respondent, in all respects. Meanwhile, the consortium announced discovery of significant result of its exploration and the respondent got a contract from the NTPC for supply of gas to its power projects. Subsequently, the media informed the general public that both brothers with the mediation of their mother arrived at an understanding/family arrangement (MOU) dated 18-6-2005 and accordingly resolved their disputes amicably. Thereafter, both the brothers and officials of respondent and other groups companies, made various discussion, exchanged correspondences, e-mails and held conferences and meetings to implement the MoU and to divide the various companies by moving a scheme of arrangement. On petition seeking approval of said scheme, the High Court sanctioned the scheme for demerger of four undertakings of the respondent and transfer of those undertakings on a going concern basis to four resulting companies with a direction that a suitable arrangement would be entered into in relation to supply of gas for power projects of two companies (RPPL and REL) with the gas based energy resulting companies. Pursuant to said direction, the respondent’s board approved the drafts of gas sale master agreement (GSMA) and a gas sale purchase agreement (GSPA) despite objections raised by the applicant belonging to the other group (ADAG). On company application under section 392 filed by the applicants, the Company Court granted an ad-interim relief on 3-5-2007 restraining the respondent from creating any third party interests or rights in respect of (i) 28 MMSCMD of gas to be supplied to the applicants, (ii) 12 MMSCMD to be supplied to the applicants on firm basis in case NTPC contract did not materialize. By a subsequent order dated 20-6-2007, the Company Court further held that the respondent could not be heard to say that it was free to negotiate for the proposed sale of gas produced with third party since if the same was accepted, it would substitute the GSMA dated 12-1-2006 as a suitable arrangement for the purpose of clause 19 of the sanctioned scheme. On merits, the applicants contended that to make the scheme, as sanctioned by the Court, effective and workable, it was necessary to direct the amendments and alterations to the GSMA and GSPA since both did not result in effective transfer of the business sought to be demerged and were not in compliance with the terms of the scheme of arrangement in its letter and spirit and that the GSMA and GSPA were also not in compliance with the MoU which was the very reason of the scheme of arrangement. The respondent-resisted the application, inter alia, on the ground that assuming without accepting that one of the underlying reasons for the scheme was an arrangement that might have been arrived at between the two brothers, such arrangement/agreement was nonetheless irrelevant inasmuch as a scheme for the demerger of a large company with a large number of shares being held by the public and by institutions, had to be in larger public interest as well as interest of the company; that none of the heads of so-called agreement were a part of the scheme as proposed by the respondent’s board and approved by the creditors and general body of shareholders; that the terms and conditions on which the gas was to be supplied to the power plants of RPPL and REL were to be at the discretion of the demerged company’s board of directors, who were not bound by any agreement between two groups of promoters.
Binding MOU/Family Arrangement & Its Importance & Effect:
From the correspondences between the parties one thing was very clear
that both the parties in facts acted upon the said family arrangement and/or
MOU dated 18-6-2005 throughout. Those correspondences further confirmed that
there was an arrangement made and agreed between the respondent and ADAG.
