Why Ashok Leyland dragged Nissan to court

New Delhi: The unravelling of an agreement between top executives of Ashok Leyland Ltd and Nissan Motor Co. to end their alliance led to the Indian company suing its Japanese partner in the first week of February, two Ashok Leyland executives said.

Around Rs.200 crore vendor liability figures quoted by Nissan are not in the joint venture’s books, one of these executives said, adding the overall liability figures are only around Rs.700 crore, far less than Rs.1,200 crore quoted by Nissan. Both executives requested anonymity.

The Rs.1,200 crore figure includes debt, required fresh cash infusion and compensation for vendors.

On 19 January, Vinod Dasari, managing director of Ashok Leyland, and Philippe Guerin-Boutaud, corporate vice-president of Nissan’s global LCV business met in Singapore to mark the contours of Nissan’s exit from their eight-year-old partnership to make light trucks and vans. Under this agreement, Nissan would transfer all its shares to Ashok Leyland at Rs.1, and exit the venture and put Rs.250 crore in an escrow account to compensate vendors working for the venture. Ashok Leyland-badged products such as Dost, Partner and Mitr (manufactured in Ashok Leyland’s Hosur plant) will continue to be manufactured and sold and the company would pay 1% royalty to Nissan on their sales for five years.

Nissan also agreed to pay Rs.12 crore to Ashok Leyland in lieu of assets being used by Renault-Nissan Alliance India Pvt. Ltd. Nissan would surrender the assets to produce Stile and Evalia to the JV while it would continue to have access to suppliers for parts directly to sell these models.

Mint has seen the minutes of the 19 January meeting, signed by Dasari and Guerin-Boutaud.

However, after this agreement, Nissan quoted an additional vendor liability of Rs.200 crore that Ashok Leyland must pay, which the Indian company has disputed. Soon after, Ashok Leyland moved court.

“Nissan is asking Leyland to pay for some other vendor liabilities, which are not even on the books. That must be half of the total liability,” said one of the two Ashok Leyland executives quoted earlier.

An executive of Nissan India Pvt. Ltd, the local unit of the Japanese firm, said he was unaware of Leyland’s claim and expressed “surprise” at the numbers quoted by the Chennai-based company. “After the meeting, an agreement was reached to end the partnership amicably,” he said.

Nissan and Ashok Leyland came together in 2008 to make light goods vehicles such as vans and small trucks. They set up three different companies—for vehicle manufacturing, engine manufacturing and technology development. Interestingly, the joint venture does not have a manufacturing unit of its own and uses the facilities of Renault-Nissan India Pvt. Ltd and Ashok Leyland to manufacture vehicles such as Dost, Partner, Mitr, Stile and Evalia.

However, things did not go according to plan. Business milestones were not met and losses mounted. In the year ended 31 March 2015, the venture reported a loss of Rs.791 crore. Ashok Leyland also wrote off Rs.214 crore as impairment based on the value of its investment in the joint venture.

To be sure, even before the talks for terminating the joint venture started, both parties had expressed interest in buying out each other’s stake in the joint venture.

“We have said either you let us put more capital into the company or you buy our stake or let us buy your stake. They are not ready to agree with any of our proposals,” the first Ashok Leyland executive said.

“They want to have the cake and eat it too,” he added.

A Nissan India spokesperson said that the company’s worldwide growth has been built on long-term partnerships. “In the case of Ashok Leyland, they walked away from negotiations and took the most serious option of unwarranted legal action. Nissan has been trying to find an amicable solution so we can concentrate on building great vehicles for our customers,” the spokesperson said.

Another Ashok Leyland spokesperson declined to comment on the matter since the matter is sub-judice.