Ashok Leyland drags joint venture partner Nissan to court

Ashok Leyland's has alleged that Nissan has used a part of equipment imported under Export Promotion of Capital Goods (EPCG) scheme to manufacture products other than that of the JV.

An affidavit filed by Ashok Leyland, and accessed by Business Standard, states that the Directorate General of Central Excise Intelligence (DGCEI) made an inspection at the site of Renault Nissan Automotive India Pvt Ltd (RNAIPL) and found that certain EPCG assets being wrongfully used by RNAIPL for manufacturing cars for Nissan like Sunny and others.

While Nissan has denied the allegations and maintains its stand that it is open for an amicable solution, Ashok Leyland declined to comment since the matter was subjudice.

The DGCEI has issued summons calling Ashok Leyland Nissan Vehicles Limited to explain the violations and refund the DGCEI benefits with interest. The contract between the Vehicle JV and RNAIPL clearly prevents RNAIPL from using the Stile / Evalia assets for manufacture of any other vehicles, said in the affidavit. Following this, RNAIPL has proposed to pay duty to equipment worth Rs 24 crore to release the equipment it is using for other products from the EPCG license.

“We are not in violation of any of the terms of our agreements with Ashok Leyland and dispute their claim. Import duty on the machines is due because exports by the JV did not reach the expected level. We are cooperating with the authorities to resolve this matter,” a spokesperson from Nissan said.

An official who is close to the JV questioned why after four years had Ashok Leyland had raised the issue? He also questioned why a public suit was filed instead of going for arbitration, which is part of the JV agreement.

AL alleged that the JV firm was unable to convene a board meeting due to the "non-co-operative attitude" of the other JV partner. Ashok Leyland Nissan Vehicles is not able to initiate any action and that is Ashok Leyland decided to opt for legal remedy.

While Nissan did not respond to specific questions, the official said Nissan was asking the JV partner to come out with a proper business plan to revive the loss making JV, in which both the partners have infused nearly Rs 1,400 crore.

He pointed out, Nissan has stopped production of Evalia, which was the only LCV product Japanese company has been manufacturing and selling, while Ashok Leyland continues to manufacture and sell DOST, PARTNER and MiTR. Nearly 8% of the revenue from Ashok Leyland comes from LCV business.

It may be noted that Nissan was manufacturing its product at its Oragadam facility, while Ashok Leyland has been manufacturing its LCVs at its facilities. The partners were supposed to set up a green field facility near Chennai to manufacture LCVs, but the project did not take off and AL earlier said due to market condition the project was kept in abeyance.

Sources close to the JV also alleged that Nissan forced the JVs to write off the capital attributable to Evalia/Stile, thereby bringing the net worth of the JVs to negative.

The official also said that Nissan was ready to sell its stake to its partner, which initially showed interest but pulled out later. Both the companies did not offer any comment on this front.

Ashok Leyland and Nissan had entered into three JV agreements in May 2008. The three JVs were formed include Ashok Leyland Nissan Vehicles Ltd ALNVL - Vehicle JV), Nissan Ashok Leyland Power Train Ltd and Nissan Ashok Leyland Technologies Ltd.

The partners have infused around Rs 1,000 crore has equity, while loans of around Rs 550 crore are outstanding.

ALNVL had invested around Rs 600 crore towards development of Stile and Evalia, out of which, Rs 334 crore worth of toolings were imported from Nissan and affiliated suppliers under EPCG Scheme.

Out of the above, Rs 117 crore worth of toolings imported under EPCG had been placed at RNAIPL's manufacturing facility at Oragadam.