Hyderabad/Mumbai: CKD Exports Ltd, a Czech engineering company that specializes in plant equipment for power and metallurgy industries and related services, has filed a case in the International Court of Arbitration against the Andhra Pradesh government for not awarding a contract originally offered to it.
The Prague firm is seeking $250 million, or about Rs1,235 crore, in damages.
The case, while not rare, is indicative of foreign investors, prompted by the lengthy process in Indian courts, turning to international judicial avenues to seek redressal, legal experts said, predicting such instances would increase.
The Andhra government had signed a so-called memorandum of understanding (MoU), or in-principle agreement, with CKD Exports, previously Skoda Export Co. Ltd, in April 2006, following visits by that country’s prime minister Mirek Topolanek and a trade delegation to Hyderabad.
The agreement was for developing a port, a 1,000MW coal-based power plant, a liquefied natural gas (LNG) terminal, a urea manufacturing facility, and a multi-product special economic zone.
The state government terminated the pact in September 2007 because it was not convinced about Skoda’s capability to implement the project, said K.V. Reddy, vice-chairman and managing director of Infrastructure Corporation of Andhra Pradesh, or Incap, the nodal agency for public works projects in the state.
An MoU is often the first step towards a formal contract and any breach of such a pact by one of the parties can be challenged in court.
CKD Exports did not respond to emails sent to its corporate communications department on 17 February and to its chief executive Frantisek Vladar the next day. A senior counsel for CKD would only say the firm has sought arbitration against the Andhra government. He did not want to be named.
The hearings begin on 19 March in Singapore.
Following the MoU with Skoda, “we got it scrutinized by our financial experts, who opined that (the) Czech company did not have the technical or financial capabilities to complete the port project,” Reddy said on Wednesday, adding that led to the termination of the MoU.
The state then signed a fresh memorandum with the United Arab Emirates-based Ras Al Khaimah (RAK) Investment Authority and Matrix Enport Pvt. Ltd, promoted by Nimmagadda Prasad, former promoter and managing director of Matrix Laboratories Ltd. RAK would own 51% of the project and Matrix the rest.
The new MoU was treated as a government-to-government arrangement that did not require the state to invite global bids for the project. The state also expanded the scope by adding one more port.
This is not the first time a foreign entity has taken an Indian government to international arbitration. In 1997, Suzuki Motor Co. sought such intervention over the appointment of R.S.S.L.N. Bhaskarudu, a Union government nominee, as managing director of Maruti Udyog Ltd, an Indo-Japanese joint venture that is now called Maruti Suzuki India Ltd. Earlier this decade, co-promoters of Dabhol Power Co., a power station led by the erstwhile Enron Corp., too had initiated international arbitration proceedings.
Such instances will become more common among foreign investors, one lawyer predicted. “An expedited mechanism like the one at the International Council of Arbitration, Paris that they are familiar with, though it will prove to be expensive for the Indian government, will be quicker,” said Supreme Court advocate Menaka Guruswamy.
Malathi Nayak contributed to this story.