Otherwise the applicant as well as the respondents companies’ officials or
Managing Directors ought not to have discussed the same before the settlement
of the scheme and even thereafter. The correspondences as referred and as
relied upon by the respondents, showed that the discussion as going on was
intended to expedite the implementation of the MOU, by producing a workable
commercial arrangement. Both the parties were trying to bring all the important
facets of the private domain into the family corporate domain. There were
various discussions and meetings took place apart from emails to use the MOU
and the draft between respondent and NTPC as a guidance to finalise the
agreement between the applicants and respondents to be ‘a suitable arrangement’
as contemplated under clause 19 of the scheme. The submission, therefore, that
there was no MoU at all in existence as referred and relied by the applicants
and as registered by the respondents was not acceptable. Though the actual copy
of the MoU was not part of the record, yet in the absence of any
contra-material and in view of the referred correspondences apart from the
discussion as recorded therein, it was difficult to accept the contention that
neither respondent nor its Board member were
unaware of the contents of the MoU. It was also not acceptable that the
respondents were not agreed to accept or incorporate the terms of MOU in any of
the arrangement for supply of gas for the power plants of REL and RPNL. [
Another facet was that there were positive averments made in the pleading
by the applicants in reference to the MoU and its contents apart from all the
correspondences revolving around the MoU as filed in compilation on the record,
remained non-traversed for want of specific denial. [
The dispute between the two brothers was known to the concerned and
basically to the shareholders. The Press Release as relied by the
applicants could not be overlooked. The
fact was that because of the efforts of their mother the family settlement had
been arrived at and followed by the scheme of demerger. This further supported
the case that both the parties including the respective shareholders were fully
aware of the division of the main company. The shareholders were fully aware of
the reason for such division and/or formation of the resulting company. The
Board of Directors as well as the shareholders apart from all other concerned,
had unanimously agreed for the scheme. The submission, therefore, that
respondent and its Board of Directors were not party to the said family
arrangement and, therefore, were not bound by such family arrangement was
inconceivable. [
Strikingly, said division was also the part of the MoU as referred in the pleading. Admittedly, both the parties had acted upon the scheme. Admittedly, thereafter both the parties had been entering into various contracts and agreements with the third parties as an independent entity. Both the companies were developing in all their respective fields. Admittedly, there was no challenge of any kind raised in so far as the formation of new entities as per the scheme. Admittedly, except the gas supply agreement all other companies as found were working and running/managing their affairs smoothly.
The
The agreement and the discussion from June 2005 till the date on the issues raised by the applicant, supported the case of the applicants that both the parties had full knowledge about the MoU and its contents. It further supported that at the relevant time the same were the agreed terms. What remained was the terms to be suitably elaborated & finalised, as contemplated under clause 19 of the scheme.
The submission that the documents required to be proved by its production
and/or as not produced even as secondary evidence, in accordance with sections
57 to 62 of the Evidence Act was also to be rejected in the set out background.
Having once accepted the MoU and both the parties and their respective Board of
Directors, had already acted upon the said MoU & principally by moving such
scheme of arrangement, which had been resulted into demerged company like the
respondents and transferee company like the applicants and others, it was too
late to raise such opposition in the instant proceedings. The parties having
once acted, were bound by the basic terms of the MoU subject to arrangement for
its actual implementation on such suitable terms and conditions. [
THE MOU - THE SCHEME LEAD TO & NOW FOLLOWED BY THE GSMA & GSPA.
Admittedly, the draft of GSMA and GSPA were in discussion even prior to
the application for sanction of the scheme. Admittedly, GSMA and GSPA dated
12-1-2006 were the resulted agreements, which alleged to have been executed in
compliance with clause 19 of the scheme, making provision for supply of gas to
the power plants of RPPL and REL. The GSMA provided for sale of gas to be
produced at the fields of the respondents to the applicants or its affiliates
as defined in the agreement. The GSPA provided agreement for supply of gas to
the actual power producing company, i.e. GSPA. The GSPA was part of GSMA. As
per that agreement, the GSMA was expressly subject to approvals under the
upstream arrangement i.e., PSC which the respondents had with Government of
India. [
The ADAG was fully aware of the Government’s New Explanation and
Licensing Policy, 1999 (NELP) being part and important person/official of the
original respondent. He was fully aware of the PSC in respect of the
exploration Block in question which had been signed on 12-4-2000 between the
Government of India and the Consortium (the contractor) some time in October,
2000, the contractor announced discovery of significant results of natural gas
in KGD-6 Block. On 18-6-2005 one brother, i.e., head of ADAG resigned as
Joint Managing Director of the respondent. Various correspondences, emails,
reflected the discussion and due deliberation by both the parties, firstly to
move such scheme and secondly, to all feasible and possible way to enter into
agreements/arrangements so that the respondents would be able to supply/sell
from the share of gas to be produced at the Gas fields to the applicants or its
affiliate and its undertakings. Therefore, various aspects and requirements and
obligations of PSC had been the matter of discussion throughout, prior and even
after the framing of the scheme between the parties. [
THE PSC & ITS EFFECT ON AGREEMETNS GSMA & GSPA AND OR BETWEEN RIL & RNRL
Without going into the technical and detailed aspect of the PSC one could
see that the PSC and its contents were well within the knowledge of, in all
respects, to the applicants and its officers. In spite of that as it could not
be finalised, both the companies as well as their shareholders agreed to
approve the scheme and it was accordingly sanctioned by the Court. Having once
accepted the Scheme in all respects, but the same had been working smoothly
except the issue in question, the submission of the applicants that they were
not bound by the PSC terms was unacceptable. [
In the instant case, the respondents were not denying the rights and/or
settlement of the appellants as agreed, but the case was it was subject to
GSMA/GSPA. The respondents were agreeing to sell the gas from their share to
the applicants. [
Suitable arrangement:
The Supreme Court in Municipal Corporation of Delhi v. Qimat Rai
Gupta (2007) 7 SCC 309, expressed that a relevant consideration while
interpreting a word or construction of words and phrase would depend upon its
text and context and further upon the purport and object it seeks to achieve.
