Reliance Infrastructure (R-Infra), along with its subsidiary Reliance Defence Systems, has issued an arbitration notice to the founder-promoters of Pipavav Defence & Engineering (now Reliance Naval & Engineering), a company it bought in 2015, asserting claims for warranties aggregating to Rs 5,440.38 crore.
The arbitration notice named Nikhil Gandhi, Bhavesh Gandhi and their companies — SKIL Infrastructure, Grevek Investments and Finance and SKIL Shipyard Holdings — as founder-promoters of Pipavav Defence, according to a stock exchange filing by R-Infra on Monday.
While R-Infra paid Rs 819 crore for a nearly 18% stake in Pipavav, it is understood to have bought around 19% from small shareholders in the open offer, taking its stake to just over 36%. Debt on the company’s books at the end of March 2015 was Rs 6,893.07 crore.
The arbitration notice has been filed in accordance with Singapore rules (SIAC) and relates to breach of warranties under the share purchase agreement dated March 4, 2015. According to persons in the legal fraternity in the know of the matter, R-Infra, an entity in the Anil Ambani-led Reliance Group, had discovered serious breaches of warranties and representations made by the founder-promoters at the time of acquisition of the company.
“As per the share purchase agreement R-Infra is entitled to claim the loss caused through an arbitration process,” one of them explained.
These warranties, the persons explained, are assurances for the state of affairs and governance standards of the company, any breach of which could lead to a claim.
R-Infra, through a subsidiary, had entered into an agreement with the promoters of Pipavav Defence on March 4, 2015, to acquire 13 crore shares or a nearly 18% stake for Rs 819 crore.
It subsequently made an open offer to buy shares from minority shareholders.
Earlier, before the deal was struck, lenders to Pipavav had worked out a corporate debt restructuring (CDR) package for the company. Bankers are understood to have sanctioned additional assistance to Pipavav to the tune of Rs 3,500-4,500 crore, over the then existing exposure of close to Rs 7,500 crore.
Nikhil Gandhi, a key promoter of Pipavav Defence, is understood to have reached out to several industrialists for a stake sale, including the BM Munjal-led Hero Group and Mahindra & Mahindra. However R-Infra stepped in to pick up the stake.
The deal offered R-Infra an entry into the defence sector, an area of focus identified by the group at the time, and in time to participate in the ‘Make in India’ programme. Pipavav made it to the shortlist of contenders for a naval contract in February 2015. In March 2015, the government shortlisted Larsen & Toubro (L&T) and Pipavav for a Rs 60,000-crore contract to build six conventional submarines under its Project 75i.
In May 2017, Reliance Defence and Engineering (as it was known then) received the CDR-empowered group’s approval to exit the debt refinancing scheme. “As part of the refinancing scheme approved by the lenders, the door-to-door tenure of RDEL’s term loans stand extended to 18 years,” the company had said in a statement.
The consortium of lenders, led by IDBI, had agreed to the exit plan of RDEL with a longer maturity period for loans worth about Rs 6,800 crore, the company said. Pursuant to the refinancing scheme, RDEL’s existing debt of about Rs 650 crore was also to be converted into equity shares at a price of Rs 59.35 per equity share, the company said.
In December 2017, Reliance Naval & Engineering (as Reliance Defence and Engineering was then called) informed the Ahmedabad bench of the National Company Law Tribunal that the purpose of a loan of Rs 202.22 crore taken by the erstwhile promoters of Pipavav Marine & Offshore was ‘fraudulent’ and, therefore, void. It was responding to an insolvency petition by Industrial Finance Corporation of India (IFCI).
Reliance Naval and Engineering’s revenues for the year ended March 31, 2017, stood at Rs 564 crore, up a sharp 81% year-on-year. The company’s net loss narrowed to Rs 577 crore from Rs 592 crore, while Ebitda (earning before interest, tax, depreciation and amortisation) stood at Rs 34 crore versus a negative Rs 147 crore in the year-ago period. The company’s total debt surged to Rs 8,951 crore as on March 31, 2017, against Rs 7,862 crore as on March 31, 2016.