S P Bharucha, retired Chief Justice of the Supreme Court, has been appointed arbitrator by the domestic lenders in their arbitration proceedings against the foreign lenders to the beleaguered Dabhol power project.
The foreign lenders have already nominated Red Fern as their nominee on the three-member arbitration tribunal. The two arbitrators will now elect a third member, who will also be the chairman of the arbitration tribunal. The arbitration proceedings will start after the three-member Bench is formally constituted.
The domestic lenders -- the Industrial Development Bank of India, ICICI Bank, IFCI and the State Bank of India -- appointed the eminent retired judge to fight their case in London after the foreign lenders sent a formal notice on April 30 claiming damages to the tune of $546 million for breach of the inter-creditors' agreement.
The offshore lenders filed a notice of arbitration under the rules of the United Nations Commission on International Trade Law.
Institutional sources confirmed the development and said the domestic lenders preferred to appoint Bharucha over a foreign arbitrator. "He knows the situation in India, is well acquainted with the project and can appreciate the facts and concerns of the lenders," said an official in the know of things.
The domestic lenders are confident that they have a tight case. Unwilling to divulge their defence, Indian lenders said if they had not objected to the termination of the power purchase agreement, there would have been no assets. "The final assets are still available with us," said an institutional official.
The arbitration issue cropped up after the domestic lenders chose to block the termination of the price purchasing agreement with an injunction obtained against the rights and wishes of the offshore lenders.
The offshore lenders on April 3 instructed Dabhol Power Company to proceed with the termination of the power pact with the Maharashtra State Electricity Board. This would have entailed the takeover of the project by the board and repayment to the offshore lenders.
The arbitration proceedings will begin in early July with the three-member tribunal setting a schedule and a date for the offshore lenders to file their claim and the domestic lenders to file their reply.
"Since the foreign lenders have not rolled out any arguments, they will need to put forth their claim first before we give our reply," an Indian lender said. The domestic lenders are unfazed by the notice issued to them and are confident that they have an "iron-strong" case.
The domestic lenders have maintained that there has been no breach of trust since they have not enforced security in the Dabhol project.
"We want to revive the plant because we want to protect and preserve the assets, which otherwise, will turn into junk," said an institutional source. The Indian lenders have an exposure of Rs 6,200 crore (Rs 62 billion) in the project.