Wockhardt sniffs Fema violation by Sun Pharma

The battle between pharmaceutical majors Wockhardt and Sun Pharma has resurfaced.

Wockhardt, through its banker Standard Chartered (StanChart), has told the Reserve Bank of India (RBI) about a possible violation of the Foreign Exchange Management Act (Fema) by Sun Pharma — an allegation denied by the latter.

In a letter forwarded by StanChart to RBI early this month, Wockhardt alleged that Sun Pharma had possibly violated the Fema while possessing foreign currency convertible bonds (FCCB) issued by Wockhardt. The companies are locked in a legal battle over the same FCCBs, which matured in 2009 but have not been redeemed by Wockhardt till now.

While Sun Pharma claims the FCCBs are held by its subsidiary Sun Global, Wockhardt alleges its scrutiny of various documents including Sun Pharma’s annual reports indicates the possibility that Sun India, not Sun Pharma Global Inc, actually subscribed to the CLNs (Credit-Linked Note) that were Wockhardt’s FCCBs.

Wockhardt letter has sought a clarification from the RBI whether Sun Pharma Global Inc is a bonafide holder of Wockhardt FCCBs.

A Wockhardt spokesperson confirmed the development.

In an email response to Business Standard, a Sun Pharma spokesperson said the company was aware of the prevailing (Fema) regulations and had not made any violations.

“These moves (of Wockhardt) can often be perceived as diversionary tactics in order to deflect attention away from its default on payment. We sincerely hope that full payment owed to bondholders (on which the company defaulted over two years back) is made good soon,” Sun Pharma stated.

Sun Pharma holds about $20 million worth FCCBs of Wockhardt. With the other bondholders put together, the total amount of dues is estimated at $70 million.

Wockhardt wants the RBI to examine whether an Indian company such as Sun India can be allowed to subscribe to CLNs for FCCBs, as no resident Indian company can hold any FCCBs. In case of an Indian company, the acquisition of CLNs can constitute the violation of Fema, it says.

Wockhardt’s problems with its lenders started after it failed to redeem its FCCBs that matured in 2009 due to a financial crisis. The buyback package offered by the company was not acceptable to the investors. The bondholders, including Sun Pharma, then filed a winding up petition against Wockhardt and also opposed its attempts to sell a part of its business to raise funds.

The matter is being heard by the Bombay High Court.