The underlying facts and the object that resulted into the formation of the
term "suitable arrangement" in the scheme are very vital and
important. [
In the background of existence of PSC, MOU, after due deliberation and discussion, the scheme had been sanctioned. Both the parties had put their submission based upon their respective pleadings and in perspective of the words ‘suitable arrangement’. Clause 19 of the scheme provided the words ‘suitable arrangement’ only in respect of supply of gas for the power projects of RIL & RNRL. Such ‘suitable arrangement’ would also mean the negotiations and discussion between RIL and RNRL based upon the existing background and underlying facts. It could not be a unilateral document or agreement. It would also means that it should be suitable to both RIL and RNRL. The issue of suitability of arrangement could not be beyond the scheme and Government policy pertaining to supply of gas. It was clear to both the parties, therefore, even on the date of sanction of the scheme that the draft agreements and/or arrangement through GSMA/GSPA had been the matter of discussion and deliberation, which were based upon the basic terms of the MoU. It was clear that the successful implementation of the Scheme in no way solely depended upon the ‘suitable arrangement’ in question. Basically the understanding of the parties for the suitable arrangement for supply of gas for the power projects of RPPL & REL keeping in view all the existing terms of the PSC, NTPC contract, the MoU, the commercial and technical aspects, therefore, definitely needed to be considered from the point of view of both entities and their respective shareholders interest.
In this background the submission, therefore, that; formal document or
arrangement must be or expected to be in line with the MoU in question; the
imposition of such unilateral terms through GSMA and GSPA on applicants could
not be said to be suitable arrangement as envisaged in clause 19 of the scheme
had force and was to be accepted. [
INTERPRETATION OF THE SCHEME/DOCUMENTS:
For interpretation and to gather the intention and object of the MoU, the scheme and the GSMA, the term or phrase ‘suitable arrangement’ referred back to all the ingredients of the PSC, MOU and the scheme. However, it would also mean the arrangement should be suitable to all the concerned and not only to one party. [para 96]
MAINTAINABILITY OF THE
APPLICATION & JURISDITION OF THE
Under the Companies Act, there is no provision except sections 391 to 394
which deal with the procedure and power of the Company Court to sanction the
Scheme which fall within the ambit of the requirements as contemplated under
sub-sections (19AA), (19AAA) and (41A) of section 2 of the Income-tax Act,
1961. In the absence of any other provisions except section 392, it was
difficult to accept the contentions that the application under section 392 as
filed by the applicant was without jurisdiction. The parties cannot be rendered
remedyless. The
The title and purpose of section 392 to enforce compromise and arrangement
and further the power of the Court to supervise, the compromise and/or
arrangement which the court had already sanctioned under section 391 was also
sufficient to consider the instant application filed by the applicants on merits. [
The submission, as raised that the present dispute was a case of scheme
of arrangement involving transfer of assets from a transferor company to a
transferee company and, therefore, the provisions of Section 394 would be
applicable and not section 391, was unacceptable. It is difficult to dissect
these provisions and to read in isolation for the purpose of supervise and/or
modification of the scheme and/or passing appropriate order to see that the
Scheme as already sanctioned must run smoothly in the interest of all. All
these sections are inter-linked and inter-connected and operate coherently.
