Vendors unpaid at Reliance Shipyard

Three years of non-payment of dues to vendors slows work at Reliance shipyard

After Anil Ambani’s Reliance Group acquired the Pipavav shipyard in Rajula, in Gujarat, payments to vendors either reduced significantly or stopped completely. PTI
17 November, 2018

Almost two hundred vendors working with a Reliance shipyard in the city of Rajula in Gujarat’s Amreli district have remained unpaid since 2015. That year, Reliance Group, headed by the industrialist Anil Ambani, acquired the shipyard from the country’s largest ship building company—Pipavav Defence and Offshore Engineering Company Limited. At the time, Pipavav was on the verge of bankruptcy, with debts exceeding Rs 6,000 crore—all of which Reliance assumed with the takeover. According to a list of unpaid vendors compiled by Ambrish Der, Congress’s member of legislative assembly from Rajula, as of September 2018, Reliance owed 191 vendors a total of Rs 71.76 crore.

Several vendors told me they were initially optimistic that Reliance would repay their dues. They said that payments had started reducing in 2012, but till 2015, the founder-promoters of Pipavav, Nikhil Gandhi and Bhavesh Gandhi, had continued to pay them a percentage of their dues. After the Reliance takeover, payments to vendors either reduced significantly or stopped completely. Three years later, multiple banks have initiated loan recovery proceedings against Reliance Naval and Engineering Limited, or RNaval, which owns the shipyard, while vendors claim that Reliance owes each of them significant sums of money.

The vendors comprise merchants and contractors—the former supply various materials, such as cable wire and electrical panels, and the latter employ labourers for fabrication work on the shipyard. Shiva Bhai Vagh, who owns the firm Bajrang Construction, said he had been taking on contracts for fabrication work since 2008. Vagh told me that the payments had reduced since 2012, before adding, “Jabse Reliance aaya na, Anil Ambani, tab se toh waat hi lag gaya.” (Since Reliance and Anil Ambani came, we’ve been screwed since then.) According to Der’s list, RNaval owed Vagh’s firm Rs 72 lakh.

Since 2015, the Reliance Group has undertaken a rapid exploration of business opportunities in the defence sector. In March that year, Reliance Group announced that it would gain management control of Pipavav Shipyards over the next six months—by early January 2016, the takeover was complete. However, the case of the Reliance shipyard at Rajula does not present a promising picture of Ambani’s defence ventures. Despite public and personal assurances that he would repay the dues, Ambani has not only failed to pay the crores of rupees that it owes to local contractors, his conglomerate is struggling to ensure that the shipyard remains operational.

Most of the vendors I spoke to discussed promises made by Ambani. Though the takeover was officially complete only in January 2016, around September 2015 itself, a contractor Bhavesh Lakhani recalled, Anil Ambani declared to a crowd of at least 2,000 workers on the shipyard, “We have no dearth of money and everyone will get their share.” He emphasised, “Anil bhai khud bola tha.” (Anil said it himself.) Lakhani owns a shipping agency called Aditya Marine and said Reliance owes him Rs 60 lakh.

The merchants and contractors I spoke to said they continued working with the shipyard even after their payments stopped completely in hopes of Reliance clearing overdue bills. Pritish Bhai, a merchant who supplied electric materials to the shipyard between 2010 and 2015, said he continued till the end of the year despite 60 percent of the total payment being outstanding because he “thought Reliance was a rich company.” Pritish said the purchase department of the shipyard had insisted him to continue the supply and wait for some time for the business to grow. Reliance still owes him Rs 85 lakh, he added.

When Reliance had still not paid them by the end of 2015, the vendors started withdrawing their labourers and raw materials. Beginning early 2016, Reliance Group held individual meetings with them. “The company representatives assured us that the dues would be paid and we should not stop our supply,” Pritish told me. In one such meeting, Pritish recounted, the company asked merchants for a discount on the total dues and offered to pay the reduced amount in four installments. “They started from 50 percent discount, to which we didn’t agree, and my father started leaving the room. Then one of their employees called us back. We finally agreed to take a cut of 15 percent.”

The agreement was never signed because the company reduced the amount further in the final draft. Pritish said he was not paid any money. When he approached Reliance, they informed him that the proposal was scrapped and there would be no more deals with anyone. “Abhi toh hummey gate se andar hi nahi jaane dete.” (Now they don’t even let us enter the gate.)

Savaz Ram Bhai, a contractor who took on fabrication work for the company between 2011 and 2015, said he had signed an agreement with the company letting go of more than 20 percent. The outstanding amount of Rs 60 lakh was to be paid in four installments. Savaz said the company paid him Rs 17 lakh as his first installment, but the remaining Rs 43 lakh is still overdue. Similarly, Shabbir Bhai, a contractor who employed labourers at the shipyard from 2013 till 2015 said the company paid only Rs 28 lakh out of total sum of Rs 1.5 crore due to him. Shabbir, too, said he was promised that he would be paid in four installments.

