-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION Company Petition No.469 of 2005 with Company Application No.28l of 2005 In the matter of Companies Act, l956(l) of l956; and In the matter of Section 39l of the Companies Act, l956; and In the matter of Scheme of Arrangement between The Pharmaceutical Products of India Limited its secured creditors and Wanbury Limited. The Pharmaceutical Products of India Limited, a company incorporated under the Companies Act, l956 having its registered office at Plot No.D-3l2 Industrial Area Turbhe, MIDC Vashi Navi Mumbai 400705 ..Petitioner -2- with Company Petition No.470 of 2005 with Company Application No.282 of 2005 In the matter of Companies Act, l956(l) of l956; and In the matter of Section 39l of the Companies Act, l956; and In the matter of Scheme of Arrangement between The Pharmaceutical Products of India Limited its unsecured creditors and Wanbury Limited. ................ The Pharmaceutical Products of India Limited, a company incorporated under the Companies Act, l956 having its registered office at Plot No.D-3l2 Industrial Area Turbhe, MIDC Vashi Navi Mumbai 400705 ..Petitioner Mr Virag Tulzapurkar i/b M/s Rajesh Shah and Co for -3- petitioners Mr Sham Mehta with Mr Darshan R Mehta with Rishab Shah and Mr Salil K Shah i/b M/s Dhruve Liladar & Co for UTI objectionist. Mr Biren Saraf with Mr Ashish Kamat i/b Kartikeya and Associates for Tata Motors Ltd Mr. Shrikant Chavan i/b Vandana Jaisingh for Indus Ind Bank and Budhram Finance Ltd Mr Birendra Saraf with Ms Rajashree Bhat with Ms Nandini Chettier i/b M/s M K Ambalal and Co for Pedilite Ind Ltd interveners. Mr N H Seervai Sr Counsel i/b Law Desk for IDBI Mr F E D’vetre i/b Law Desk for Bank of India Messrs C J Joy with R C Master and M M Goswami i/b T C Kaushik for Regional Director. ........... CORAM; A.M.KHANWAILKAR J. CORAM; A.M.KHANWAILKAR J. CORAM; A.M.KHANWAILKAR J. Dated: l3th February 2006 Dated: l3th February 2006 Dated: l3th February 2006 JUDGMENT: JUDGMENT: JUDGMENT: l. This common judgment disposes of both the above mentioned company petitions. By these petitions filed under section 39l of the Companies Act, l956, the petitioner company prays that the arrangement embodied in the scheme of arrangement referred to -4- in the respective petitions be sanctioned by this court with or without modification and declare the same to be binding on the petitioner company and the concerned secured and unsecured creditors named in the scheme. The former petition is in relation to the scheme of arrangement with regard to the secured creditors, whereas the later is with regard to the specified unsecured creditors. 2. The petitioner company was incorporated on May l5, l986 in accordance with the provisions of the Companies Act, l956. The petitioner company became a public limited company on July l4, l986. The share capital of the petitioner company as on March 3l, 2005 is stated to be as under: Authorised Figures in Rs 3,00,00,,000 equity shares of Rs l0 each 30,00,00,000 l0,00,000 2% Cumulative Convertible Preference shares of Rs.l00 each l0,00,00,000 l0,00,000 5% Cumulative Convertible Preference shares of Rs.l00 each l0,00,00,000 20,00,000 Redeemable Preference shares of Rs.l00 each 20,00,00,000 -5- Total 70,00,00,000 Issued subscribed & paid up 95,34,090 equity shares of Rs l0 each 9,53,49,900 2,50,000 Redeemable Preference Shares of Rs.l00 each 2,50,00,000 Total l2,03,40,900 3. The main objects of the petitioner company on its incorporation are as follows: "(i) To carry on business in India and elsewhere as manufactures, products, processors, formulators, sellers, importers, exporters, merchants, distributors, traders and dealers in proprietary medicines, common medicinal preparations, vitamin preparations, elixirs,drops, tonics, other liquid drugs and medicines, injections, tablets, capsules, lotions, ointments, medicinal preparations containing anti-biotics, creams and powders. (ii) To carry on the business of preparing for sale or otherwise the formulas for the manufacture of pharmaceutical drugs and medicines, injections, capsules, tablets, -6- lotions, patent and proprietary medicines, common medicinal preparations, elixirs, drops,tonics other liquid drugs and medicines, medicinal preparations containing anti-biological pharmaceutical tablets, biological and non-biological capsules, tranquillisers, vitamins and tonic preparations, medicated ointments, harmons preparations, ayurvedic products, medicated powders, anti-diarroheal preparations defestures, anti-cholinergic preparations, anti-asthamatics preparations, opthalmic lotions and ointments, drugs and druggists as defined under the Drugs Act and Rules in all its branches" 4. The petitioner company commenced its business in the year l986 and has been carrying on the same since then. In the course of business the petitioner company has acquired several liabilities over the years resulting in the assets of the petitioner falling short of its liabilities requiring reference to the BIFR in relation to the petitioner company. In the said proceedings the BIFR vide its order dated 27th October, 2004 has recommended winding up of the petitioner company on the finding that the petitioner’s accumulated -7- losses exceed the net worth and the petitioner is not likely to become viable in future while meeting all its due financial obligations. The petitioner has questioned the said decision of BIFR by way of an appeal before the AAIFR, which is still pending. 