The Law Suits RNRL

Yet another chapter in the story of the Ambani brothers has been written today. This battle though has clearly been won by the younger Ambani brother- Anil. Mukesh Ambani’s hopes of exercising control over the Natural Gas sector by throwing a wrench at his brother’s similar ambitions have been squashed for now. While one brother celebrates his victory in the Bombay High Court, the other is planning his next move. For investors and traders meanwhile, two money making opportunities have risen.

The dispute between the Ambani brothers over the sale and distribution of natural gas goes back to the time when the Reliance Empire was divided. While the elder Mukesh got a bulk of the controlling, exploration and processing rights for the sale of natural gas, the younger Anil too was interested sensing a business opportunity.

Anil was entitled to a small share of the gas flow towards the development of his power plant in Dadri, Uttar Pradesh.

Both parties had entered into an agreement wherein Anil Ambani’s company would be entitled to receive the gas at the rate of $2.34 mmBtu. When the time for the gas transfer arrived differences arose which led to both companies and hence both brothers fighting each other in court.

The dispute arose when Reliance Industries Limited refused to sell gas at the previous rate and wanted to charge the government prescribed price of $4.2 mmBtu to Reliance Natural Resources Limited or RNRL.

RIL vs RNRL went to court with RIL claiming that the signed MOU (Memorandum of Understanding) had no relevance as it was not a binding document but an internal family arrangement.

The Bombay High Court has however decided otherwise dealing a knockout blow to RIL thereby forcing them to sell gas to RNRL at the rate of $2.34/mmBtu for the next 17 years. More importantly the Court has upheld the MOU and has declared that the MOU is indeed a binding document thus dousing any chance of an RIL victory.

The undisputed winner in this matter is therefore Anil Ambani. The bigger advantage for him is the fact that RNRL can finally declare itself as more than just a shell company .For years the company has had no real value apart from limited sporadic operations of insignificant proportions.

The market understood this better than anyone else. Immediately after the verdict RNRL’s stock soared leading to the company closing among the top gainers today even showing an intraday rise of 24%.

RIL on the other hand lost as much as 176 rupees in the day’s session making it a big intraday loser. Both these companies are expected to be active stocks as each one has an intraday bear or bull case attached to it over the very short term.

For RIL the next step if they still want to pursue this will be to drag RNRL into the Supreme Court but the judgment of the Bombay High Court is binding till such time. There is also the possibility of an intervention from the mother of the Ambanis whose say does have legal bearing.