The National Company Law Appellate Tribunal (NCLAT) has set aside the approval of the resolution plan of Dhanuka Laboratories for Orchid Pharma.
Dhanuka's plan was approved by the NCLT on June 25.
The Bench also ordered to remit the matter to NCLT for a decision. The NCLAT order comes on an appeal filed by Accord Life Spec, part of the Rs 1,700-crore Accord Group established by former Union minister of state S Jagathrakshakan, whose resolution plan was rejected by the NCLT while approving Dhanuka's plan.
This was the second attempt to being in an investor to save Orchid Pharma, which owes over Rs 3,000 crore to various banks. Earlier, the NCLT has nullified a resolution plan by US-based Ingen Capital after it was approved, since the investor allegedly did not bring in money as per the norms.
The NCLAT bench comprising of Chairperson Justice S J Mukhopadhaya, Judicial member Justice AIS Cheema and Technical member Kanthi Narahari, observed that the resolution plan which quotes below the liquidation value cannot be approved according to the law.
"...the basic feature of the I&B Code was that an ‘Operational Creditor’ cannot be paid anything less than the ‘Liquidation Value’ and the basic principle is the maximisation of the assets of the ‘Corporate Debtor’, balancing all the stakeholders by maximisation of their assets, no ‘Resolution Plan’ can offer any amount upfront or by other way, which is less than the ‘Liquidation Value’. It will be against the object of the Code as also the provisions of Section 30(2) of the I&B Code," said the order.
"The matter stands remitted to the Adjudicating Authority for decision in accordance with law," it added.
Accord alleged that Dhanuka's actual resolution value proposed was Rs 570 crore as against Liquidation Value of Rs 1,309 crore. It requested the Appellate Tribunal to set aside the NCLT decision approving Dhanuka's plan. It has also filed another appeal against the NCLT's decision to reject Accord's plan. The NCLAT has dimissed the second appeal.
NCLT, in its order in June observed that while Dhanuka's resolution plan value was Rs 570 crore, which is lesser than the liquidation value of Rs 1,309 crore, according to the Resolution Professional's explanation, Orchid Pharma already has a cash and bank balance of Rs 321.98 crore, and an amount of Rs 184.06 crore reversed to it by State Bank of India after Dhanuka agreed to infuse Rs 40 crore as equity into the company, which put together would be around Rs 1,116.04 crore, which is almost equivalent to the liquidation value of the company.
It also said that since there is no other plan more feasible and viable than the plan and there being no mandate saying that the Resolution Plan value shall always be more than the liquidation value of Orchid Pharma in order to let the company remain as going concern and to close out the long drawn process, it is approving the resolution plan of Dhanuka Laboratory. Around 1,400 employees are making their livelihood from the company, and if there is no solution, the immediate effect will be on the employees.
The selection of a prospective plan of Dhanuka Lab by the CoC met a trouble with one of the CoC members - Punjab National Bank (International) – sent an email seeking to change its e-voting to dissenting before the voting period was over. Dhanuka's resolution plan, which initially got 67.07 per cent votes on favour as against the regulatory requirement of 66 per cent, once the change is considered, would have been went down to 65.53 per cent, falling short of the required voting percentage. Accord's argument that this would mean that Dhanuka's plan would fall short of required votes from the CoC was not accepted by the NCLAT.
Accord, in the NCLAT, alleged that while the liquidation value of Orchid Pharma was assessed at Rs 1,309 crore, Dhanuka's offer was of a total of Rs 1,116 crore including Rs 506.04 crore of Orchid Pharma and only Rs 40 crore was proposed to be infused for operation of the company. However, the resolution plan submitted by Accord was also less than the liquidation value.