Mitsubishi Motors Corp has shelved its plan to buy out Hindustan Motors Ltd’s (HML) Chennai manufacturing facility. This is due to a legal hurdle in clearing HML’s restructuring plan.

According to a senior HML official, talks were on for some months and a deal was to have been finalised on December 19 in Tokyo.

However, on December 16, the Japanese automobile major communicated its decision to put the deal off.

Earlier, to pave the way to sell the facility, HML had moved a petition before the Calcutta High Court for approval of a scheme of arrangement, by which it was to transfer the Chennai plant facility to its unlisted subsidiary, Hindustan Finance Corporation Ltd. However, the West Bengal Government objected to this scheme.

Change of plan Following this, HML has drawn up a new plan, Business Line has learnt. HML has now decided to withdraw the petition pending before the Calcutta High Court.

This move is expected to prepare the ground for a “divestment” of its interests in the operating assets in Chennai.

Under a technological and marketing pact, struck in 1998, HML rolls out Mitsubishi vehicles from its Chennai plant.

Earlier this year, HML signed a contract manufacturing deal with Isuzu Motors for utilising a portion of the facility, which employs around 300 workers and has the capacity to produce about 15,000 cars a year.

The West Bengal Government, which objected to HML’s restructuring plan, insists on its claim of around Rs 195 crore from the company.

It had made the claim last year, asking the company to “return” the “additional” sale proceeds of around Rs 195 crore from its Uttarpara plant’s surplus land (314 acres) development deal proceeds. HMI has contested the claim.

Sources said this, along with the State Government’s objection, caused a delay in obtaining all the approvals necessary in a court-approved scheme.

In 2006, the Bengal Government had allowed the Uttarapara deal, making a specific exception to its land-related laws. It says HML, under an “agreement”, was to invest Rs 85 crore for the revival of its plant near Kolkata, and return the balance of the sale proceeds to the Government.

> jayanta.mallick@thehindu.co