Sunil Jain: Lipton is not very NICE

RATIONAL EXPECTATIONS

In 1996, it appears, there was a famous case involving Lipton and the government of Karnataka (GoK) which revolved around whether or not a particular government order had been published in the State Government Gazette (that's the only way something becomes a law).

Karnataka's Deputy Commissioner of Commercial Taxes, swore on affidavit that it had not. Since it was later shown the affidavit was incorrect, the Court ruled against GoK, and then said "we must caution the High Court at Karnataka ... that it should be very vigilant in accepting as correct a statement, even though it be made on oath, on behalf of the State Government".

Strong stuff, but what's the relevance now, one may well ask. A lot actually, since a similar case appears to be unfolding all over again in, yes, the same state of Karnataka!

The story, which was highlighted in these columns on February 28, concerns the Rs 2,250 crore highway corridor between Bangalore and Mysore (with five townships in between and 16 interchanges along the highway, each of which would have petrol pumps, workshops, warehouses and so on) on which work began a decade ago, and an MoU was signed between the GoK, Baba Kalyani of Bharat Forge, VHB Inc, and SAB Engineering Inc of the US""the last company belongs to Kalyani's brother-in-law Ashok Kheny.

While a part of the highway, a semi-circular peripheral road around Bangalore, will be opened in the next six weeks, the project has run into serious political problems, and former Prime Minister HD Deve Gowda, who cleared the project when he was Karnataka chief minister, is spearheading the agitation""it doesn't help that his son is PWD minister in the current Karnataka government, the man who can make or break the project. As a result, Kheny's got just around half the land he needs for Phase I of his project.

But while the government has been trying to put one hurdle after another in Kheny's path, including setting up a committee to reduce the land allotted, the courts have backed Kheny. In September 1998, for instance, a Division Bench of the Karnataka High Court dismissed a writ against the Framework Agreement between GoK and the parties which said the agreement was illegal, mala fide, and arbitrary.

The case then went on to a different tack, on whether the land acquisition for the project was legal, and in December 2003 a single judge ruled partly in favour of the project and partly against. On February 28, 2005, however, a double bench of the Karnataka High Court cleared the air completely and said all land acquisition for Phase I was fine.

The GoK, meanwhile, sought an opinion from the state's legal department on whether the project could be modified, and on December 12 last year, the legal department sent an opinion which said "(this) could be taken as a violation ... rendering the Government open to consequential claim for compensation, damages etc."

What's interesting is the angle being taken by the GoK to derail the project now. In a sworn affidavit before the High Court, the chief secretary to the GoK said, on March 31, 2005, the state had now detected "fraud and misrepresentation".

What is the fraud? According to Chief Secretary K K Misra, "the government was under the impression that (the consortium of Kalyani, VHB and SAB) had established a separate Limited Company by name M/s Nandi Infrastructure Corridor Enterprises (NICE) ... But it now transpires that the said representation ... is not true".

He also added that while Kalyani, VHB, and SAB said they had assigned their rights to NICE, the GoK was not a party to this Assignment Deed. In other words, since the firm with whom the final agreement was signed for the project (NICE) was a fraud, the agreement was null and void.

This is where Lipton comes in. For, the fact is that Chief Secretary Misra appears to have omitted certain important facts from his affidavit, the most important being the fact that the consortium members never said they'd formed NICE ""NICE was formed by Bharat Forge, which owns 80 per cent of it, and SAB, which owns 20 per cent.

On March 17, 1997, for instance, there is a letter from Kalyani's Bharat Forge Limited to the PWD secretary which says "the 3 Consortium members have decided to implement this Project through a Company registered and existing under the Laws of India. All the rights and obligations of the Consortium are being assigned in favour of this Company."

It enclosed the original Assignment Deed (which also doesn't say the consortium members formed NICE) and asked the GoK for its consent and signatures on the deed.

In fact, in January 1997, the PWD deputy secretary sent a copy of the Assignment Deed to the law department for vetting, and in March, this was sent back saying the consent of the GoK to the Assignment Deed "may not be necessary" since the GoK was in any case "finalising an agreement directly with (NICE)".

Indeed, the courts also appear to be quite fed up with the ways in which the project is being delayed. Reacting to the "fraud and misrepresentation" affidavit, originally filed by an Under Secretary, the judges said "we are perturbed with the stand taken by the State Government in its statement of objections ... it appears that the State Government is not very sure of what it proposes ... the statement of objections is diametrically opposite to what the State Government had pleaded before this Court successfully in the earlier PIL."

And, according to a report of the court's proceedings in one of the local Bangalore dailies Vijay Times, at one stage the judges said of the chief secretary, "Our anxiety is that he has shut his eyes. Unfortunately he is sticking his neck out without realising the consequences. If there is a mistake then we shall not rest content." History, as they say, repeats itself, the first time as a tragedy, the second as a farce.

suniljain@business-standard.com