Andhra Pradesh chief minister Y S Rajasekhara Reddy has said that Volkswagen deciding to set up its plant in Pune and not honouring its written commitment of starting a project at Visakhapatnam was tantamount to breach of promise and agreement.
He, however, said that his government was not thinking of proceeding legally against the German automobile major as it would "unnecessarily hurt the investment climate in the state."
"We cannot stop Volkswagen from deciding to set up the project anywhere in the country, in the same manner such as General Motors, Hyundai, Ford and Honda have decided.
The only difference in this case is that there was a written commitment followed by a financial transaction," Reddy said, adding that "there is no way, legally speaking, they can escape their responsibility for their assurance to set up the project at Visakhapatnam."
Recalling the sequence of events at a press conference here on Monday, the chief minister said that it was unfortunate that the German company had gone back on its commitment despite the state government offering a subsidy to the tune of Rs 2,589 crore (Rs 25.89 billion), including tax exemption, for the Rs 1350-crore (Rs 13.5 billion) car project.
In January 2005, the state government had deposited 2 million Euros (Rs 11.67 crore) in the account of Vasishta Vahan Private, which turned out to be a bogus company later, as a token of its commitment for the project at the instance Helmuth Schuster, former head of Volkswagen India. Subsequently, Schuster and his accomplices in the company siphoned off the money.
Volkswagen had owned up in writing the responsibility for the wrong doings of Schuster.
This was followed by Frank Elbe, former German ambassador to India informing the CM that Volkswagen had decided to return the euro 2 million.
The state government maintained that accepting the money was not relevant at that time as the German company had continued to show its interest in setting up its unit at Visakhapatnam.
Meanwhile, the opposition parties in the state raised allegations of corruption against the then major industries minister, B Satyanarayana leading to a CBI investigation. Satyanarayana was stripped of his portfolio and was made marketing minister.
The CBI had recovered a major portion of the money deposited in the Vasishta Vahan Account. It is yet to submit its report on the role of the state government and the then industries minister in the withdrawal of the money from the account.
