SC sets aside NCLAT order on Dhanuka's resolution plan for Orchid Pharma

The Supreme Court of India has set aside a National Company Law Appellate Tribunal's (NCLAT) order rejecting the resolution plan of Gurgaon-based Dhanuka Laboratories for the debt-ridden Chennai-based Orchid Pharma. The latest order, in an appeal filed by State Bank of India (SBI), is a green signal to Dhanuka Laboratories' resolution plan, which was approved by the National Company Law Tribunal (NCLT) in June 2019, legal sources said.

The NCLAT, in November, 2019, had set aside the NCLT's order, which approved the resolution plan of Dhanuka, observing that the resolution plan is less than the liquidation value, which is against the provisions of the Insolvency and Bankruptcy Code. Besides, it is against the principle of maximisation of assets of the corporate debtor, the Appellate Tribunal said in a petition filed by Accord Life Spec Pvt Ltd, an unsuccessful bidder for Orchid Pharma.

The Supreme Court division bench consisting of Justice Rohinton Fali Nariman and Justice S Ravindra Bhat, in the latest order observed that the NCLAT's judgement has to be set aside in view of a recent Judgement where it was categorically held that no provision in the Insolvency and Bankruptcy Code or Regulations have been brought to the Court's notice, under which the bid of any resolution applicant has to match liquidation value arrived at in the manner provided in the relevant regulations.

"Accordingly, the appeal is allowed and the judgement of the NCLAT is set aside," said the order.

SBI, an important member in the Committee of Creditors (CoC), filed the appeal with the Supreme Court to set aside the NCLAT order, alleging that the Appellate Tribunal erred in overriding the commercial wisdom of the CoC. This was the second attempt to bring in an investor to save Orchid Pharma. Earlier, the NCLT has nullified a resolution plan by US-based Ingen Capital after it was approved, since the investor allegedly did not bring in money as per the norms.

Orchid Pharma owes around Rs 3,200 crore to a total of 24 banks. Accord, in its appeal at the NCLAT, alleged that Dhanuka’s actual resolution value proposed was Rs 570 crore as against liquidation value of Rs 1,309 crore.

The NCLT, in its order in June, 2019, noticed that according to the resolution professional's explanation, while Dhanuka’s resolution plan value was Rs 570 crore, which is lower than the liquidation value of Rs 1,309 crore, Orchid Pharma had a cash and bank balance of Rs 321.98 crore. This and some other factors brought the plan value to around Rs 1,116.04 crore, close to the liquidation value.

It also said that since there is no other plan more feasible and viable than this plan and there being no mandate saying that the Resolution Plan value shall always be more than the liquidation value of Orchid Pharma in order to let the company remain as going concern and to close out the long drawn process, it is approving the resolution plan of Dhanuka Laboratories. Around 1407 employees are eking their livelihood by working in the company and if there is no solution, the immediate effect will be on the employees, it observed. Dhanuka is a manufacturer and exporter of oral cephalosporin APIs.

Dhanuka Lab bid for Orchid Pharma hits new wall as one lender changes vote

There has been a twist to the insolvency resolution process for Orchid Pharma Ltd, in its second attempt to find a successful resolution plan. The highest bid, offered by Dhanuka Laboratories, faced a new hurdle on Tuesday, June 11, with Punjab National Bank (International) Ltd changing its vote to dissent against the proposal, just ahead of the closing of e-voting. The decision on the resolution plan will be now taken by the National Company Law Board (NCLT).

According to a regulatory filing by Orchid Pharma, the resolution, for which the e-voting was kept open from June 7 morning 9 am to June 11 evening 4 pm, received a favourable vote by the Committee of Creditors with 67.07 per cent voting share. However, an email from Punjab National Bank (International) Ltd was received at 3.33 pm asking for a change in its e-voting for the resolution to dissenting.

Once this change is considered, the voting for the resolution plan will be 65.53 per cent, as against the required 66 per cent voting. According to an earlier disclosure by the company, if 66 per cent of the CoC votes are in favour of the highest bidder, it will be submitted to the National Company Law Tribunal (NCLT) for approval.

"Based on the legal advice received, the RP (Resolution Professional) shall file the Resolution Plan of Dhanuka with Hon'ble NCLT and seek guidance with respect to accepting the change in stand taken by Punjab National Bank (International) Ltd and on the treatment of voting percentage," the company said in a filing with the exchanges today.

The highest bid this time has seen a larger haircut than the earlier one by Ingen Capital, for Rs 1,490 crore. The quote is less than Rs 1,000 crore this time and is below the liquidation value, said sources close to the process.

Three drug companies – Gurgaon-based Dhanuka Laboratories, Chennai-based Accord Life Spec and Hyderabad-based Covalent Laboratories – were in the fray in this second-time resolution process (RP). Dhanuka is a prominent manufacturer and exporter of Oral cephalosporin APIs, where Orchid Pharma has its strengths.

Orchid Pharma is in its second attempt to find a resolution plan under the corporate insolvency resolution process (CIRP), as the previous resolution plan by US-based Ingen Capital LLC was annulled by the NCLT.

This came after the successful bidder failed to remit the upfront payment as per norms. Ingen Capital’s resolution plan was approved by the NCLT on September 17, 2018, and as per the approved resolution plan, Ingen Capital was expected to deposit Rs 1,000 crore upfront to the financial creditors. Ingen, however, sought more information, which was not allowed by the resolution professional.

The NCLT, on February 28, annulled Ingen’s resolution plan and allowed 105 days for the CIRP, considering the time lost from the date of previous expression of interest, November 16, 2017, to the date of annulment of the approved resolution plan of Ingen Capital.

It has also reinstated the RP and the CoC to ensure running of the company as a going concern.