Therefore, the submission that once the Scheme is sanctioned, section 392 is
not applicable after passing the order under section 394 become functus
officio and section 394 operates in an occupied field, was also
unacceptable. All these sections are in addition to and in aid of the primary
power of the Court while sanctioning any such Scheme. [
Admittedly, the present Scheme of arrangement had all the ingredients of
demerger and the formation of resulting companies and/or ongoing companies and
in this background the arrangement, therefore, as arrived at by the parties, in
the absence of any other provision, it was difficult to accept the submission
that once the Scheme was sanctioned and in the present case under section 394,
the Court became functus officio.
[
In view of aforesaid, the company applications as filed were
maintainable. The
The words ‘arrangement’ and/or ‘compromise’ are not defined under the
Act. Both the words have their different meaning and purpose. In the instant
case, there was an arrangement between the demerged company and the resulting
company. The said arrangement, therefore, took into its sweep all the earlier
events, MOU and various discussion between the two entities till and even after
the sanctioning of the scheme. There was no dispute that the demerged companies
and/or the resulting companies were separate entity but under the control of
one group until by the arrangement, they agreed to demerge and, accordingly,
the High Court had sanctioned the scheme. Both the new group/entities had been
formed & divided only thereafter. There was no other provision wherein or
whereby such arrangement and/or such application for modification and/or
direction and/or supervision by the Court, could be considered. The application,
therefore, under section 392 was maintainable and it was within the
jurisdiction of the
The Power of Company Court to grant relief as prayed or to modify the scheme
Though there is a power available to the Company Court to pass
appropriate order including of modification of the scheme for smooth working as
contemplated under section 392 yet the observation of the Apex Court in Mihir
H. v. Mafatlal Industries Ltd. [1997] (1) SCC 579 just can not be
lost sight of. [
The respective business strategy of the companies is not the Court’s
domain. In the competitive market the Corporate exhaustive strategies are
essential. Companies know how to make or arrange and adjust their business to
run with the national and international markets. Third person may not be in a
position to provide them business strategies and apart from that the views
expressed by the third person is of no consequence to the respective company’s decision. It is difficult for the
Court to express their opinion on such matters. The business adjustment or
arrangement cannot be decided and/or thrusted or imposed by the Court specially
when such arrangement or adjustment vor such Scheme always means exigencies of
the particular business, an insightful and unanimous or majority decision of
the shareholders, Board of Directors, experts, creditors, secured or unsecured,
within the frame work of law and Government policy. The judicial review of such
commercial aspects is impermissible specially at this stage of settlement of
draft or terms of any such contracts in these proceedings. [
As noted, there was no problem in
so far as the working of the Scheme as demerged companies as well as resulting
companies had been doing their respective business and/or managing the affairs
of the respective entities smoothly and without any problem or objection. The
respondents were not ready and/or accepting to change the terms and conditions
particularly of the GSMA. [
In such situation, the Company Court under section 392 or even otherwise
could nor impose and/or direct in either of the entitles to put or delete or
add the conditions in the said GSMA or GSPA specially when both the parties
were not agreeing to change and/or to amend the protested points. [
In the instant case both the parties were insisting that their respective
clauses of GSMA should be modified, altered or retained. The rest of the GSMA
clauses, therefore, not much in dispute. Importantly, whatever might be the
consequence of modification or deletion of those six clauses, as rightly
contended by the respondents, would have repercussions and/or affect the other
clauses also. Therefore, even otherwise in such type of transactions or
agreements, the clauses are always interconnected and interlinked. In the
instant case, it was not possible to hold that deletion of one clause would not
affect other clauses. The result would be, therefore, the whole GSMA and/or
GSPA itself would be unclear and unworkable. [
However, it did not mean that the parties still could not sit together
and decide such clause and/or contract while finalizing or dealing with such
nature of transaction based upon Government policy and the laws of the land to
make it ‘suitable arrangement’ in the context of the scheme in question. Both
the parties need to decide and settle all the clauses in such type of
complicated and commercial transaction of supply of gas. The document should be
integrated. All the clauses need to be connected and interpreted from the point
