 "The puzzle of Elder Pharma's cash crunch")
On Monday, the Company Law Board dismissed an application filed by Elder Pharmaceuticals seeking extension of time for repaying the dues to its fixed deposit holders. In March, the board had allowed the company time till May to repay its creditors who had put money in its fixed deposit schemes.
Elder Pharmaceu-ticals's Managing Director Alok Saxena, in an affidavit before the Company Law Board, had agreed to clear the outstanding amount fully by May this year; he was to pay Rs 1 crore in March, Rs 2 crore in April and the balance in May.
However, this has not happened. Rajiv Mehta, a chartered accountant and an investor in Elder Pharmaceuticals' fixed deposit plan, says, "I have neither got the principal nor the interest." Mehta, who did bill discounting for the pharma company, had invested Rs 5 lakh in 2012. He was eligible for a maturity amount of Rs 7.23 lakh by March 2015. More than a year later, he has got nothing.
Mehta is one of the 23,000 fixed deposit holders who have been affected by the "financial crunch" facing Elder Pharmaceuticals. The company owes dues in excess of Rs 150 crore to these small investors.
Earlier this month, a division bench of the Bombay High Court gave Elder Pharmaceuticals time till August to generate funds to clear the dues. That is another deadline Saxena and his brother and chief operating officer, Anuj Saxena, are chasing. The brothers have been running the company since the demise of their father and founder, Jagdish Saxena, in 2013.
If they fail to meet this deadline, the court is likely to appoint liquidators, given that over two dozen winding-up petitions have been filed against the company.
Caught unawares
Elder Pharmaceu- ticals' sudden collapse has caught many creditors and investors off guard. Among those who have filed winding-up petitions are Tata Capital Financial Services, which had bought debentures worth Rs 15 crore, and a horde of vendors and suppliers, who are owed amounts ranging from a few lakhs to a few crores.
The troubles have also crippled the company's share. It has lost nearly 75 per cent of its value since July last year, closing at Rs 32 on on the Bombay Stock Exchange on April 25. The company has not been reporting quarterly numbers since March 2015, when it reported a net loss of Rs 51.21 crore on a revenue of Rs 24.39 crore. For the year ended 2013-14, it had reported a net profit of Rs 17.18 crore on sales of Rs 483.47 crore.
According to figures submitted by the company to the Bombay High Court, the total assets are said to be worth approximately Rs 1,935.77 crore ( in the standalone balance sheet as on 30 June 2014.) As against these assets, the total liability stands at Rs 1,150.18 crore (in the standalone balance sheet) as on 30 June 2014.
Dharmin Desai, managing director of Paramount Consultants, a Mumbai-based broker, who has an exposure of about Rs 6 crore and has filed a winding-up petition, says the trouble for Elder Pharmaceuticals started soon after the demise of its founder in late 2013. A dispute erupted within the family for control over property and other assets, with the brothers on the one side and their mother, Sneha, and sister, Shalini, on the other. Later, some of these issues also took a legal turn.
According to a report in Mid-Day, in August 2013, Anuj had suffered a blow when a city civil court had declined to provide him "interim relief because he was unable to bring on record an incident to prove that the defendants had tried to dispossess him from the home after he claimed that Shalini wanted him out of the family property."
No cash crunch here
What's puzzling, however, is Elder Pharamaceuticals' inability to clear the dues. In 2014, the company sold two of its divisions comprising 30 brands to Torrent Pharma for Rs 2,004 crore.
Experts cannot understand why despite this huge cash flow and its substantial assets, the company has not been able to meet its small commitments. Some write-offs and other entries in the company's books have also been questioned by its auditors.
In a qualified opinion, auditor SS Khandelwal & Co said, "Pursuant to the authorisation of resolution passed by the board of directors, the company has written off trade advances of Rs 176 crore and other advances worth Rs 855.32 crore made to various parties on current account either during the year or in earlier financial years. We have been informed that there were no stipulations for repayments thereof."
Further, the auditor said the reasons for writing off the advances and the other details were not made available to it. The auditor also raised issues on the writing off of capital, trade and other advances of about Rs 145 crore.
The Bombay High Court has taken notice of the write-offs too. In an order in April last year, the court came down heavily on Elder Pharmaceuticals's conduct. The court said it has "repeatedly deprecated the conduct of some of the Elder group companies and has also recorded that the companies left no stone unturned in delaying matters." The court further said that the "information sought by this court on the accounts of the company was not furnished."
According to the order, more than 100 proceedings have been filed before it by various creditors of the Elder group of companies. "I have passed final orders in several summary suits and arbitration petitions filed against the respondent company. I have admitted several winding-up petitions and have passed final orders in company petitions filed against Elder Instruments, Elder Healthcare and the respondent company," the order said.
Alok Saxena did not respond to phone calls and text messages. An email sent to the company's public relations firm and later forwarded to Saxena also did not elicit any response.
In an affidavit before the Company Law Board in January, Saxena had given a lengthy account of the strengths of the company and described what it was going through as a "financial crunch". He had asserted that the company was fundamentally strong but was facing a liquidity problem.
"There has been a rapid increase in input costs and services. Moreover, since a large portion of the respondent company's key supplies are sourced from overseas, a steep depreciation of the rupee against the dollar has had a negative impact on the procurement cost of the company," the affidavit said.
He had told the board that the company was in advance talks with a financial institution to raise long-term resources. The affidavit also talked about a divestment process where non-core assets could be sold to raise funds.
A sum of Rs 35 crore, which was lying in an escrow account as part of the deal with Torrent Pharma, could also be used to pay off its creditors, the affidavit added.
"It is respectfully submitted that the petitioners have all intentions of paying their outstanding dues but are totally handicapped due to the various litigations and orders, some of which are at the instance of these fixed deposit holders themselves," Saxena said in his affidavit.
For investors, the matter is far from resolved.
