Mahindra Reva sued by US firm

Mahindra Reva sued by US firm

Mumbai: Bannon Automotive Llc of New York is suing Mahindra Reva Electric Vehicle Pvt. Ltd for $25 million (Rs113 crore) for alleged failure in adhering to an agreement inked between it and the erstwhile Reva Electric Car Co. in October 2009 to make and sell Reva models in the US and the Caribbean islands.

Reva is the world’s largest maker of electric cars.

The agreement was reached after a series of meetings between Chetan Maini, founder of Reva, and William F. Harley III, owner and controller of Bannon Holdings that owns Bannon Automotive.

In May, Mahindra and Mahindra Ltd, India’s largest utility vehicle maker, took a controlling 55.2% stake in Bangalore-based Reva from the Maini family for an undisclosed amount.

This will be Mahindra’s second lawsuit in the US. The company is already locked in a legal battle with Global Vehicles USA Inc.

Bannon filed the suit through law firm Sahn Ward Coschignano and Baker on 20 December in Nassau county court. A copy of the suit has been reviewed by Mint.

Mahindra has to revert to the complaint within 20 days after receiving the notice.

Jordan Levy, chief financial officer at Bannon Automotive, in an email response, declined comment for the story “given the legal situation".

In an email response, R. Chandramouli, chief of operations at Mahindra Reva, said: “Mahindra Reva has just learned of this lawsuit. We have not received any formal communication from Bannon or its lawyers. Once we receive it and are able to review the matter, we will respond appropriately."

Bannon has accused Mahindra and Maini of scuttling Reva’s US plans by not cooperating in sharing of technology and prototypes of two models—two-seater NXG and four-seater NXR. Maini is the deputy chairman of Mahindra Reva.

According to the 2009 agreement, Bannon and Reva were to establish a US-based joint venture to make and sell electric vehicles in the US. It was agreed that Reva’s contribution to the venture would be intellectual property and the engineering designs of all current and future models, including the Reva ‘I’, Reva NXR and the NXG.

It was also agreed that Reva would have an initial 52.5% equity stake in the venture and Bannon the remaining 47.5%.

In its lawsuit, Bannon has alleged that Mahindra Reva failed to honour the definitive licensing agreement and that Reva and Mahindra Reva are currently planning to manufacture and market the electric vehicles on their own in the US or are in the process of licensing a third party to do so.

Bannon has sought for a permanent injunction against Mahindra. If granted, this will restrain the company from manufacturing or selling the electric vehicles in the US.

In its complaint, Bannon says that as a result of Reva’s lapses, which include the failure to provide the tools needed to build the factory and the intellectual property, the company’s “business has been completely destroyed and the purpose of the MoU (memorandum of understanding) has been completely frustrated".

The legal notice alleges that after the initial round of meetings with Maini, Harley was confident of his partner’s commitment to make and sell electric vehicles for the US market. He went ahead with measures such as securing funds for the joint venture and recruiting senior executives.

Experts say such initial hiccups are common for companies keen on operating in the US.

Abdul Majeed, analyst at audit and consulting firm Price Waterhouse, described the issue as teething problems which can be faced by any company entering the US.

Deepesh Rathore, managing director at IHS Automotive, a market research and sales forecast firm, said: “This is unique to the US market, where lawsuits are very common. He added that “it will by another learning experience for Mahindra, which is very serious about entering that market".

In a suit filed in June, Global Vehicles—chosen by Mahindra as the sole distributor for its pick-up trucks for the US market in 2006—alleged that there has been an inordinate delay in the launch of the trucks.

Subsequently, Mahindra filed a motion to dismiss the suit, saying the delays are on account of regulatory issues.

The company had initially planned to launch the vehicle by the end of 2009 but missed two deadlines due to regulatory issues including emission norms and road worthiness rules. The company has said that it will launch the trucks by the end of 2010 but it is still not clear whether it will be able to stick to this deadline.