Stung by unilateral announcement by Suzuki Motor Corporation to invest Rs 1,000 crore (Rs 10 billion) in the Indian automobile sector, government has summoned its joint venture partner in Maruti Udyog to explain their action, saying it was violative of 'understanding.'
"We have asked them (SMC of Japan) for clarification on the unilateral announcement. This has affected our business and the good name," Heavy Industry Minister Santosh Mohan Dev said in New Delhi on Monday.
The minister wrote a strong letter to Suzuki after its supremo Osamu Suzuki announced in Japan last week that Suzuki would invest Rs 1,000 crore on setting up new car manufacturing facilities and a diesel engine plant, besides its entry into the motorcycle segment.
Taking umbrage of Suzuki's statement for a new production facility where Maruti would be taken in as a partner, Dev said the announcement without taking the government into confidence was tantamount to breach of 'understanding' of the joint venture agreement.
"This has caused a colossal loss to shareholders in terms of fall in MUL share prices. Market capitalisation of the JV company has suffered a loss of Rs 250-300 crore (Rs 2.5-3 billion)," an agitated Dev said.
Following the strongly worded letter late last week, Suzuki representative would meet the minister in a day or two.
"We are one of the major shareholders (in Maruti) and we should have been consulted before making the decision," Dev said.
Immediately after the announcement by Suzuki on September 13, Maruti share prices suffered a major slide, registering a fall of about 10 per cent.
This is the first major tussle between the two JV partners since 1997, when the Japanese partner had moved the Delhi High Court over the issue of Chairmanship of Maruti Udyog.
The then Industry Minister Murasoli Maran in the United Front Government had taken a hard line on ouster of R C Bhargava, who was later replaced by another Suzuki nominee Y Saito, while R S S N L Bhaskarudu was the managing director.
As per the revised joint venture agreement reached between the two joint venture partners after government ceded majority to SMC, the two partners were mandated to take each other in confidence before taking any decision vis-a-vis MUL, informed sources said.
SMC increased its stake to 54.2 per cent last fiscal following which government diluted its stake further to 18 per cent through sale of over 25 per cent equity in MUL through a public offer that enabled the company to list on Indian bourses.
Following the Suzuki's announcement to form a joint venture with Maruti - Suzuki Maruti India - to set up a new car plant in Manesar (Haryana) with production capacity of 250,000 units, MUL had informed the Bombay Stock Exchange that it would meet on September 23 to work out the details on setting up of the new car plant.