Karnataka High Court
I-Ven Pharma Capital Limited vs Dr. Reddy'S Laboratories Limited, on 13 December, 2013
Author: Anand Byrareddy
Bench: Anand Byrareddy
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 13th DAY OF DECEMBER 2013
BEFORE:
THE HONOURABLE MR. JUSTICE ANAND BYRAREDDY
COMPANY PETITION No.22 OF 2013
BETWEEN:
I - Ven Pharma Capital Limited
A company incorporated under the
Companies Act, 1956 and having its
Registered Office at 39/40(P),
KIADB Industrial Area
Electronics City Phase II,
Bangalore - 560 100.
Karnataka,
Represented by its Liquidator,
Mr. Sampath Raghunathan.
... PETITIONER
(By Shri. Udaya Holla, Senior Advocate for Shri. Vivek Holla,
Advocate)
AND:
Dr. Reddy's Laboratories Limited,
7-1-12, Ameerpet,
Hyderabad - 560 016,
Represented by its
General Counsel. ...RESPONDENT
(By Shri. K.S. Mahadevan, Advocate for Official Liquidator
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Shri. Vyasa Kiran Upadhya, B.R. Advocate for Dr. Reddy
Laboratories,)
*****
This Company Petition filed under Section 522 of the
Companies Act, 1956, praying to (i) direct that the winding up of
M/s. Iven Pharma Capital Limited, be continued subject to
supervision of the court with liberty to creditors, contributors and
others, if any, to apply to the court in any matter arising out of and
in the course of winding up of the company; (ii) the Liquidator be
authorised to distribute the royalty payments received by the
company till date along with the bank balances to the shareholder;
and direct that the accrued and accruing royalty payments payable
by Dr. Reddy's Laboratories Limited, be distributed by direct
payment to the shareholder of Iven Pharma Company Limited,
namely DRL Investments Limited, presently known as DRL
Implex Limited.
This Company Petition coming on for Hearing this day,
the Court made the following: -
ORDER
Heard the learned Senior Advocate Shri Udaya Holla appearing for the Counsel for the petitioner.
2. The present petition is filed in the following background:-
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M/s I-Ven Pharma Capital Limited was incorporated in the year 2005 under the Companies Act,1956 (Hereinafter referred to as the 'Act', for brevity) having its registered office at Bangalore and it was a company limited by shares.
The objects of the company was to manufacture and sell pharmaceutical drugs, apart from acquiring product licenses in India and outside India and sub-license those products, etc. It transpires that the petitioner had entered into an agreement on 24.3.2005 with M/s Dr.Reddy's Laboratories Limited (DRL), the respondent herein, having its registered office at Hyderabad to accelerate research, development and commercialisation of efforts through financing of research. DRL was to pay royalties to the company as and when the same accrued to the company. This agreement was amended from time to time, the latest of which was on 22.3.2012, which provided as follows:-
"11.2.3. Provided further, that in the event of any voluntary or involuntary winding up of I-Ven causing liquidation of the company, it is clarified that to the extent the rights of I-Ven under this agreement are 4 distributed to the shareholders on liquidation of I-Ven, this Agreement shall continue and enure to the benefit of such shareholders, as the case may be."
The company became a wholly owned subsidiary of DRL Investment Limited (DRLIL) and therefore, the purpose for which the company was set up ceased to exist as it became a wholly owned subsidiary of DRLIL and it was proposed to be wound up.
The auditor of the company had submitted a report dated 27.7.2012 to the Board of Directors recommending winding up. The report indicated the financial status of the company and a declaration of solvency was also made by a majority of the directors after inquiring into the affairs for the purpose of initiating voluntary winding up.
By a special resolution dated 30.8.2012, the shareholders of the company approved the winding up of the company in terms of Section 484 and other applicable provisions of the Act. Pursuant to the said resolution, a member liquidator was appointed on 5 30.8.2012 and it was communicated to the Registrar of Companies. The member liquidator had intimate knowledge and experience of the regulatory process required in securing approvals for the drug products of the DRL, both in India and abroad. He was also a Chartered Accountant and a practising advocate and this combination of skills enabled the member liquidator to address the intricacies involved.
