The move comes as a breather for PAL-Peugeot which is facing liquidation proceedings from some banks and financial institutions (FIs).

"In response to an appeal made by PAL-Peugeot (PPL) to assist in relieving its present financial difficulties, Automobiles Peugeot has agreed to withdraw all its claims for payment aggregating to about Rs 85 crore (french francs 132 million)," partner Premier Automobiles said in a release.

The amount was due to the French company on account of licence and technical fees, engineering services and supply of tools and dies and completely knocked down (CKD) kits.

Peugeot has recently transferred its 32 per cent equity holding in the joint venture to its Indian partner, which entered into a five-year licensing agreement with the French company for theTUD5 diesel engine. PAL, the statement adds, is in dialogue with FIs to work out a rehabilitation plan for the erstwhile joint venture company.

"Peugeot's decision to withdraw the claims in toto will result in a reduction of liability in PPL's balance sheet. After FIs and banks, who are the company's first secured creditors, Peugeot's claims would legally come next. As a result, this amount being written off benefits other unsecured creditors and equity holders," PAL has said.

The TUD5, which is now manufactured by PAL under the licensing arrangement, is rated by auto experts as among leading diesel engines in the world. Maruti Udyog has fitted it in the Zen-D and Hyundai Motor India is planning to use it for the Indian version of the Accent scheduled to hit the roads in October this year.

PAL and Peugeot had formed their joint venture, PAL-Peugeot, in 1994 to manufacture the 309. The car just did not take off though it was possibly the best offer in the mid-size segment with its competitive pricing.However, financial difficulties paralysed operations and Peugeot withdrew from its Indian operations in November 1997.

The French company has made it clear that it has no plans to re-enter the Indian car market, although it is open to the idea of exploring the motorcycles segment. Peugeot, it is understood, has initiated talks with a few Indian firms for launching its motorcycles in the country, either through licensing or joint venture route.

INSIGHT
Ball is now in FIs court for the company's bailout

The French Auto Giant - Peugeot's magnanimity in writing off the Rs 85 crore claim, together with its earlier five-year technological transfer agreement to PAL are both encouraging developments. Firstly, beacuse as a result of the amount being written off, unsecured creditors and equity holders in the ill-fated JV have now moved a step further to recovering some of their investment. The technological transfer could also prove to be beneficial provided companies like MUL and Hyundai opt toacquire the TUD5 diesel engine from PAL.

But while all these developments are fine, there is simply no denying the financial travails at PPL. And ball it now seems is squarely in the court of the FIs to work out an amicable settlement to bail out the beleagured PPL.

Percy Dubash