German Enercon Company Hits Headwinds in India

But for Enercon of Germany, one of the world’s biggest makers of wind turbines, India is shaping up as a disaster. The company says it has just lost its entire Indian subsidiary, a major operation with annual sales of more than $566 million, after a dispute with a local partner and a run-in with Mumbai law enforcement authorities.

Enercon also says it has lost control of its patents in India and fears its technology could be appropriated by competitors in a country where wind energy is a big and growing market.

The case has caused diplomatic tensions and — at least in Germany — clouded the image of India, which many multinational companies see as a place that could eventually rival China for growth and business opportunities.

But for foreign companies dreaming of making money in India, with its expanding economy and 1.2 billion consumers, Enercon offers yet another reason to think twice. Lately, foreign companies and investors have started to grow weary of the country’s endemic corruption, weak infrastructure and government limits on foreign investment in industries like insurance and retailing. Foreign direct investment in India fell by more than 31 percent in 2010, compared with the previous year.

Enercon, based in Aurich, near Germany’s windswept North Sea coast, portrays its Indian debacle as a government-abetted theft of its joint venture with a local partner.

That account is strenuously disputed by a lawyer for the partner, a businessman named Yogesh Mehra, who is also an executive member of the Indian Wind Turbine Manufacturers Association.

Enercon, which founded the Indian unit with Mr. Mehra in 1994, seems to have done well until the problems arose. In the financial year that ended in 2010, the company’s sales in India represented about 11 percent of Enercon’s total revenue.

Around 2005, according to Enercon, the partners started to argue about company strategy. The Germans wanted to move cautiously and invest profits in the business. But Enercon says Mr. Mehra wanted fast growth with an eye toward a stock market listing.

“One of our fundamental business development principles has always been to grow in a sustained, measured way and to reinvest profits,” said Stefan Knottnerus-Meyer, legal counsel for the German company. “Mehra was going for high-risk expansion.”

There may be good reasons to pursue fast growth in India’s wind market, if only to keep pace with the competition. India is the world’s fifth largest user of wind power, and is adding capacity fast. The country’s biggest wind supplier by far is India’s Suzlon, but others, including General Electric, are also here.

As the partners debated strategy in September 2008, two Enercon executives were summoned to police headquarters in Mumbai and questioned for at least five hours, according to the executives. They say police officials told them that they were suspected of conspiring against their Indian partners.

The men said that they had not been mistreated, but they interpreted the incident as an effort to intimidate them.

“They were very friendly, but the police officers attempted to distort our answers and put words in our mouths,” said Wolfgang Juilfs, Enercon’s chief risk officer.

Enercon executives say that Mr. Mehra, though a minority shareholder, progressively cut the German executives off from information and shut them out of management decisions. They say they believe they have been effectively banished from India.

“We have completely written off our investment in Enercon India,” said Mr. Knottnerus-Meyer.

Mr. Mehra did not respond to several phone calls and e-mails seeking comment. But a lawyer who represents him and Enercon India in the patent cases said the dispute began when the two sides started negotiating a new licensing agreement to replace a contract that expired in 2004.

The lawyer, Parthasarathy R., who like some south Indians uses only an initial for his last name, said the negotiations fell apart over a dispute about ownership of the company.

In late 2006, Aloys Wobben, the chairman and managing director of Enercon, offered 40 million euros ($56.9 million) to buy a 6 percent stake in the Indian company from Mr. Mehra. But a few weeks later he amended his proposal to 40 million euros for a 12 percent stake, according to Mr. Parthasarathy.

“That seemed to have completely triggered the lack of faith in both the parties,” Mr. Parthasarathy said.

Then, according to Mr. Parthasarathy’s account, Enercon Germany sought to cancel the licensing agreement with the Indian firm. That prompted Mr. Mehra to file cases to revoke Mr. Wobben’s patents in India, the lawyer said.

Enercon sued in Indian courts, but said that delaying tactics by Mr. Mehra and the slow pace of the Indian judiciary had so far not produced any meaningful results. Settlement talks also fell apart.

The Indian justice system did move fairly quickly to rule against Enercon in a patent dispute. The Intellectual Property Appellate Board, based in Chennai, India, decided in a little more than a year to nullify 12 Enercon patents.

Mr. Parthasarathy, the lawyer for Mr. Mehra, dismissed suggestions by Enercon Germany executives that Mr. Mehra had improperly influenced judges or other officials. Mr. Parthasarathy said the appellate board had acted quickly because a higher court, the Madras High Court, had told it to deliver a judgment in three months. “It’s very fashionable, especially for foreigners, to comment on corruption without having any basic facts,” Mr. Parthasarathy said.

To be sure, Enercon has a bit of a history of misadventure abroad. The company has never exported to the United States, after losing a court dispute there in the mid-1990s, in which a wind turbine maker, now defunct, accused Enercon of infringing on its patents.

The decision resulted in Enercon’s being banned from the United States for several years. The ban was later lifted, but the experience soured Mr. Wobben on the American market, Mr. Knottnerus-Meyer said. In India, Enercon’s aim now is simply to protect its patents and minimize its losses, he said. “Due to the experience we suffered, there is currently no intention to re-enter the Indian market,” he said.