Lanco’s claim weakens in Griffin Coal case

Lanco’s claim weakens in Griffin Coal case

New Delhi: Lanco Infratech Ltd’s Australian subsidiary Griffin Coal Mining Co. Pty Ltd has lost the initial round in a $3 billion lawsuit filed by Perdaman Chemicals and Fertilizers Pty Ltd in the Supreme Court of Western Australia.

A court of appeal on Thursday unanimously held that Griffin could not contend that claims against the enforcement of a coal supply agreement were baseless, bolstering Perdaman’s case that is scheduled for a trial in 2012.

The dispute between the companies is over a $3.5 billion agreement for coal supply by Griffin to Perdaman’s urea factory in Western Australia.

Lanco bought Griffin earlier this year. The court said Griffin’s conduct (vis-a-vis the execution of the agreement) constituted a breach of the 20-year supply agreement with Perdaman.

“In upholding Perdaman’s appeal, the court also determined that Griffin provide notice to Perdaman before entering into any additional security arrangement, given the effect it would have on Perdaman’s prospects of recovering damages that might be awarded in the proceedings," Predaman said in a statement.

Apart from fuel security for its power generation facilities in India, the acquisition of Australian coal mines were expected to give Lanco an opportunity to participate in the burgeoning natural resources trading market.

The coal mines in Western Australia’s Collie region produce more than 4 million tonnes per annum. The mining tenements contain at least 1.1 billion tonnes of thermal coal resources.

“Today’s ruling ensures Perdaman will have the opportunity to make a further injunction application to the court, restraining Griffin from securing up to $800 million worth of property and assets," Perdaman said in a statement.

Lanco said in a statement it might not contest the ruling “since this order only entails Perdaman to have 10 days notice on creation of security, which is similar to the undertaking we have provided earlier. We will continue to vigorously defend the allegations made by Perdaman in the main case and are confident of a favourable outcome."

Griffin’s business collapsed last year and KordaMentha, which was appointed the administrator, said its companies had $475 million of unsecured debt.

The coal company had failed to pay debt instalments and had tax liabilities.

According to the Economic Survey 2010-11, growth in India’s power generation slowed to 4.5% between April and December from 6.2% in the same period in 2009-10, the shortage of coal being a reason for this.

Coal is abundant in India, but between extracting it and getting it to power stations lies a range of hurdles, including environmental and law and order issues and a lack of investment in the coal blocks.