Third-party vendor JHS in legal battle with P&G for termination of contract

Indian vendor names 19 people in FIR filed, P&G says JHS statements are faklse

New Delhi-based third-party manufacturer JHS Svendgaard Laboratories, which used to make Procter & Gamble’s (P&G) Tide detergent powder and Oral-B toothbrush and toothpaste, has filed a complaint against P&G, alleging unfair termination of production contract. An FIR has also been filed in this regard.

In the FIR filed in Himachal Pradesh where JHS has its factory, the Indian vendor has named 19 P&G officials.

JHS, which had signed the agreement with P&G in 2010, claimed that termination of the P&G contract had caused huge losses to the company and it was on the verge of bankruptcy. The company had to build its manufacturing capacity (or change the machinery) according to P&G’s requirement and those could not be used to produce products for any other company, it noted.

In its complaint filed on October 8, JHS, which is a listed company, stated that the termination of contract had caused a market cap loss of Rs 100 crore. The contracts were supposed to run through till at least 2016.

JHS managing director Nikhil Nanda confirmed the development.

However, in a third-party due-diligence audit undertaken by chartered accountants Jaikumar Tejwani & Co (for P&G), JHS revenue from toothpaste business, which is completely dependant on P&G orders, was found to be just Rs 8.39 crore in fiscal year 2012-13. Its detergent business, which is also completely dependent on P&G, contributed a revenue of Rs 17.88 crore in 2012-13.

In the audit report of JHS for the year ended March 31, 2013, its auditor Haribhakti & Co had noted JHS stating that its management “does not expect significant impact” on its operations because of the non-renewal of contract by a major customer (P&G).

“We had mentioned this as we were negotiating the renewal with P&G at that time and were hopeful of getting this done,” said Nanda, adding that P&G had made JHS invest a huge amount as an exclusive supplier, most of which was debt.

When contacted, a P&G spokes person said: “We firmly believe that the statements made by JHS are false & baseless. Since the matter is sub judice and under arbitration, we cannot comment further.”