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MSEB to file suit for dissolution of DPC

By Oommen A. Ninan

MUMBAI SEPT. 5. The Maharashtra State Electricity Board (MSEB) is considering filing of a suit through its subsidiary, Maharashtra Power Development Corporation (MPDC), for the dissolution of Dabhol Power Company (DPC) within a week's time.

`Dissolution' is a special provision in Company Law wherein one of the shareholding partners files for bankruptcy in a closely held company. The MSEB at present has a shareholding of 16 per cent in DPC and this has come down from 30 per cent at the time of inception of DPC. Enron and DPC have not become bankrupt till date and what they got is a protection from bankruptcy by filing for Chapter 11 of the U.S. Law.

The IDBI is trying to push a proposal for MSEB to buy at Rs. 2.86 per unit of power generated from DPC. While MSEB and the Maharashtra Government rejected the proposal and pressured for a fixed price of Rs. 2.25. The dispute on the price is pending before the Maharashtra Electricity Regulatory Commission (MERC). The MSEB made an application to refer this to MERC.

The IDBI stated that the consortium led by it believed that an immediate restart of Phase-1 of the Dabhol Power Company project (which was operational till May 2001) was in the interest of all stakeholders. "The Indian financial institutions are presently in discussion with the Maharashtra Government and Maharashtra State Electricity Board (MSEB) in this regard. The modalities for restart would be evaluated and are expected to be finalised shortly," IDBI stated last Monday. Further, it said that the issue relating to financial restructuring of the project had been the subject matter of discussion among IFIs and foreign lenders and "the matter is being suitably pursued".

However, there are many technical and legal complications which have not been resolved still. One legal tangle is that since the DPC has closed down its registered and administrative office it is not clear as to who the current owner is and therefore the authorised company, especially in view of Chapter 11 proceedings started in the U.S. Another legal complication is that since the Securities Exchange Commission (SEC) of the U.S. has notified Enron Mauritius which submitted the Chapter 11 proceedings, then how can DPC stay out as it is directly owned by Enron Mauritius.

Further there are only two directors in the DPC board, one representing General Electric (GE) and the other Bechtel whereas the Articles of Association requires three directors to form the quorum and therefore legal experts are of the opinion that the substratum of DPC has vanished.

Major financial complications would ensue if Phase-I was restarted ,then IDBI-led consortium of banks would have to invest about Rs. 3,500 crores afresh to complete the Phase-II of DPC. This makes the idea of rescuing the distressed DPC a highly unviable proposition. Another major financial hurdle lies in the Godbole Committee recommendation that the share capital needs to be discounted by 80 per cent and loan portfolio discounted by about 50 per cent.

In fact power experts, Pradyumna Kaul and S. R. Paranjype, have been advocating the route of sale of assets along with the dissolution of the private unlimited DPC to enable Indian banks to come out of their guarantee obligations to the foreign banks.

Further, they have informed both IDBI and the State Government that since the Maharashtra Government has contended widespread fraud in their affidavit before the High Court, Indian banks need not worry about invocation of guarantees by the foreign lenders.

By now it is well established case law that once the main contract is vitiated with fraud, the guarantees cannot be invoked. All these issues will be hotly contested by various participants in the case before the MERC and the Bombay High Court which are likely to come up in the last week of September.

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