5. It is stated that the petitioner company has found a strategic partner in Wanbury Limited who has extended help for revival and rehabilitation of the petitioner company by infusing necessary funds and providing for modalities whereby the dues of the concerned creditors of the petitioner company referred in the scheme under consideration could be settled in a more fruitful manner than by sale of the assets of the petitioner company at the instance of the secured creditors. It is stated that the tie up between the petitioner and Wanbury Limited will help to streamline operations of both the companies resulting in the petitioner company overcoming its accumulated losses on the assumption that Wanbury Limited has global presence in APIs and is manufacturing Metformin and Salsalate and has introduced other products like Amytriptaline, Tramadol, Promethazine and Sertraline over the last few months. It is stated that Wanbury Limited is the World’s largest producer of Metformin and it caters to API markets in over 40 countries -8- especially the related markets in North America, Europe etc. It is further stated that Wanbury Limited enjoys an excellent customer loyalty with over 200 companies across the globe and is keen to explore avenues to enhance its sales and increase its capacities to address the increased need of its customers. 6. As mentioned earlier,for the offer made by the said Wanbury Limited who has come forward to act as strategic partner, on April l4, 2005, the board of directors of the petitioner company considering all the aspects of the matter resolved that subject to the directions and sanction of the appropriate court as may be required under law and subject to such permission of such other authorities as may be necessary, the scheme of arrangement between the petitioner company, its named secured creditors (six in number) and Wanbury Limited be made on the broad basis referred to in the scheme of arrangement. The material provisions of the proposed scheme of arrangement as has been suggested by the board of directors of the petitioner company would read thus: "ARRANGEMENT WITH THE SECURED CREDITORS OF PPIL -9- 3.l Amounts due: The amounts due to the secured creditors of PPIL as on appointed date are placed as under: Secured Lenders Outstanding Dues (Rs In Lacs) Asset Reconstruction Company l0,360 (India) Limited (ARCIL) Industrial Investment Bank of 973 India (IIBI) Unit Trust of India (URI) 3,000 Bank of India (BOI) 233 Bank of Baroda ( BOB) 2,655 Union Bank of India(UBI) 436 Total l7,657 3.2 Consideration payable Towards the said amounts due to each of the Secured Creditors, to the facilities referred to above, PPIL,alongwith its associates and Wanbury have agreed that the following assets are available to be set off towards payment of the said amounts: a) Rs.24,064,470 (Rupees Two Crore forty lac sixty four thousand four hundred and seventy only) in cash. b) Rs.97,00,200 (Rupees Ninety seven lakh two hundred only) being in the form of 64,668 Equity shares of Wanbury Limited of Rs.l0 each issued at a premium of Rs.l40 each issued and allotted by Wanbury. c) Rs.2,42,50,000(Rupees two crores and forty two lac and fifty thousand only) being in the form of Zero coupon Non Convertible Debentures (hereinafter referred to as "NCDs") issued and allotted by Wanbury. d) Rs.5,82,00,000(Rupees five crore and eighty two lac only) being in the form of Zero coupon Optionally Fully Convertible Debentures (hereinafter referred to as "OFCDs") issued and allotted by Wanbury. -10- e) The building owned by PPIL admeasuring approx 339 sq meters of regular constructed space and approx 275.l7 sq meters of constructed mezzanine spare and located at 2l2,Marwah Industrial Estate, Saki Vihar Road, Saki Naka, Mumbai 400072 and bearing the particulars mentioned in schedule II hereto. f) The building owned by PPIL, through its partnership firm Neeldeep Plastics, located at D-306, TTC Industrial Area, MIDC, Turbhe, Navi Mumbai 400705 and bearing the particulars mentioned in schedule III hereto. On or prior to the date on which the present scheme is filed PPIL, shall procure and file before the Hon‘ble Court before whom the scheme will be filed under section 39l of the Companies Act, l956, a certificate of no-objection from the partners of Neeldeep Plastics, will be filed for the transfer of the aforesaid building described in schedule III, in accordance with clause 5.l.5 of this scheme. 