Reliance Dispute May Near Verdict in India Top Court

India’s Supreme Court may rule on a gas dispute between billionaire Mukesh Ambani and his estranged younger brother Anil in the next week before the retirement of the nation’s top judge.

Chief Justice K.G. Balakrishnan, who heads a three-judge panel, needs to pass judgment in New Delhi before he steps down on May 11 or the proceedings will have to start from the beginning, said Supreme Court Advocate Jana Kalyan Das.

“A new bench with a new member will hear it,” Das, who represents the Orissa state government in the Supreme Court, said in New Delhi today. “The new chief justice will constitute another three-judge bench.”

The Supreme Court ruling will settle a four-year legal spat between Reliance Natural Resources Ltd., controlled by Anil, and Mukesh’s Reliance Industries Ltd. that has curbed supplies from India’s biggest gas field with $38 billion of reserves.

Reliance Natural had its biggest monthly gain in almost a year in April as the court neared its verdict. The stock swung between gains and losses today and closed 0.2 percent lower at 68.35 rupees. Reliance Industries fell 1.3 percent, the fifth day of declines, in line with a global selloff in equities.

Business Division

The dispute stems from a 2005 agreement dividing the Reliance business, brokered by the mother of Mukesh, 53, and 50-year-old Anil, after the family patriarch, Dhirubhai Ambani, died without leaving a will. The accord required Reliance Industries to supply 28 million cubic meters of gas a day for 17 years at $2.34 per million British thermal units.

The government subsequently set a price of $4.20 per million British thermal units in September 2007 for gas contracts in the Krishna Godavari basin. Reliance Industries contests that the gas can’t be sold for less than the state-set price without government approval.

The worst-case outcome for Reliance Industries could mean a “shortfall in cash flows of 22.5 billion rupees ($497 million) annually for 17 years,” Mumbai-based brokerage KR Choksey said in a note to clients. The scenario envisages Reliance Industries selling gas to Reliance Natural at the lower price and government levies at the higher rate.

This would be “a double whammy on the earnings” as revenue would be lower and expenses would continue to be high, Rajiv Choksey, Anuj Choksey and Kunal Dalal wrote in the note. The brokerage, which expects the court to rule in favor of Reliance Industries, raised its rating on the company to “buy” from “hold” with a 12-month share-price target of 1,189 rupees.

Negative Sentiment

Arguments in the lawsuit, which started Oct. 20 after the nation’s top court agreed to skip preliminary hearings, began afresh on Nov. 5 after one judge stepped down, citing potential conflict of interest. The Supreme Court reserved judgment in the lawsuit after arguments ended Dec. 18.

Any delay in a verdict would be “sentimentally negative for both the companies because people want this thing to get over,” said Deepak Pareek, a Mumbai-based analyst with Angel Broking Ltd., who rates Reliance Industries a “buy” and doesn’t cover Reliance Natural.

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