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September 19, 1997


A successful marriage goes to court

The ongoing battle between the Government of India and Suzuki Motor Corporation, both 50 per cent partners in Maruti Udyog Ltd, saw a strange turn on Thursday when the latter went to court challenging R S S L N Bhaskarudu's appointment as managing director of the joint venture company.

The government has maintained that it was its turn to appoint the managing director, after Suzuki previously chose R C Bhargava. Suzuki, however, claims the appointment should have been made after consultations between the two partners.

"The 1992 pact allows us to nominate the MD for the next five years and we don't need to consult Suzuki if the incumbent is from within the company, as Bhaskarudu is," said Industry Minister Murasoli Maran.

Suzuki differs. "Bhaskarudu's appointment without consulting us violates the spirit of the 1982 pact, which commits the partners to consultations on all major decisions including key appointments," said Osama Suzuki, chairman of the Suzuki Motor Corporation.

In New Delhi, government officials refused to comment on record. "The matter is sub judice and we are yet to study Suzuki's petition." They said they were consulting their lawyers and claimed the government case has much merit.

Said one official, "We are extremely surprised that Suzuki chose to sue its partner to settle a boardroom dispute." He pointed out that the government would not have nominated Bhaskarudu if it doubted his competence.

The case puts a question mark over the fate of the annual general meeting on September 22. Suzuki has demanded a stay on the AGM, pending which it may take the case to the International Council for Arbitration.

Bhaskarudu's ratification was expected to sail through as the government possessed the casting vote -- Heavy Industries Secretary Prabir Sengupta is Maruti's chairman.

The government has rejected Suzuki's plea that it contravened certain key clauses of the 1982 agreement.

Sengupta said the old agreement which calls for "mutual discussions and consultations" for appointing the managing director was superseded by the new 1992 agreement.

The new deal said the government has the right to appoint the managing director in 1997, without consulting Suzuki, for a five-year term.

Suzuki had earlier complained that the government had violated the 1982 agreement. The Japanese company said it was not consulted at all on Bhaskarudu's appointment despite repeated attempts by them to discuss the same.

However, Sengupta said the new agreement stipulated that the government and Suzuki would alternately appoint managing directors every five years. Moreover, the concurrence of the other shareholder is needed only if the managing director so nominated is from outside the company.

However, if the person nominated had at least three years of experience in Maruti, then consultation with the other partner was not needed.

Maruti is an incredible success story. Beginning in 1985 as a Rs 3.4 billion company, the turnover today stands at Rs 80 billion. Profits after tax in the same period have increased from Rs 30 million to 5 billion and the company now controls about 80 per cent of the market share.

Suzuki's is the second automobile case to go to court. Three weeks ago, French car manufacturer Automobiles Peugeot filed a suit against its Indian partner Premier Automobiles, for violation of the non-competition clause in the joint venture agreement.

Observers said the fact that two big names in the world car business have accused their Indian partners of different "crimes" will send disturbing signals on the credibility of Indian manufacturers. Increasingly, most players in the automobile sector have preferred to go the 100 per cent subsidiary route or have lost little time in buying out their Indian partners's stake.


June 1997: Suzuki Motors Corporation President Osama Suzuki has a tense meeting with Industry Minister Murasoli Maran who asserts that the government will exercise its right to appoint the MD.

July 1997: Maran invites Suzuki, who instead sends representatives. The government again declines discussions on the next managing director.

August 27, 1997: Bhargava steps down as managing director, government nominates Bhaskarudu as the new MD. Suzuki objects on the plea that it had not been consulted, and refuses to agree to holding the AGM. AGM postponed to September 22. Suzuki proposes Bhargava as chairman.

August 28: Suzuki spokesperson in Tokyo expresses displeasure at the manner of Bhaskarudu's appointment and says the Japanese partner has no confidence in the new MD.

September 17: Suzuki issues a press release in New Delhi accusing the government of jeopardising Maruti's future.

September 18: Suzuki goes to court against Bhaskarudu's appointment as Maruti MD and asks for a stay on the AGM.

Suzuki challenges Bhaskarudu's appointment as Maruti MD
Bhaskarudu appointed Maruti MD Bhargava's secrets of success

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