By the purchase of the shares of the company by DRLIL, the petitioner - company has become a closely held company with its current activities confined only to the business of funding the research and development projects of DRL. All the shares of the company are legally and beneficially held by DRLIL and the sole shareholder has resolved that the company not serving any further business purpose, the company is to be liquidated and the assets of the company be realised. The member liquidator has thus realised all the assets of the company and has paid all the creditors of the company and it is claimed that there are no creditors or outstanding liabilities of the company.
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However, the company has certain existing rights to receive royalty payments from DRL under an agreement dated 29.3.2007, as amended by further agreements from time to time the last of which was on 22.3.2012. In terms of the agreement, the royalty payments accrue to the company contingent upon certain milestones being reached as stated in the agreement itself. In respect of such royalty payments, there is a liability to pay advance tax and other payments in relation to statutory compliance under the Companies Act and also various other legislations. The auditors report, made for winding up purposes, furnished details of earlier royalty income received during the previous years and further up till June 2012. The Member Liquidator would upon passing of a resolution by the members under Section 497 of the Act became functus officio and would no longer be able to exercise any power in relation to the company However, all statutory payments and receipt of royalties would continue even beyond the passing of the resolution for liquidation by the members.
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The royalty payment receivable under the agreements involves interpretation of the agreements which are complex and technical. The royalty payment, upon completion of the winding up, would proportionately be shared by the shareholders of the company. The shareholder holding 100% of the shares of the company, had taken a loan for the purchase of shares and the shareholders have to service the said loan and for that purpose, the royalty payment would constitute a major source of revenue to the shareholders to repay the said loan. Under the circumstances, the royalty payments need to be directly assigned to the shareholders of the company - DRLIL.
It is claimed that the company does not have any creditors and currently has only receivables in terms of the royalty receivable from DRL as and when the same accrues. All other liabilities of the company have been paid off. A Statement of Affairs dated 10.9.2012 in terms of Section 511A and Section 454 of the Act is produced. A Statement of the Liquidator in terms of Section 497(1)(a) making an account of and showing how the 8 winding up has been carried out is also produced. Therefore, it is prayed that the supervision of the court would be necessary to complete the entire process as all the other steps in relation to the voluntary winding up of the company have been undertaken and completed and the only step that is required to be taken is with regard to the distribution of the accrued and accruing royalty payment to the company along with the bank balances. Therefore, the prayer is to direct that the winding up of M/s I-Ven Pharma Capital Limited be continued subject to the supervision of the court with liberty to the creditors, contributors and others to apply to the court in any matter arising out of and in the course of winding up of the company and to authorize the Liquidator to distribute the royalty payments received by the company till date along with bank balances to the shareholder and direct that the accrued and accruing royalty payment payable by DRL be distributed by direct payment to the shareholders of I-ven Pharma Capital Limited, namely, M/s DRLIL and presently, M/s DRL Impex Limited.
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3. M/s DRL is duly represented and has no objection to the prayer being granted, as prayed for.
4. The Official Liquidator has addressed certain legal issues and has filed a detailed Statement of objections. The primary contention being that in terms of the provisions of Section 488 of the Act, the voluntary liquidation proceedings to be moped up within such period not exceeding 3 years from the date of commencement of the winding up, as may be specified in the declaration.
It is contended that there is no impediment for the liquidator to take whatever steps as are necessary to ensure that the shareholder receive royalties without the intervention of the court and that the present petition is superfluous.
5. However, Shri Holla would point out that the present circumstance is once where the petition is warranted on account of the royalties that are yet to accrue and as there would be no 10 indication of what would be the fate of such royalties, it is necessary that this court grant permission to the Liquidator to address the same and to make provision for the same.
6. On an overall consideration of the facts and circumstances, there is no mischief or illegality involved in the present petition. The prayer is genuine having regard to the modality sought to be worked out insofar as the royalties that would accrue in the future being directed into the hands of the shareholders, who would be the rightful recipients of such benefit. Hence, since the Liquidator would become functus officio, as already pointed out, on his winding up the affairs of the company, the prayers, as sought for, are necessary in the interest of justice.
Accordingly, the petition is allowed in terms as prayed for.
Sd/-
JUDGE nv