Over the following years, several vendors stopped working with RNaval at different points in time. These decisions appear to be determined by the amount of risk they could afford. Merchants such as Pritish Bhai, who supplied material to RNaval that they had to buy from elsewhere, left by the end of 2015 whereas contractors such as Gabru Bhai, who employed labourers at the shipyard, remained as long as they could persuade the workforce to continue with delayed payments—in Gabru’s case, till January 2018. Moreover, soon after Reliance bought an 18-percent stake in Pipavav, in March, RNaval entered into corporate debt restructuring, or CDR —the process through which lenders grant companies a period of time to propose a plan to repay the lenders, and a telling sign of poor financial health of a company. By March 2017, the company’s consolidated debt had reached Rs 8,951 crore. In April 2017, a consortium of 23 banks, led by IDBI, allowed Reliance to exit the CDR process, paving the way for the company reportedly to be shortlisted, along with the construction giant Larsen & Toubro, to develop four warships called landing platform docks, or LPDs, worth over Rs 20,000 crore.

Many contractors told me that throughout 2017, RNaval officials told them that the dues would be paid at the earliest because they would be getting a contract worth Rs 20,000 crore for the construction of LPDs. But according to Lakhani, there has been no progress on the construction work. “Five ships of navy and 12–13 of coast guard are all lying just like that, unattended.”

According to the vendors, there has been little work carried out at the shipyard since January 2018. “Every now and then, they bring contractors from outside and once the project is over the company will bring new one,” Shabbir said. “No local contractors of Rajula do business with them anymore.” On 12 March, around one hundred local contractors and merchants, many of whom were still in business with the company, sat on protest in front of RNaval’s administrative building in Rajula. Savaz, who had participated in the protest, recalled that the company’s guard would often destroy their tents, forcing them to be without shade during the intense summer. He said no company representative spoke to them and the strike continued till 25 June without any assurance from the company or the local government administration, including the collector to whom they had earlier appealed. During the strike, the contractors said the police arrested many of them for unlawful assembly. They were later released on bail. “Ulta ho gaya, jisne paisa liya usko kuch nahi hua, jiska paisa gaya usko jail mein daal diya”—It was upside down, nothing happened to the ones who took money, and the ones who lost money were put in jail—Lakhani said.

After the arrests, the vendors told me, they realised that Reliance would not pay heed to their protest, and began approaching local leaders from the Congress and the Bharatiya Janata Party. Among those they approached was Der, who told me that he documented the names of the vendors and their due amount. “I have been able to prepare a list, but it is really tough to get district administration action on it since our government is not in power here.”

The company’s condition has continued to deteriorate over the course of this year. In a March 2018 financial statement, an independent auditor of RNaval expressed uncertainty over the company’s “going concern”—an accounting term for the presumption that a company would continue business operations for the foreseeable future. The auditors state, “The Holding company (RNAVAL) has been incurring cash losses, its net worth has been substantially eroded as on 31st March 2018, loans have been called back by secured lenders, current liabilities are substantially higher than current assets … and winding up petitions have been filed before Gujarat High Court for recovery of their dues.”

In August 2018, the Oil and Natural Gas Company cancelled its order for five of 12 offshore support vessels that Pipavav had entered into with the public-sector undertaking before the Reliance takeover. That month, the company’s chief executive officer Rajesh Dhingra resigned from the board of directors. Two weeks later, Anil Ambani resigned as a director of RNaval. A month later, on 6 September, IDBI approached the National Company Law Tribunal to recover its loan from the company. The case is still going on before the NCLT’s Ahmedabad bench.

But despite its struggling circumstances, RNaval has been expanding its business operations. In September 2016, RNaval—then known as Reliance Defence and Engineering Limited—emerged the lowest bidder for a contract to build 14 Fast Patrol Vessels, or FPVs, for the Indian Coast Guard. The following January, the company signed a contract worth over Rs 916 crore with the defence ministry for the construction of the FPVs. On 24 October 2018, RNaval stated in a press release said that it launched a training ship for Indian Coast Guard. The shipyard was awarded this contract in 2014, when the Gandhi brothers owned the company. But according to Lakhani, who had worked on the project, the training ship was far from ready. “Khali khoka bahar ka taiyar hua hai—Only an empty shell has been created, Lakhani said. Pura ship ka heart hota hai, woh baaki raha hoga abhi. Abhi time lagega, doh saal chala jayega.” (The entire heart of the ship is left. It will take time right now, two years at least.)

I emailed several questions to Daljeet Singh, the head of Reliance Group’s corporate communications department, regarding the pending payments to its vendors and the current status of work at the shipyard. At the time this story was published, Singh had not responded to the email.