of view of national and international level of contract some time it may take
years to settle and negotiate such type of contracts. In the instant case, except
for the disputed clauses, basically the parties were in agreement, though those
clauses themselves could not be the
matter of interpretation or decision and, therefore, the parties need to see
and settle and negotiate the clauses which were of a commercial nature and
specially when the Company Court has no authority and/or power imposed in such
nature of transaction to accept or not to accept the particular clause or
clauses. [
Furthermore, the terms and conditions of the GSMA based upon the referred
clauses and formula were not foreign to such nature of agreement of supply of
gas. Both the parties must be having the expert team of consultants, engineers
of national and international level, which was otherwise a requirement to
commence such business of exploration/production and supply of gas. Though
unable to settle and finalise the terms and conditions as objected and
discussed in the instant petition, that itself could not be the reason that
Court should, without expertised knowledge in the subject or in the area,
express and/or direct and/or impose and/or modify the terms and conditions on
either side. It is not the domain of the Court to pass such directions merely
because the parties have failed to arrive at settlement and/or failed to finalise
such technical & complex terms and conditions, inspite of discussions prior
or even after the scheme. [
As the arrangement and/or compromise of any such scheme like the one in
question has always the foundation of unanimity or the acceptance of respective
terms and conditions, it was expected again that for proper working and/or
smooth working of the Scheme the parties should settle themselves for a
‘suitable arrangement’ for supply of gas. [
THE GOVERNMENT’S ROLE & ITS APPROVAL:
The submission of the applicants that they were not concerned with the agreement between the Government of India and the respondents/contractor was not correct. Once one talked about the commercial transaction and wisdom, it was very clear that no commercial person would take any risk, by breaching the terms and conditions of the PSC or such other agreements and invite termination notice or such other adverse action from the Government. The transaction of such nature i.e. gas production and supply and/or further transfer or sale of gas by the contractor to third person, out of the profit gas need every sort of protection and precaution. In such transaction and business where great financial and infrastructure support is necessary based upon the existing policy of Government apart from various aspects of Force Majeure or natural calamities or adverse impact on environmental and/or field of national or international sale prices. These important facets which need to be respected by the contractor like the respondents.
The Government had signed PSC with the contractor (including the
respondent-RIL). After allotment of the block the respondents were now required
to follow and take all necessary steps for the exploration and production. This
included the various compliances of various laws and policies. The financial
support for the large infrastructure, experts, technical, Engineers and huge
staff and their involvement in respective field. The contractor in the instant
case had invested huge money and had commenced the exploration and production.
After the commercial discovery, the contractor/respondents had already moved to
the Government, as per the development plan for approval which included the
proposed capital expenditure and production from the blocks. The Government,
therefore, even at all these stages played important and dominant role to
monitor and review all these facts through their Management Committee. [
The Government’s interest, apart from the maximum utility and use of the
natural resources to the benefit of people at large is also to have royalties
and taxes and its share of profits. The profit share is only after cost
recovery of all capital and operating expenditure of the contractor. The price
formula for valuation purposes is also needed to be approved by the Government.
Subject to this PSC and Government policy, the contractor is the owner of his
share of the gas, though the natural resources are within the control and
ownership of the Government. The contractor had full right to dispose of the
gas so produced according to his commercial wisdom to the third person or
parties, but only from his share and that is after the respective profit share
to the Government as agreed. The contractor had, therefore, full freedom to
market his portion of the gas. [
THE MAJORITY DECISION/RESOLUTION BY RESPONDNET’S BOARD DATED 11-1-2006 AND 12-1-2006 & THE EXECUTION OF GSMA/GSPA
The main crux of the problem arose because of the resolution by the Board
of Directors of respondent on 11-1-2006/12-1-2006. A company is a juristic
person and acts through its Board of Directors. The Board of Directors acts
collectively for the company. It is specialised and body of responsible person.
The decision by the Board is for the company’s interest and for its benefit.
The Board of Directors act as agents, trustees and in a fiduciary capacity.
