HDFC chairman Deepak Parekh was instrumental in bringing the Sheths and the Mahindras together to get a counter-offer made against the Dalmias' hostile bid, and the institution has also extended a line of credit to the Mahindras for the purpose.

Mr Abhishek Dalmia, in a letter dated November 13 to Parekh, had sought the line of credit and also wondered whether HDFC was "more than a financier," and "almost a party to the counter bid," since the FI's line of credit reportedly sanctioned was as much as 86 per cent of the counter-offer value of Rs 34.70 crore. The Sheths-Mahindras combine has made a counter-offer for 33.5 per cent of GESCO shares at Rs 36 per share, against the Dalmias' revised offer of Rs 27 per share for 45 per cent of the company.

The Dalmia letter has brought into play the crucial aspect of whether a financial institution can fund both competing parties to a takeover battle. While Mr Parekh was not available for comment on the issue, top sources in HDFC told The Financial Express that though they had not seen the letter written by Mr Dalmia, the entire issue of whether competing parties can be funded by the same institution was a grey area which needed careful examination. "We have a certain comfort level in dealing with the Mahindras and Sheths. We have dealt with them for long. We may not have the same level of comfort for some others," the sources explained, virtually articulating HDFC's stand on the matter.

Speaking to The Financial Express here, Mr Dalmia said, "We would like to explore the option of low-cost debt to replace the equity funding that we have and have, therefore, approached HDFC which has funded the Mahindras."In the letter to HDFC, Mr Dalmia, who has also sought a meeting with Mr Parekh, says: "We must appreciate this path-breaking and pioneering policy decision of the HDFC to open a new line of business -- that is financing takeovers and competitive bids to thwart takeovers. Even while we do so, we have serious apprehensions about the decision of the HDFC in the present case."

Mr Dalmia is expected to press ahead with his plea, and, if HDFC refuses to fund the group, may even go to another FI and is also likely to bring the matter to the notice of the Securities and Exchange Board of India (Sebi).

In fact, HDFC sources first said the Mahindras did not really need the money and the HDFC credit line, estimated at around Rs 30 crore with an option to increase it further, was just a stand-by arrangement. But HDFC's role is now expected to spark off a whole new debate.

HDFC sources also sought to distinguish between FI funding for projects within the same sector and two competitive bidders for the same company. "While we can always fund steel projects of different companies, can we fund two competitive bidders for the same company? This is an issue which has to be debated," HDFC sources said. The Sebi takeover code, incidentally, is also silent on this aspect.