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Govt issues show-cause notice to Reliance Naval after encashing all bank guarantees in patrol vessel contract

In fresh punitive action against the Anil Ambani-promoted Reliance Naval and Engineering Limited (R-Naval) for its failure to deliver five naval offshore patrol vessels (NPOVs) under a Rs 2,500 crore deal, the government has issued a show-cause notice to the debt-ridden company and encashed all its different bank guarantees worth around Rs 980 crore.

Defence ministry sources on Monday said R-Naval will have to explain within a month why the contract inked in May 2011, under which the five 2,000-tonne NPOVs were to be delivered from 2014-2015 onwards, should not be cancelled forthwith.

“Not a single NOPV has been delivered till now. The government’s interests had to be secured by encashing the different bank guarantees collectively worth Rs 980 crore, which will cover all the advances given in the deal. It was done a few days ago,” said a source.
R-Naval had earlier been taken to the National Company Law Tribunal (NCLT) by the IDBI Bank for debt-resolution, with the latter also recently filing an application to initiate insolvency proceedings against the company. A Reliance official, on being contacted, did not offer any immediate comment to the development.


R-Naval had inherited the contract for the NOPVs, the largest such warship deal awarded to the private sector, after it acquired Pipavav Defence and Offshore Engineering Company Ltd, which had gone under heavy debt, in 2015.

The work at the Pipavav shipyard in Gujarat had earlier come to a grinding halt but there was some progress after R-Naval took over the reins, with the first two NOPVs, Shachi and Shruti, being “launched” in July 2017.

The patrol vessels, armed with 76mm super-rapid gun mount systems along with two 30mm AK-630M guns, were supposed to be tasked with surveillance of the country’s vast Exclusive Economic Zone as well as anti-piracy patrols, coastal security operations and protection of shipping lanes.

R-Naval had also announced grandiose plans of constructing even bigger warships and submarines for the Indian Navy as well as servicing and repairing warships of the US Navy’s Seventh Fleet stationed in Japan. But no such plans have actually materialized on the ground.

In December 2018, the then Navy chief Admiral Sunil Lanba had dismissed any talk of “preferential treatment” being given to R-Naval, stressing that some of its bank guarantees were being encashed as a penalty against failure to deliver the OPVs in time. “The encashing of all the bank guarantees has taken place now, along with the decision to issue the show-cause notice,” said the source.

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