Nov. 4 (Bloomberg) -- India’s Supreme Court set up a new panel of judges to hear a gas supply dispute between the billionaire Ambani brothers after a member of the previous bench recused himself, citing a potential conflict of interest.

Justice B. Sudershan Reddy will replace R.V. Raveendran in the panel, according to a listing on the Supreme Court’s Web site. Raveendran stepped down today from the three-judge panel headed by Chief Justice K.G. Balakrishnan that began hearing the case on Oct. 20, saying his daughter works at a law firm that advises Mukesh Ambani’s Reliance Industries Ltd. Lawyers will begin arguments afresh tomorrow, Balakrishnan said.

The Supreme Court is hearing a plea by Reliance Industries to overturn a lower-court order to supply gas to a company owned by Mukesh’s younger brother Anil Ambani at 44 percent less than a price set by the government in 2007. Raveendran previously offered to withdraw from the hearings after saying he owns shares in Reliance Industries and Reliance Natural Resources. Lawyers for both companies said they had no objection to Raveendran continuing on the panel.

“It’s very, very unusual,” said Homi Phiroze Ranina, an independent lawyer based in Mumbai. “He could’ve made his position clear, and if all the lawyers had no objections, he could’ve continued.”

Delayed Arguments

The decision by the judge may delay the completion of arguments by a week, said Mahesh Agrawal, a lawyer for Anil’s company. Raveendran holds 772 shares of Reliance Industries and 783 shares of Reliance Natural, according to a list of assets owned by judges on the Web site of the Supreme Court.

“I do not want to be a party to this case,” Raveendran said. “Yesterday, I spoke to my daughter who is in Bangalore and she works with AZB & Partners, which is advising Reliance Industries on other projects for global acquisitions.”

Reliance Industries was not aware of the association and hadn’t been informed about it by AZB, the company said in an e- mailed statement, expressing regret for the loss of six working days of the court. Reliance Industries should’ve disclosed the information before the hearing, according to a statement from the Anil Dhirubhai Ambani Group.

Reliance Industries shares gained 5.6 percent to 1,920.70 rupees in Mumbai trading compared with a 3.3 percent increase in the benchmark Sensitive Index. Reliance Natural shares rose 2.6 percent to 68.15 rupees.

The nation’s top court started hearings on the dispute last month after agreeing to skip preliminary hearings.

The case is SLP(C) No. 14997/2009 between Reliance Natural Resources and Reliance Industries in India’s Supreme Court.

To contact the reporters on this story: P.S. Patnaik in New Delhi at ppatnaik2@bloomberg.net; Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net.

Last Updated: November 4, 2009 09:56 EST