3.3 Terms and conditions: 3.3.l The Secured Creditors have agreed that the consideration referred to in clause 3.2 shall be a settlement towards outstanding dues for which charge had been created on the assets of PPIL. 3.3.2 The amounts that remain outstanding out of the amounts set out in clause 3.l shall be treated as unsecured loans and the rights of the secured creditors to the extent that the outstanding amounts which remain unpaid after the agreement of the secured creditors to the scheme have been procured shall be the same as those unsecured creditors of PPIL. 3.4 The Secured Creditors have also agreed that the payment of the consideration referred to in clause 3.2 shall occur only after the AAAIFR or other competent forum or court has passed orders for the merger of PPIL with Wanbury Limited, or passed such other orders facilitating a complete transaction of PPIL assets and ownership,free of encumbrances to Wanbury, to the satisfaction of Wanbury, and shall be subject to the successful completion of all the formalities required for securing the consent of unsecured creditors to such other scheme as is proposed with them, and the approval of the shareholders of PPIL and Wanbury (for the issue of shares, OFCDs and NCDs under section 8l(lA) of the -11- Companies Act, l956) have been procured in accordance with law and all approvals have been acquired from all the parties, agencies and authorities towards the performance of acts to give effect to such orders as mentioned in clause 9.l below and this scheme. 3.5 The Secured Creditors shall perform all acts to cooperate with PPIL and Wanbury in any and all manners to give effect to the scheme, including executing and filing documents, materials, affidavits and other evidence in court or such other forum or authority as may be necessary, in support of this scheme. 3.6 The Secured Creditors shal issue a "No Dues" certificate upon receipt of consideration from Wanbury as stated in clause 3.2 subsequent to the Effective Date as per clause 9.2 of the scheme. In the event that the scheme gets the necessary approvals as stated in clause 9.l and is implemented/ effective , the Secured Creditors shall forthwith perform all such acts as are necessary to end all such proceedings and/or actions, as mentioned in schedule IV annexed hereto and any other proceedings and cheque bouncing mattes filed by the Secured Creditors now pending or arising in future. 3.7. Subject to the approvals as may be necessary to be obtained in that behalf PPIL and Wanbury hereby confirm that there are no legal infirmities/ bars on their transferring the assets mentioned above towards the due discharge of their duties mentioned in this scheme. PPIL is the absolute owner of the properties described in clause 3.2(e) and (f) which are free of encumbrances and are not charged in favour of any lender and which are now being offered as a part of this scheme. 3.8 The compromise and arrangements contained in this scheme with the secured creditors, shall be irrevocably binding on all the secured creditors with effect from the date on which the majority of the lenders at the meeting of the lenders meet and agree on this scheme. 4. Consideration to each secured creditors. 4.l It has been agreed that the total payment of the consideration referred to in clause 3.2, to the secured creditors shall amount to the following: -12- Lenders Equity NCD OFCD Cash Total ARCIL 5,988,492 l4,970,92l 35,930,2l0 l4,856,382 7l,746.006 IIBI 583,222 l,458,024 3,499,258 l,446,869 6,987,374 Unit 2,400,445 6,000,990 l4,402,376 5,955,078 28,758,889 Trust of India Bank of 207,262 5l8,l45 l,243,549 5l4.l8l 2,483,l37 India Bank of 442,584 l,l06,436 2,655,447 l,097,97 5,302,438 Baroda Union Bank 78,l95 l95,483 469,l60 l93,988 936,826 of India Total 9,700,200 24,250,000 58,200,00 24,064,470 ll6,2l4,670 Principal (Figures in Rupees) 4.2 In addition to the above the immovable assets referred to in clause 3.2 of the scheme valued at Rs.2,25,80,000 (Two crores twenty five lacs eight thousand only) shall also be part of the consideration in accordance with the provisions of this scheme. 