Sun-Ranbaxy deal hits legal hurdle

Sun Pharma's move to acquire Ranbaxy Laboratories seems to have hit a legal hurdle with the Andhra Pradesh High Court issuing orders to the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) to maintain "interim status quo" on the matter.

This order issued by Justice P Naveen Rao on Friday, April 25, was in response to a writ petition filed by two Ranbaxy shareholders, Tammali Shiva Kumar and Undi Venkatasubbaraju. More details of the individuals were not immediately available. The High Court while ordering the status quo, issued notices to Securities and Exchange Board of India, BSE, NSE, Sun Pharma, Ranbaxy, Daichii Sankyo and Silver Street Developers LLP. The petitioners point out that the share price of Ranbaxy on April 1, 2014 was Rs 370.85 but by April 4 touched Rs 459.55. April 5 and 6 were Saturday and Sunday and the announcement of the deal was made on Monday morning April 7.

The case of the petitioners is that between 2nd and 4th April over 37.4 million shares were transacted on the stock exchanges which, they, say, was five times the daily trading volume. The fact that there was high volume of transaction of shares and there was an increase in the price of Ranbaxy shares just three days before the announcement of the proposed merger perhaps was indicative of trading activity by people with prior knowledge of the merger, which under the provisions of the Securities and Exchange of India (SEBI) Act would amount to insider trading. They also point to the link between Silver Street Developers LLP and some of the Sun Pharma promoters.

A Sun Pharma spokesperson however said there was no violation of insider trading rules. "The matter related to purchase of shares of Ranbaxy Laboratories Ltd. does not violate Insider Trading Rules. With regards to the petition filed, the matter is sub judice and hence we cannot make specific comments but we would be taking appropriate action as advised by our legal counsel." Pointing out that the company has not received any court order in the matter yet, the spokesperson added:  "At Sun Pharma, we hold ourselves to the highest standards of corporate governance and business ethics."