As the face-off between Reliance Industries Ltd (RIL) and the Reliance Anil Dhirubhai Ambani Group (R-ADAG) intensifies over the proposed deal between Reliance Communications Ltd (RCom) and South Africa?s $9.7-billion telecom giant MTN, it now appears that the battle has narrowed to the concept of the non-compete agreement (NCA) on the one hand and the scope of the NCA signed by RIL and companies resulting from its demerger, on the other.

The NCA, which RIL has cited to RCom, drawing the company?s attention in particular to the right of first refusal (RoFR) provision, is now central to the latest round of hostilities between the two sides.

Over the past two years, R-ADAG has sent letters to RIL, invoking the NCA on some business proposals of RIL, after learning about them. Among the proposals relating to which R-ADAG has sent letters to RIL are the power business and RIL?s proposed entry into financial services. In both cases, R-ADAG has cited ?Non-Competition Understandings forming part of the erstwhile Reliance group Business Reorganisation Arrangement?. The RIL contention now is, if this NCA was cited by R-ADAG in these cases, how can R-ADAG now ignore the provisions of NCA and RoFR in proposing to go ahead with a deal with MTN.

Following the proposal by the RIL board on August 5, 2005 on the scheme of demerger as a result of the separation of the Ambani brothers Mukesh and Anil, RIL had entered into four agreements with what were then known as the ?resulting companies?. These were the gas supply master agreement, the amendment to gas supply agreement, the NCA and the trademark management agreement.

The dispute has now focused to two dates: June 18, 2005, and January 12, 2006. The first was the date of the family agreement on separation & the second was the date on which RIL entered into the agreements with the resulting companies. Citing the R-ADAG letters written to RIL on NCA in power and financial services, sources in RIL said that it was the same NCA that was cited by R-ADAG repeatedly.

But R-ADAG makes a distinction between the ?concept? of non-compete, and the ?scope? of non-compete as laid down in the January 12, 2006 agreement between RIL and the resultant companies. RCom sources said: ?Reliance ADA Group does not have any issues with the ?concept of non-compete?, it has objections on the ?scope of non-compete? in the alleged agreement that was signed by nominees of RIL and the procedure followed in signing the agreement.?

Reiterating the distinction between the June 18 and January 12 agreements, the sources said, ?Reliance ADA Group had objected to certain inclusions and exclusions made unilaterally by RIL officials while signing the alleged agreement inspite of serious objections raised by Reliance ADA officials. The same were not in line with the agreement signed on June 18, 2005.?

The NCA was entered into between RIL on one side and Reliance Energy Ventures Ltd (REVL), Reliance Natural Resources Ltd (RNRL), Reliance Capital Ventures (RCVL) and Reliance Communication Ventures (RCoVL) on the other. Clause 3 of the NCA has a RoFR to both parties.

This says if any party desires to sell or transfer all or substantially all of its holdings in any of the companies or businesses which forms part of the reserved businesses of either party, the party intending to sell the business or transfer its shares has the obligation to first offer to the other party the terms and conditions and the price at which it proposes to transfer the holdings and control. The offeree has 120 days to notify its acceptance of the offer. Clause 4 of the agreement says in the event of violation of the NCA by a party, the other would be released from it and would be free to enter the business.

While RIL says RCom has not responded to its letter on RoFR relating to the MTN deal, an RCom spokesperson said a response has been sent to RIL. The spokesman added that without knowing the transaction, RIL had jumped to the baseless conclusion that it was covered by the alleged RoFR. The spokesperson reiterated the R-ADAG allegation that there was ?gross violation of fiduciary obligations by RIL officials in signing the alleged agreement of January 12, 2006 for RComm.?