5. Method and Mode of paying consideration: 5.l Subject to clause 3.3.l and 3.3.2, as full and final consideration and in full settlement of all dues, overdrafts, borrowings, interest payments, penalties, guarantees, equity conversion rights or other rights whatsoever, Wanbury would give to the Secured Creditors, the consideration in the manner,stated hereunder: 5.l.l Cash: Rs.24,064,470( Rupees two crores forty lac sixty four thousand four hundred and seventy only) is payable as cash down payment which shall be payable to each of the secured creditors on Effective date as Described below: Lenders cash ARCIL l4,856,382 IIBI l,446,869 -13- Unit Trust of India 5,955,078 Bank of India 5l4,l8l Bank of Baroda l,097,97l Union Bank of India l93,988 Total Principal 24,064,470 50% (fifty percent) of the total cash consideration referred to above shall be paid by Wanbury in accordance with the scheme within 3 weeks upon of this scheme being sanctioned by the High Court of Judicature at Mumbai. If the scheme is not approved as per clause 9(l) of the scheme of arrangement than the aforesaid 50% (fifty percent) will be return back to Wanbury within l5 days. 5.l.2 Shares of Wanbury Wanbury shall take such steps as are necessary to issue within 30 days of the Effective Date, equity shares of Rs.l0 each fully paid up at a premium of Rs.l40 per share. These equity shares shall be distributed amongst the secured creditors in the proportion mentioned below: Lenders Equity Shares ARCIL 5,988,492 39,923 IIBI 583,222 3,888 Unit Trust of India 2,400,445 l6,003 Bank of India 207,262 l,382 Bank of Baroda 442,584 2,95l Union Bank of India 78,l95 52l Total Principal 9,700,200 64,668 The shares as aforesaid shall be issued within 30 days of the Effective Date and shall be subject to the consents/ approvals and in the manner prescribed by the relevant agencies, authorities and bodies including the BIFR/AAIFR, Courts, SEBI and the Stock Exchanges. -14- 5.l.3. Zero Coupon Non Convertible Debentures(NCDs) Wanbury shall take such steps as are necessary to issue Zero coupon Non Convertible Debentures (NCDs) of a face value of Rs.l00 each comprising Part A being of a face value of Rs.60 each and Part B being of a face value of Rs.40 each. Part A of the NCDs shall be redeemable at the face value of Rs.60 each at the end of two years from the date of issue of the NCDs. Part B of the NCDs shall be redeemable at the face value of Rs.40 each at the end of three years from the date of issue of the NCDs. The NCDs shall be issued to the secured creditors within 30 days of the Effective Date and subject to the consents/ approvals and in the manner prescribed by the relevant agencies, authorities and bodies including the BIFR/AAIFR and the appropriate Courts. Wanbury shall take all necessary steps to obtain such approvals. The NCDs shall be pari passu secured against the fixed assets of Wanbury. Lenders NCD No of NCDs ARCIL l4,970,92l l49,709 IIBI l,458,024 l4,580 Unit Trust of India 6,000,990 60,0l0 Bank of India 5l8,l45 5,l8l Bank of Baroda l,l06,436 ll,064 Union Bank of India l,095,483 l,055 Total 24,250,000 242,499 5.l.4. Zero coupon Optionally Fully Convertible Debentures (OFCDs): a) Wanbury shall take such steps as are necessary issue OFCDs of a face value of Rs.l000 per OFCD within 30 days of the Effective Date as stated below: Secured lenders amount No of OFCDs ARCIL Trust 35,930,2l0 35,930 IIBI 3,499,258 3,499 UTI l4,402,376 l4,402 -15- BOI l,243,549 l,244 BOB 2,655,447 2,655 UBI 469,l60 469 Total 58,200,000 58,l99 (b) The OFCDs shall be optionally convertible and the option may be exercised between l8 months and 36 months of the date of issue of the OFCDs. The price at conversion of these OFCDs shall be higher of: (a) 67% of the 3 months average weekly closing high low price per share quoted on the BSE preceding the date of notice of conversion; or (b) a price of Rs.l25 per share whichever is higher. The paid up value of the share upon conversion shall be Rs.l0 per share. The Conversion Option shal only be exercised once and may before a part of the OFCDs, provided that such part shall not be less than 25% of the aggregate value of the OFCD. The unconverted part of OFCD shall be repayable to the OFCD holder, in two equal instalments at the end of 36 months and 48 months from the date of allotment of OFCD. The OFCDs shall be allotted on the effective date and subject to the consents/ approval and in the manner prescribed by the relevant agencies, authorities and bodies including the BIFR/AAIFR and the appropriate courts. The OFCDs shall be secured with a pari passu charge on the assets of PPIL. (c) Subject to the rights and interests of the Bankers and existing charge holders of Wanbury Limited, the holders of NCDs will be given a pari passu charge on the assets of Wanbury Limited and holders of the OFCDs shall be given a pari passu charge on the assets of PPIL that may be acquired by Wanbury, which, each of them,shall share with subsequent creditors that may be introduced by Wanbury for any purpose of PPIL/ Wanbury on the basis of the asset security coverage ratio fixed at l:l. The secured creditors to whom the NCDs are allotted, undertake and agree that they shall cede pari passu charge to future creditors of Wanbury so long as the asset security ratio mentioned above is maintained by Wanbury. d) Immediately upon conversion of the OFCDs,the shares shall be listed by the appropriate Stock Exchange. 