Rajat Pharmachem Limited vs Vidhya Pharmachem Pvt. Limited

S.J. Vazifdar, J.�This is an appeal against an order of the learned company Judge, admitting the above company petition filed by the respondent seeking the winding up of the appellant company, inter alia, on the ground that it is unable to pay its debts. According to the respondent i.e. the petitioning creditor, the appellant is indebted to it in the sum of about Rs. 7.00 crores. It is necessary to consider three Memoranda of Understanding (MOU) entered into between the parties, although the claim in respect of the third MOU is also the subject matter of a summary suit being Summary Suit No. 504 of 2013 filed by the respondent against the appellant.

Prior to 7th March, 2011, there were several transactions between the parties. In respect of these transactions, an amount of Rs. 2.5 crores was admittedly due and payable by the appellant to the respondent. The MOUs entered into between the parties were, inter alia, with a view to enabling the appellant to repay the same.

Both the parties are engaged in the business of manufacturing and trading in pharmaceutical formulations. The appellant had a manufacturing facility in Ankleshwar, Gujarat. The respondent has business connections with bulk drug traders and manufacturers and thereby has the ability of sourcing raw material used in the manufacture of pharmaceutical formulations.

The first MOU dated 7th March, 2011 records that an amount of Rs. 2.5 crores was due and payable by the appellant to the respondent and that the parties had agreed to explore the business opportunities mentioned therein. Recital 4 referred to five business opportunities viz. (a) joint execution of products registered for export in Nigeria; (b) joint execution of orders of Bengal Chemicals & Pharmaceuticals Limited (BCPL); (c) joint execution of orders from IDPL of Albendazole tablets, expected in the near future which came up in future and (e) starting a subsisting factory in Gujarat and selling products locally and any other opportunity which came up in future wherein joint execution of that opportunity was agreed to between the parties. Recital 5 reads as under:

"5. This agreement is executed to adjust the outstanding as mentioned above from the expected business opportunities. If any of above opportunities do not materialize this outstanding stands payable."

(Emphasis supplied)

Admittedly, the order from IDPL of Albendazole tablets was never placed. As a result thereof, the admitted amount of Rs. 2.5 crores is payable.

Under clause 1 of the MOU, the profits from the said business opportunities were to come to the respondent''s bank account. Under clause 2, the appellant''s share of profits and dues towards refund/rebate including excise and VAT was to be adjusted against the outstanding of Rs. 2.5 crores in the first instance. Clause 3 recorded that the appellant had issued cheques aggregating to Rs. 2.5 crores which were to be invalidated to the extent of the appellant''s share of profits being adjusted from time to time. The respondent was to send a statement of profits to the appellant on the receipt of payment against each order executed by the parties. The MOU was to remain valid till the entire outstanding of Rs. 2.5 crores was paid.

The parties entered into another MOU, also dated 7th March, 2011. The fourth recital recorded that the appellant had received purchase orders from Bengal Chemicals & Pharmaceuticals Limited (hereinafter referred to as "BCPL"). Clause 1 provided that the respondent would purchase the material required to execute the above orders and would charge 7% on the investment made by it which would be included in the invoice as finance charges for the respondent''s investments in the form of raw material, packaging material, job work, transportation, laboratory testing and other costs. Clause 2 provided that the respondent was to be the co-supplier. Clause 3 required all the documents, including bills of exchange of 30 days payment, to be negotiated between the respondent''s bank and BCPL''s bank. The bills of exchange were to be sent in the respondent''s name to BCPL. The appellant, however, was expressly made responsible for the timely receipt of payment by the respondent from BCPL.

Admittedly, the bills of exchange were never negotiated as the appellant collected the amounts from BCPL directly. As a result thereof, the respondent has invested a huge amount towards the purchase of materials required for fulfilling the orders obtained by the appellant from BCPL but has received nothing under the contract. It is not the appellant''s case that the respondent committed any breach of its obligations under this MOU. It is not the appellant''s case, for instance, that the respondent did not purchase the material required to fulfill the orders placed.

Thus far, therefore, two important facts emerge. Firstly, under the first MOU dated 7th March, 2011, admittedly, one of the business opportunities did not fructify. The order expected from IDPL was never placed. As a result therefore, by virtue of recital 5 quoted above, the outstanding amount of Rs. 2.5 crore stood payable. Secondly, the respondent has fulfilled all its obligations under the second MOU also dated 7th March, 2011, but has not received any money in respect of those investments. Even the mode of payment expressly agreed to under the MOU was not honoured. Invoices were raised in respect of all these transactions. The invoices have never been disputed. The amounts payable have never been disputed. The respondent also admitted the receipt of a sum of about Rs. 2.30 crores and has given credit for the same.

