Aurobindo charges Natrol previous owner with financial fraud

Aurobindo's US affiliate had acquired Natrol Inc for $ 132.5 mn through a court-led auction

In potential litigation with the previous owner of Natrol Inc, Aurobindo Pharma's US affiliate has accused Plethico  Pharmaceuticals of committing financial fraud with its previous step-down subsidiary, according to a report carried by Dow Jones Daily Bankruptcy Review on Monday.

This is three months after Aurobindo announced the completion of its acquisition of Natrol Inc, on December 5. Aurobindo acquired the  American neutraceutical company for $132.5 million through an auction process carried out by a US bankruptcy court in November, 2014.

"Natrol's new owner said in court papers that former owner Plethico perpetrated a fraud on Natrol, its creditors and the bankruptcy court. An allegedly sham $25 mn contract with a fictitious construction company involving phony email and bank accounts, forged documents and people masquerading as contractors allowed the company to fool lenders before the bankruptcy proceeding and fool the court after the Chapter 11 case began, court papers claim," went the report.

Efforts to reach Aurobindo managing director N Govindarajan over telephone to understand the implications could not materialise as he was traveling abroad. A company senior official, however, told the Business Standard on condition of ananymity that they were not expecting any financial impact from this development. Govindarajan, currently in the US, is said to have been personally handling the issue.

Aurobindo Pharma USA (APUSA) had acquired the manufacturing assets, personnel and commercial infrastructure, including established nutraceutical brands in the US, along with an agreement to take on certain liabilities, with a bid of $132.5 mn.  The question of honouring the liabilities pertaining to these allegedly fictitious contracts  comes to the fore in the light of these accusations. The court will have to decide.

Mumbai-based Plethico, reporting losses for the past few quarters, is yet to respond to these allegations. The sale proceeds of the court-led auction of Natrol has not been reflected in the company's consolidated financials so far.

Natrol was one of the largest foreign acquisitions of Aurobindo. The latter wanted to expand into nutraceuticals in the US and other countries, on the back of some of the popular Natrol brands. Upon completion of the acquisition process, Natrol chief executive Mesrop Koundagoulian said he was looking forward to further expanding Natrol's over-the-counter product portfolio and the reach, with financial support from the new owners.

Aurobindo's scrip fell 2.6 per cent or 35.65 to close at Rs 1,323.15 on the BSE on Wednesday.