They are the trustees of the shareholders of the company. Their decision binds
the company. In the instant case, pending the decisions and discussion on
various aspects of gas supply agreement hurriedly inspite of objection by
so-called representatives of the applicants, the Board on 12-1-2006 took
decision by majority and approved the GSMA and GSPA. Such decision if not
acceptable and as objected prior and even after the said Board decision, before
and immediately after the decision, as it was not in the interest of resulting
companies including the applicant. Any such resolution or decision in the
instant case could not be said to be bona fide. The resolution dated
12-1-2006 without new Board of Directors of resulting companies, therefore, was
not as per the agreed terms of the Scheme. [
The circumstances were glaring on the record. The decision as taken hurriedly on 12-1-2006 refaced various doubts that it was one sided and that the procedure as followed to adopt or resolve or to execute the GSMA was unfair and unjust. Therefore, the meeting as held and the decision as taken hurriedly by the respondent was not as per the sanctioned scheme and it was in the breach of the said scheme. [para 167]
BANKABLE DOCUMENT:
The availability of gas and its impact on Indian economy is very
important. There was no dispute that the comprehensive policy and guidelines to
supply and utilise the gas through various procedure and chain in this
country’s need of energy, security, market and competitiveness was very
important. The substantial contribution to the national exchequer by way of
royalty, taxes and Government of India’s share of profit petroleum and,
therefore, to maximise the potential benefit of such huge gas finds for the
country’s economic growth is very essential. It also means the end user of gas
like power sector, who are gas consumer in the country need to be encouraged,
promoted and provided or supplied gas at affordable price. Considering the
requirement of huge finances for the exploration, production and supply of gas,
huge finance is necessary. The documentation, therefore, for all these purposes
must be clear and must be without any ambiguity, uncertainty and/or doubt. The
commercial and economic aspects of such transaction have repurcussions at
national as well as international level. The gas being a rare commodity and
demand is very great at all level, all documents from one stage to the other
till the crude oil or basic material are used into power plants or fertiliser
plant or such other plant, for converting the gas into energy and/or such other
products, the document must be bankable document. Every person or any other
entity involved in various ways must have a clear documentation for respective
finance and for all other purposes considering the Government policies and the
laws into account. The requirement of various compliance, of laws including
Acts, Rules and Regulations, Policies need to be clearly defined and expressed.
Such documents in this background just cannot be segregated and/or dissected
from each other. All these documentations as interlinked and interconnected
must be drafted or worded in clear terms so that all the concerned financial
institutions, Government Authorities, Regulatory Authorities and if necessary,
even the lay man should understand specially when one talks about free, fair
and transparent documentation. The expert engineers or technician in the field,
though are involved in finalising such documents, yet when it comes to the
Banks or even to the regulatory authorities, it is desirable that the
documentation should be clear, plain, unambiguous and without any doubt. The applicants, therefore, was right in
contending that in GSMA or GSPA various important clauses in reference to
price, tenure, cap liability, supply of quantity and clauses of damages were
very complicated and difficult to understand and/or explain to lay man or third
person. In a technical and the transactions of such nature, the understanding
between the two parties basically two entities to the contract is normally
sufficient. Both entities had their respective expertised technicians of
national and international level. Therefore, once one talks about the bankable
document for finance, then though parties or one of the entities may be expert
in drafting such agreement based upon the alleged international practice,
still, unless such formula or such clauses made explainable and/or
understandable to the lay man or consumer who is not expert in the field, just
cannot be ruled out. It is not that every one should know or understand all the
technical or electronic formulas, when one discusses and deals with the
agreements and documentation, based upon the Government policy, everyone should
be in a position to understand and to avoid further complication and litigation
in the matter apart from bankable for the purpose of financial help from the
banks and financial institution. [
In the instant case, it appears that gas was the basic raw material. Unless agreed and provisions were made and/or commitment was recorded to have a regular supply of gas, other partners or third person including Bank or such Financial Institutions would not like to commit such projects, but still it did not mean that the respondent must commit supply of gas without agreeing to suitable arrangement even though based on the MOU or the Scheme in question. Both the parties, therefore, on that issue also must come forward and settle to make the document bankable, if required by executing such agreements by taking into consideration the MOU, the Scheme, PSC and the Government policy. The applicant was therefore also required to purchase the gas from the market for their projects being commercial entity in all respects, who wanted to and/or start such undertakings. The respondent being committed through MOU and/or in the Scheme also must see that the resulting companies like the applicant should develop and, therefore, must provide the gas from the available quantity to the applicants, but certainly not at subsidised rate as claimed by the applicants. The applicants eventhough invested huge amount of its power projects, if any, still that itself could not be the reason for the High Court to pass interim & final orders and/or directions as prayed. The respondent, under the facts and circumstances, must perform their part of obligation based upon the events, MOU and the Scheme in question, but definitely on agreed terms and conditions. The respondent could not say and/or deny their obligation as referred and agreed throughout from the date of MOU and even after the sanction of the Scheme. The quantity, the tenure and all other such required aspects of gas price and/or option definitely need detail study and scrutiny and negotiation based upon the existing PSC and the Government policies in that regard. Therefore by adding such clauses and/or amending clauses as prayed by the applicant, without considering the PSC and/or Government policy was beyond the scope of section 392. It would be in fact contrary to the scheme as sanctioned.