This brings us to the third MOU, which is dated 4th April, 2011. The same relates to the export orders to Nigeria. The recitals record that the appellant has had a strong presence in Nigeria for more than 17 years. Many of the appellant''s products were market leaders in Nigeria. The appellant had also registered 150 products with the Nigerian Drug Regulatory Authority in Nigeria. The recitals also record that the respondent was keen to exploit the Nigerian markets and had also started registering its products during the previous years. The respondent had registered and it proposed registering about 150 products in Nigeria. The parties decided to work together to exploit their respective strengths. Recital 7 stipulated that the total profits in the transactions would be shared equally. The operative clauses provided that the respondent would provide full support in sourcing the raw material and ingredients required to manufacture the finished formulations and supply the same to the appellant. The appellant, in turn, was responsible for manufacturing the products. The products were to be exported/sold to the purchasers in Nigeria through the respondent. These orders were, therefore, to be placed on the respondent. The petitioner was to inform the buyers of the same. The MOU concludes as follows:

"This MOU has been made to define the broad parameters with in which both parties have decided to work. A detailed agreement shall be drafted to cover the fine points/micro workings of the arrangement."

The only contention is that the appellant may be entitled to profits under the third MOU and the same can be determined only after the respondent furnishes accounts in respect thereof. The appellant, however, never called upon the respondent to pay any amounts towards its share of the profits under the third MOU. It never raised the issues prior to the petition. We do not wish to express any view about the merits of the summary suit filed by the respondent against the appellant.

At the cost of repetition, the position as on date is that the previous dues are admitted. The dues under the second MOU dated 7th March, 2011, pertaining to the BCPL contracts have not been received by the appellant. Even after giving credit of the sum of about Rs. 2.30 crores, a principal amount of about Rs. 3 crores is due and payable by the appellant to the respondent. On the other hand, as far as the third MOU relating to the exports to Nigeria is concerned, the appellant''s claim to profits is, at least at this stage, doubtful. Indeed, as and when amounts are received from the purchasers, the appellant would be entitled to credit.

Mr. Joglekar submitted that the third MOU must be read together and must also be implemented together. We will presume that to be so. However, as we mentioned earlier, clause 5 of the recitals to the first MOU dated 7th March, 2011, expressly stated that in the event of any of the business opportunities referred to therein not materializing, the amount of Rs. 2.5 crores would be payable. Admittedly, the IDPL order was not placed. Thus, under the express provisions of the MOU, the amount of Rs. 2.5 crores is payable in any event. In the circumstances, we see no reason to interfere with the impugned order insofar as it admits the petition.

We, however, see no justification for the appointment of a provisional liquidator at this stage. The learned Judge has also passed the following order:

"8.(c) pending the admission and hearing and final disposal of the petition, a Provisional Liquidator be appointed of the said M/s. Rajat Pharmachem Limited with all powers under the Companies Act I of 1956, including powers to take immediate charge of the affairs, assets and the business of the said Company and to take appropriate steps from disbursement of recoveries effected and of the assets available after liquidation of the said Company to the benefit of creditors including the petitioners."

An interim order in these terms, in fact, has the effect of winding up the company even before the final winding up order. There may well be cases where the Court may consider it necessary to dispose of the assets even before the final order of winding up is passed. This, however, is not such a case. The impugned order does not indicate any reasons for passing such a drastic order at this stage. In any event, there would be no question of disbursing the recoveries that may be made at this stage.

The impugned order insofar as it has granted reliefs in terms of prayer (c) of the above petition is, therefore, set aside. It is necessary, however, to direct the appellant to deposit in Court recoveries made pursuant to its transactions with BCPL. This is in view of what we have stated earlier regarding the second MOU dated 7th March, 2011, and the appellant''s failure to pay or ensure payment of the amounts due from BCPL to the respondent.

We appreciate that there are several pending orders, especially with BCPL. However, the appellant is not prevented from fulfilling those orders merely on account of the petition being admitted.

There is no offer on the part of the appellant to deposit any amount. It is not necessary, therefore, for us to consider an order of deposit as a condition to avoiding the admission of the petition. In the circumstances, the appeal is disposed of by the following order:

(i) The impugned order insofar as it admits the petition is upheld.

(ii) The impugned order insofar as it grants an interim order in terms of prayer (c) is set aside.

(iii) The appellant, however, shall not dispose of, alienate, encumber or part with possession of its immovable properties without the leave of the company court.

(iv) The appellant shall deposit in this Court, amounts received from BCPL hereafter.

The petition shall not be advertised upto and including 31st December, 2014.