Anil Ambani-led Reliance Infrastructure has filed an arbitration notice of Rs 5,440.38-crore against Pipavav Defence and Engineering Ltd "for breach of warranties". The agreements were signed by both the companies during the acquisition of Pipavav Defence in March 4, 2014. Reliance Infrastructure's subsidiary Reliance Defence Systems Private Ltd had initially bought about 18 per cent stake in Pipavav Defence and Engineering Ltd to enter the defence sector in 2015.
The arbitration notice was issued to the stock exchanges on Monday. According to a BSE filing, the notice has been issued against Pipavav Defence (now Reliance Naval and Engineering Limited) founder promoters Nikhil Gandhi, Bhavesh Gandhi and their companies for the claims ranging over Rs 5,440 crore.
"The notice has been issued against Nikhil Gandhi, Bhavesh Gandhi and their companies i.e. SKIL Infrasture Limited, all being the founder promoters of Pipavav Defence and Engineering Limited now named Reliance Naval and Engineering Limited, asserting claims for breach of warranties under the Purchase Agreement dates March 4, 2015, between the company, RDSPL, and the said founders promoters for acquisition of shares of RNEL," says the notice.
At the time of the acquisition in March 2015, Anil Dhirubhai Ambani Group's (ADAG) entry into the defence sector through India's largest private sector defence company - Pipavav Defence and Offshore Engineering - was believed to be a new wave of defence sector equipment manufacturing business in India.
Reliance Infra had acquired 18 per cent stake in Pipavav Defence (for Rs 819 crore), along with an open offer for 26 per cent of shares at Rs 66 per share, for close to a total of Rs 2,080-crore investment. Reliance Infra at that time was hoping to tap about Rs 1,20,000 crore (about $20 billion) worth defence business in the five years. The Competition Commission of India (CCI) and the Gujarat Maritime Board had approved the acquisition together with management control of Pipavav Defence.
As of now, it's not clear what "breach of warranty" the Anil Ambani-led company is claiming about. Interestingly, the Rs 5,440-crore claim by Reliance is double the amount it paid to acquire the stake in Pipavav Defence in 2015.