Based upon the MoU and the Scheme in question, the respondent was under
obligation to see that the resulting companies or its undertaking should be
provided with the gas as agreed for setting up of their power
projects/Undertakings, but that should be definitely based on the suitable
arrangement and agreements. There couldnot be the commitment and/or agreement
beyond the scope and capacity of the respondent in reference to the period, quantity,
liability and/or non-supply of gas for various bonafide and genuine reasons
beyond the control of the respondent and against any Government policy. [
There was a force in the submission of the respondents that the relief as claimed by the appellant could not be granted as the same would amount to deviation from the scheme and beyond the powers of the Court. [para 176]
Therefore, the relief as claimed just couldnot be granted in favour of
the applicants. At the same stroke the GSMA and/or GSPA clauses as imposed were
also not liable to retain. The suitable arrangement be made considering the
events prior and post to MoU and the Scheme. The Company Court is not expert
and has no say and in fact should not express its own or say any such technical
and complicated nature of transaction, business and/or clauses of gas supply
agreement or such other agreement having national and international markets
policies. A suitable arrangement also, therefore, means the parties must
themselves see and settle and put-forth their submission for proper and
suitable working of the scheme specially when the scheme had been working
smoothly except for that gas supply agreement. [
INTERIM ORDERS:
After
taking into consideration the entire events and the facts and circumstances,
the applicants could not claim and/or have the entire sale and supply of gas by
the respondents in the instant proceeding. In view of the observation made in
the instant judgement, the parties need to follow the orders passed by the
The conclusions
The instant company application under section 392 was maintainable;
The
The GSMA as formed and finalized in the Board of Director’s Meeting of respondent on 11-1-2007 and modified on 12-1-2007 was in breach of the scheme.
The MoU family arrangement and its contact were binding to both parties and all the concerned having been already acted upon at the pre and post stages of the MoU and the pre and post stages of the Scheme accordingly.
The term ‘suitable arrangement’ as referred in the scheme should be read and interpreted by taking into account the terms of the MOU as well as the scheme. It was also necessary for the complete and full working of the scheme.
The terms as mentioned in the MOU and GSMA should be suitable for both the parties subject to the Government’s policies and national, international practice in supply of gas or such other products.
The contract of such nature was subject to the Government’s approval in view of NEPL & PSC and such related Government policies, but keeping in view the several factors including the freedom and right of the respondent and the limited and restricted scope of interference in such permissible commercial aspects of the respondent unless, it was in breach of any public policy and public interest.
The supply of gas contract/agreement should be clear and bankable document for all the concerned parties. [para 184]
It would be appropriate for both the parties to re-negotiate, re-consider and settle the terms of existing GSMA and GSPA afresh as early as possible.
Therefore, accordingly, all other interlocutory and related company
application were also disposed of with liberty in the said terms. [
CASE REVIEW:
The judgements in the cases of V. B. Rangaraj v. V. B.
Gopalkrishnan [1992] (73) Comp. Cas. 201 (SC); Rolta India Ltd. v. Venire
Industries Ltd. [2000] 24 SCL 13 (Bom.); Spindel Fabrik Sussen v. Sussen
Textile Bearing Ltd. [1989] (2) CLA 2002; and C&FS Trust Co. Ltd.
v. Birla Perochini Ltd. [2003] 4 CLJ 131 distinguished on facts. [