Madras HC issues injunction against IDBI

Notice issued to restrict bank from any steps relating to conversion of its lending to Orchid Pharma into equity for limited period

The Madras High Court has issued an injunction against IDBI Bank from any steps relating to the conversion of its lending to Orchid Chemicals and Pharmaceuticals Ltd into equity, for a limited period.

The decision, taken recently, was related to a dispute after IDBI Bank issued a notice to convert a part of its loan to equity in Orchid Pharma, which lead both the parties resorting to Court proceedings.

According to earlier reports, the proposed deal of Orchid Pharma to sell its manufacturing facility in Maharashtra and related R&D in Chennai to US based Hospira Inc, for a consideration of $200 million, now depends on the Court verdict or a settlement of the dispute, since the Bank has sought the company to meet the conditions stated in its loan agreement before selling the business. According to the report, IDBI has lent Rs 300 crore to the pharmaceutical firm.

Sources close to the development said that the dispute started after IDBI issued a notice of conversion of part of the money it lended to Orchid Pharma, into equity. Orchid Pharma opposed this through a writ petition with the High Court pleading an order against the move. IDBI has also filed a suit with the Court in the issue.

Legal sources confirmed that an injunction order staying the bank from any steps related to conversion of debt is in place. Further hearing on the disputes would be coming up for argument shortly, said a legal source.

However, Orchid Chemicals spokesperson refused to comment stating that the matter is subjudice. The company is confident of resolving the issue soon and progressing with the Hospira deal, said the official.

It is to be noted that the company has a debt of around Rs 2,200 crore till August, 2012 of which around Rs 800 crore was expected to be settled after the sales deal with Hospira is over. It has borrowed from a consortium of 10 banks.