RIL-RNRL Issue, The Supreme Court Judgment and The Subsequent Nullifying The Earlier MOU

After the  Supreme court  in its judgment said that  the gas resources are owned by Govt and  the prices have to be according to the price sharing formula  suggested by the government  and that the  MOU between the two brothers  is not a document in the public domain, every news paper , general dailies or business ones, and other media  hailed it as a victory for Mukesh. But has it been a victory for him? It definitely is a judgment in favour of  RIL  but if Mukesh  considers  the MOU as a trustworthy, ethically principled individual,  he had to  honour his commitment to sell gas to his younger sibling’s company RNRL  or compensate RNRL for the additional cost that RNRL had to incur  while buying gas from RIL. This would have eroded a good portion of Mukesh’s wealth. Now that the MOU and other non-compete clauses contained therein, have  been  nullified, it could be said to be a victory for him. One does not know whether Mukesh will compensate RNRL under the new circumstances.

Actually it is a victory for the corporate governance process and regulations which is in it’s infancy in India and is a pointer to the alignment that is required  among policy makers,law makers and regulators. It clearly gives direction that publicly listed corporate can’t be run as private fiefdoms of promoters. I had already raised this issue as early as 2005 while the war was on and later in 2009 when the Bombay High Court  passed an order in favour of RNRL. In the article”Anil Ambani Ko Gussa Kyom Aaya?,Effective Executive, November 2005 I had written ”While the settlement has been a big relief to the corporate sector  in general and financial markets in particular, it has given rise to many questions and has also helped to bring out a number of corporate governance issues to the forefront. What role the board  of a company should play in such situations? Who will handle such issues whenever a crisis arises? Shall it be left to the promoters’ families to settle issues when majority of ownership lies outside the family? Or , is the board which represents the interests of the entire shareholders responsible for settling such issues?”

In 2009, I wrote in a paper presented at The National Conference On Corporate Governance organized by IOD at Hyderabad: How could a decision as important as the restructuring or demerger of companies, all publicly held , be taken by an individual ? While we all might have been relieved that the spat between the brothers has been amicably settled , what business led Mrs. Kokilaben as head of the family, which was reported to be holding only 46% of the shareholding in RIL, to assume that the demerger was in the interest of the remaining shareholders who account for 54% of the holding? Not even once when the entire episode was enacted ,did the  board of RIL show any signs of exercising their power and authority as representing the interests of the larger group of shareholders. And , it seems unfortunate that no shareholder (including institutional holders) raised the question” where was the board?”

In the same paper I wrote about the Bombay HC judgments as follows: “While delivering the judgment, the division bench of the honorable Court  said that ‘parties should enter into suitable arrangement on the basis of quantity, tenure and price as specified under the MOU either by renegotiating the terms……..or reverting to Smt.Kokilaben Dhirubhai Ambani who has reserved  her ability to intervene again if the parties fail to  act upon the MOU”(“RNRL wins rights for RIL gas,44% cheaper’, Economic Times, June 16,2009)”.

 And further that  “ What do all these point to? The rubber stamp nature of  the role of boards of directors  in family managed companies to begin with? Or failure of boards on the corporate governance front? Should court have suggested reverting to Smt.Kokilaben again  “who has reserved her ability to intervene again”? The honourable High Court suggested that “the parties should enter into a suitable arrangement” and wasn’t that enough, since the boards of the companies had accepted the terms  of the demerger scheme? Both RIL and RNRL are publicly listed companies  with the public holding   48.63% and 44.79% respectively according to  the annual reports  of 2007-08.Can an individual be entrusted  with the responsibility of resolving a corporate  issue of this magnitude(reports estimate the RIL liability  to be Rs.17,000 crores, spread over the life time of the KG basin)?  What roles do the boards of the companies , the body accountable  to the shareholders for the acts  of the company as a  separate economic entity, play? Or is it that boards are only a necessary evil to conform to the regulations?”

If the current developments  are indicative of  the end of animosity between the two sibling groups, that would be the best  thing to happen. Let’s wait and watch as further stories unfold. But one wonders how it did not occur to the eminent mediators that the family MOU will not stand the test of legislature and judiciary?

Advertisement