5.l.5. Immovable assets of PPIL; a) Subsequent to the effective date, the properties described at clauses 3.2(e) and 3.2(f) shall be sold by ARCIL, the principal secured creditor of PPIL, on -16- best effect basis on the scheme coming into effect in accordance with clause 9.l of this scheme, and the proceeds thereof shall be paid by ARCIL to each of the secured creditors on the following basis: Sharing of ownership As secured Lender and sale proceeds ARCIL 52.90% IIBI 5.33% Unit Trust of India 2l.92% Bank of India l.89% Bank of Baroda 5.55% Union Bank of India 0.98% Total Principal 88.57% b) PPIL shall extend suitable cooperation to ARCIL and sign or cause to be singed all documents necessary for the sale of the said properties to give effect to this clause. c) Any fee and /or expenses/costs incurred by ARCIL/ Wanbury/ PPIL in relation to the said properties shall be deducted from the sale proceeds of the said properties. d) The secured creditors shall if though necessary by then execute amongst themselves documents as required their agreement to the sale of the properties by ARCIL or make such other arrangement as they deem fit for the expeditious sale of the property and/ or distribution of the consideration received from the sale thereof in the proportion mentioned in sub-clasue 5.l.5(a). Wanbury and/or PPIL shall have no liability on these assets including taxes, costs and/or charges payable or incurred in respect of the properties or sale of these properties or the distribution of the proceeds therefrom to the secured creditors or the allocation and sale thereof to the secured creditors as the case may be and Wanbury/ PPIL shall have no involvement or role in such agreement entered into between ARCIL and the other secured lenders and as such, on the effective date,the loans, dues and liabilities towards the secured creditors whether from PPIL, Wanbury and/or any of their associates, officers, employees or directors shall stand completely discharged subject to the payment of the -17- consideration described in this scheme. e) For the purposes of this scheme, the assets referred to in clauses 3.2(e) and 3.2(f) shall together be valued at a price of Rs.2,258 crores, regardless of the price at which the same are sold by ARCIL in accordance with clause 5.l.5 (a) above and the amounts outstanding towards the secured creditors shall be deemed as having been paid back to the extent of Rs.2,00,00,000 (Rupees two crores only) regardless of the actual amounts received subsequently by the secured creditors. 6. Results for Wanbury: 6.l Upon settlement of consideration as detailed in clauses 4 and 5 above Wanbury Limited shall get complete control over PPIL including all its assets save and except the properties referred to in clauses 34.2(e) and 3.2(f), subject to the approval of the merger and in the manner stipulated by the appropriate forum including the BIFR/AAIFR and/or this court. 6.2 In accordance with clause 6.l of this scheme, in respect of the properties referred to in clauses 3.2(e) and 3.2(f) of the scheme, Wanbury shall have no control, in the event of their sale in accordance with clauses 5.l.5(a) and clause 5.l.5(b) above. 9. Scheme conditional on approval/sanctions and effective date. 9.l The Scheme is conditional on and subject to all of the conditions mentioned in sub-clausses (a) to (e) hereunder having been duly met/completed. a) approval of an agreement to the scheme by the requisite majority of the secured creditors of PPIL as may be directed by the High Court of Judicature at Bombay. b) approval of an agreement to such other scheme as may be proposed for the Banks and Financial institutions being unsecured creditors by the requisite majority of the Banks and Financial institutions being unsecured creditors of PPIL as may be directed by the High Court of Judicature at Bombay. c) Sanctions and orders under the provisions of section 39l of the Act being obtained by PPIL from the High Court of Judicature at Bombay d) Receipt of the order of AAIFR and/or such other -18- forum setting aside the recommendations for winding up of PPIL, passed by the BIFR. e) approvals of the shareholders of Wanbury. f) Approval and acceptance of an overall settlement including an order for merger, or other mode of acquisition of assets of PPIL by Wanbury or such scheme of PPIL by BIFR/AAAIFR. g) Filing and submission of any of the aforesaid orders of any forum with any agency/statutory body,as may be required,including the ROC and h) All other sanctions and approvals as may be required in respect of this scheme being obtained. 9.2 This scheme shall become effective on the date on which all the conditions referred to in clause 9.l have been duly met/completed and such date shall be the effective date for the purposes of this scheme. l0. Effect of Non-Receipt of Approval/Sanctions In case the scheme is not sanctioned by the High Court of Judicature at Bombay, or in the