• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Rahul Wadke

Mumbai, Oct 5

Long pending NTPC’s suit against Reliance Industries Ltd (RIL) will once again come up for hearing on Monday at the Bombay High Court. At stake in the dispute is a ruling on whether NTPC can bind RIL to a specific performance of supply of contracted quantum of gas mentioned in the letter of intent (LoI) signed by both the parties signed for sale by RIL of natural gas from its gas/oil field in the Krishna-Godavari basin, say sources familiar with the legal dispute.

NTPC has appealed to the court that RIL should fulfil its contractual obligation of supplying 12 million standard cubic meter a day (mscmd) of natural gas.

RIL in its earlier arguments had stated that the unlimited liability clause in the gas sale and purchase agreement (GSPA) with NTPC was not acceptable. Therefore, it cannot execute the contract.

The Advocate-General of Maharashtra, Mr Ravi Kadam, representing NTPC, had pleaded that if there was no unlimited liability and if RIL did not comply with the GSPA in the future, then NTPC would be left high and dry. Given the quantity of gas NTPC needs for its projects, it cannot be sourced from any other company, he had said in the court.

In 2003, NTPC had floated a global tender for supply of gas to its power projects in Gujarat. The GSPA was annexed with the tender document. RIL, succeeded in its bid to sell, transport and deliver supply of 12 mscmd of gas for 17 years at $2.34/mbtu - one million British thermal units. NTPC had awarded the letter of intent (LoI) to RIL in 2005.

Industry sources said that, LoI was signed by both the parties. But the contract, which usually follows LoI was not signed by RIL in a stipulated timeframe. It is a standard practice in NTPC that once a contractor qualifies for a tender, it is asked to sign the LoI and a contract follows.

In contracts where NTPC is not confident about the contactors ability to full fill the contractual obligations or if there is uncertainty in the tender and contract, the LoI and the contract are signed on the same day by both the parties. In RIL case, this practice was not followed, sources said.

NTPC is likely to seek ‘specific performance of contract’ under the contract act to implement the pending contract. It will not seek ‘liquidated damages’ from RIL, industry sources said.

The provision of liquidity damages was inbuilt in the tender process, whereby, the NTPC could impose damages up to a maximum of 10 per cent of the contract value. The clause has an inherent advantage in situations of non-supply where the market price for natural gas is substantially higher than the contracted price.

More Stories on : Petroleum | Corporate Disputes | Courts/Legal Issues | Reliance Industries Ltd | NTPC Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line