Mumbai: Anil Ambani-led Reliance Infrastructure Ltd on Monday said the company and its wholly-owned subsidiary Reliance Defence Systems Pvt. Ltd have issued a Rs5,440 crore arbitration notice to founder-promoters of erstwhile Pipavav Defence and Engineering Ltd, citing a breach of warranties.

Exactly two years ago, Reliance Defence had bought Pipavav Defence, India’s largest shipyard, from the Gandhis of SKIL Infrastructure Ltd. Later, it bought another 26% stake in the company through an open offer.

In a stock exchange filing, Reliance Infra said it is making indemnity claims of Rs5,440.38 crore under the purchase agreement dated 4 March 2015 against Nikhil and Bhavesh Gandhi and their companies SKIL Infrastructure, Grevek Investments and Finance Pvt. Ltd, and SKIL Shipyard Holdings Pvt. Ltd.

Reliance Infra did not disclose the nature of these breaches.

“The company has discovered that there have been serious breaches of warranties and representations made by the founder-promoters (of Pipavav Defence). As per the share purchase agreement, we are entitled to claim the loss caused in an arbitration," said a person aware of the development, on condition of anonymity.

Warranties are assurances of the state of affairs and governance standards of the company, and any breach can lead to a claim.

Reliance Infra is convinced of the breaches discovered and is therefore compelled to enforce its rights, this person added.

Reliance Group declined to furnish additional details.

Calls and messages received no response from Nikhil Gandhi, founder-chairman at Pipavav Defence.

On 4 March 2015, Ambani pipped other suitors such as homegrown conglomerate Mahindra and Mahindra Ltd, French naval defence company DCNS SA and the Munjals of the Hero Group to buy an 18% stake in debt-laden Pipavav Defence—then India’s largest shipyard with a licence to build warships—for Rs819 crore at Rs63 per share, a 17.6% discount to the prevailing share price at the time and rechristened it Reliance Naval and Engineering Ltd.

The company also acquired the promoters’ additional shares, in addition to the 17.6% stake, and an incremental 26% stake from public shareholders at Rs66 a share. Pipavav Defence, a manufacturer of warships, submarines and liquefied natural gas carriers, was reeling under a debt of Rs7,000 crore at the time, with the founders unable to infuse more cash into the firm.

Ambani moved quickly to seal the deal by offering cash upfront to buy out the promoters’ stakes, with an open offer to follow, in order to participate in the government’s impending plans to build six nuclear-powered submarines and seven stealth warships costing close to Rs1 trillion, Mint had reported on 12 March 2015.

Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.