Financial Daily from THE HINDU group of publications
Friday, Mar 22, 2002
Corporate - Courts/Legal Issues
Money & Banking - Financial Institutions
Restraint against joining proceedings in US -- Dabhol lenders get HC reprieve
MUMBAI, March 21
IN the legal tussle for home turf, Indian lenders to Enron's Dabhol Power Company (DPC) have wrested round one with the Mumbai High Court today restraining DPC, in an ad interim order, from joining bankruptcy proceedings in the US.
A single judge bench of Mr P.V. Kakade, also appointed a receiver to oversee the care and preservation of the company's assets here and would be empowered to take expert help as he may deem fit. All help and funding would be provided by the lenders. The funds can also be used to pay salaries to the existing employees. For the purpose, the lenders can access the money in the company's account with Bank of America.
According to Mr A.K. Doda, Executive Director, IDBI, the account holds a few million dollars.
The court has also directed that status quo be maintained vis-à-vis about $8 million of the company's money with the US Banks' Association.
Indian lenders led by IDBI moved the Mumbai High Court following a communication from the unsecured lenders council of Enron Corporation saying that any "disposition of any SPV asset by or any Enron SPV-related assets would require prior approval of the bankruptcy court in the US."
Mr Kakade directed Enron Mauritius Ltd, incorporated in Mauritius, Enron India Holdings Ltd (EIH), incorporated in Cayman Islands, and Offshore Power (OP), incorporated in the Netherlands, through which DPC is held and are named defendants in the suit, to file an affidavit within two weeks.
Enron India and Enron Mauritius today filed for bankruptcy protection from lenders in the US. Eighty per cent of DPC stake is held by Enron Mauritius, which is owned by Enron Corporation through two companies - EIH, which holds 0.1 per cent, and OP, which holds 99.9 per cent.
Mr Harish Salve, who appeared for the lenders, told the court that the "very approach of DPC had created apprehension in the minds of lenders that it may file for bankruptcy which would transfer the jurisdiction of the assets to the New York court and the Indian lenders who have taken an exposure of more than Rs 5,000 crore, including guarantees, would be left in the cold."
Mr Salve said the shares of both DPC and the SPV - Enron Mauritius - are pledged to the secured lenders. However, the security would become uncertain if allowed to come under US bankruptcy court as the security available to lenders here is being sought to service the interests of unsecured lenders in the US.
The counsel said he wanted a receiver to be appointed by the court because once it is done, the jurisdiction would remain with the Mumbai High Court.
The attitude adopted by DPC had left the process of due diligence for the sale of the power plant in limbo. "Due diligence has not yet started. All the interested parties have deposited earnest money but the process could not be started because DPC did not co-operate," he said.
The counsel added that in a letter dated March 13, the company had threatened to forsake responsibility of the plant and retrench employees needed for the preservation of the power station citing unavailability of funds.
"They have also threatened to invoke political risk insurance as if India is a banana republic," he said.
Counsel for DPC, Mr Janak Dwarakadas, argued that the shares had been pledged under two agreements - Tier I and Tier II. Tier I agreement stipulated that the governing law in case of a legal eventuality would be of New York State. Tier II pledge is under the Mauritius law.
Mr Dwarakadas also said that the institutions had pledge only over the movable property - the shares - of the company. The immovable property - the power plant - is mortgaged under the English law and that implies that since a default has happened, the property automatically stands transferred in the mortgagee's name. DPC does not need to care for and preserve the power plant as it is now the lenders' responsibility.
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