Zenotech promoter challenges FIPB nod to Daiichi Sankyo
The minority shareholders led by founder promoters of Zenotech Labs have moved the Andhra Pradesh High Court challenging the validity of foreign collaboration approval issued by India's FIPB.
Daiichi had in October 2008 acquired majority stake in the Hyderabad biopharmaceutical firm through taking over India's largest drugmaker Ranbaxy Laboratories, which owned 47% in Zenotech.
Jayaram Chigurupati, Zenotech's founder promoter, who still owns around 25% stake, contends that Fipb didn't comply with the regulation that mandates the board resolution of Zenotech for foreign collaboration. He has questioned the validity of the Fipb approval to Daiichi Sankyo that paved way for the foreign entity to buy 20% from Zenotch's public shareholders. The Japanese firm, along with Ranbaxy, now owns 67% in Zenotech.
In a petition filed before the AP High Court, Jayaram argued that Fipb cannot grant approval for foreign equity participation in an Indian company without the mandatory board approval of the Indian company supporting induction of foreign equity.
"The very purpose of the mandatory guideline is to prevent large foreign companies from taking over existing Indian companies with sole intention of killing local competition and protecting domestic industry. As this was not adhered to by the Fipb, Zenotech has suffered huge losses and its minority shareholders, who now hold 33% in the company, suffered prejudice, " Jayaram told ET from the US over phone.
Jayaram has urged the Court to set aside the Fipb approval and direct Daiichi Sankyo not to exercise its voting rights in Zenotech and any other steps to change ownership structure during the pendency of his petition.
The Fipb approval, Jayaram alleges had adversely affected the performance of Zenotech ever since Daiichi Sankyo assumed control. He said the operating funds of Zenotech were completely exhausted due to 'deliberate mismanagement' of Daiichi Sankyo. Salaries were not paid to the Zenotech's employees in a timely manner, forcing the key personnel to leave the company, leading to loss of valuable resources.
"Several projects of Zenotech have come to a complete standstill and the new management has failed to capitalize on Zenotech's USFDA approval for injectables manufacturing facility due to lack of operational funds. Consequently, there has been a significant fall in the share price of Zenotech from a high of over Rs 157 in December 2007 to around Rs 30 now, a huge loss to minority shareholders," said Jayaram.
The Zenotech stock on Monday gained 4.95% at Rs 32.85 on BSE, the day the exchange's Sensex lost 129 points at 17,391 points.
The Zenotech minority shareholders led by Jayaram have been opposing the change in management control of Zenotech and had moved several regulators and legal forums including Fipb and Company Law Board (CLB) earlier. Jayaram made the going miserable for Ranbaxy when it appointed its nominees on the board of Zenotech and attempted taking control over the management and operations. For long, workers went on strike and the operations were stalled. Claiming that several key records, assets and books of accounts were missing, Ranbaxy had initiated criminal proceedings against Jayaram and others.
Jayaram, in his latest petition said, he met the finance minister in September challenging the Fipb approval. On the minister's advice, he had appeared before Fipb in February this year and submitted objections against the 'impugned approval', which, he accuses, was granted in violation of the guidelines.
According to Zenotech founder, Fipb complied with the requirement of obtaining no-objection letter from the joint venture partner of Daiichi Sankyo (Ranbaxy) but not from Zenotech in which the Japanese firm was making foreign investments. "This is a blatant violation of the Fipb regulations and no reasons have been given whatsoever for departing from the same."
Jayaram, who claims to have recently managed to obtain the File Notings on the Fipb file concerning the approval in question, has submitted to the Court that the file notings clearly showed that an approval from the Zenotech board was sought in accordance with the guidelines but was never received by the Fipb.