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Shareholders or promoters?

Shareholders or promoters?
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First Published: Wed, Oct 21 2009. 09 19 PM IST

Illustrations: Jayachandran / Mint
Illustrations: Jayachandran / Mint
Updated: Wed, Oct 21 2009. 09 19 PM IST
The dispute between the estranged Ambani brothers over gas that one’s company produces and which the other’s company desperately needs is in the Supreme Court—the last port of call for all legal disputes in India. Yet, it won’t be just a simple corporate battle that the court’s decision will settle. The apex court’s decisions are effectively laws. And the court’s decision on the case between Reliance Industries Ltd (RIL) and Reliance Natural Resources Ltd (RNRL) will, in years to come, echo in policy decisions and legal disputes, some of which have nothing to do with oil and gas.
Illustrations: Jayachandran / Mint
To be sure, the court’s decision will set a precedent on the execution of production-sharing contracts between the government, which owns all natural resources including oil and gas, and operators, such as RIL, which have been given rights to prospect and produce oil and gas. The RIL gas find that is at the core of the dispute—in the D6 block of the Krishna-Godavari basin—is the first involving blocks auctioned under the new exploration licensing policy (Nelp) that has started producing oil or gas. The extent to which the government can control the pricing and supply of oil and gas on blocks auctioned under Nelp—there have been eight rounds of auctions—will follow from the Supreme Court’s decision in the Ambani case.
Most importantly, however, the court’s decision will indicate whether the rights of promoters matter more than the rights of shareholders. At the core of the dispute between the Ambanis is a family pact between the two brothers that has never been publicly seen in its entirety and which explains how the assets of the Reliance group are to be carved up between them. It is on the basis of this agreement that Anil Ambani’s RNRL is laying claim to gas from Mukesh Ambani’s RIL. Only, RIL and RNRL aren’t companies entirely owned by Mukesh Ambani and Anil Ambani, respectively. Minority individual shareholders own 12.27% of RIL’s stock and 29.15% of RNRL’s. While there is still some confusion on whether the gas supply agreement between the two companies was approved by the two boards, any decision by the court will set a precedent on whether agreements between promoters matter more than the rights of shareholders. RIL has always claimed that it stands to lose money if it supplies gas to RNRL at a price at which the latter wants.
How should the Supreme Court take the rights of RIL and RNRL shareholders into account? Tell us at views@livemint.com
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First Published: Wed, Oct 21 2009. 09 19 PM IST
More Topics: Ourviews | Gas dispute | RIL | RNRL | Mukesh Ambani |