The order, which brings down the curtains on the four-year-old disputed rights offer, comes consequent to the filing of "consent terms" between the company and the disputing underwriters and the withdrawal of suits filed by various parties. The terms essentially stipulate that both parties will withdraw all suits against the other and will not pursue any claims present or future pertaining to the rights issue or the underwriting agreement.

The directive would mean that Cipla's undertaking, as per the directions of the Supreme Court, to refund to the rights shareholders the subscription amount of Rs 670 per share if the rights issue is held void, is no longer operative. Besides, the stickers affixed on therights shares containing this undertaking also stand cancelled.

The Rs 616-crore Cipla had on April 5, 1995 made a rights offer of 14,91,792 equity shares of Rs 10 each for cash at a premium of Rs 660 per share, aggregating Rs 99.95 crore. The shares were issued in the ratio of four equty shares for every 50 shares held. The issue, which was fully underwritten, was undersubscribed and therefore devolved on the underwriters.

Of the 27 underwriters to the issue, approximately 20 had paid up their part of their underwritten amount, while the amount unpaid by certain underwriters stood at around Rs 25 crore. Certain underwriters (led by Ispat Finance) and a shareholder had, however, filed suits in the Bombay High Court, praying, inter alia, that the rights issue be declared null and void and the monies be refunded with interest.

A stay was then granted which restrained the company from "doing any acts" pursuant to the allotment. Cipla had subsequently appealed to the division bench, which vacated the stayand dismissed the notice of motions in both the suits.

The aggrieved underwriters/shareholders then appealed to the Supreme Court and the apex court in its order dated July 18, 1996 dismissed the notice of motions inter alia and directed that the Securities and the Exchange Board of India (Sebi) determine all matters pertaining to the issue of rights shares.

Cipla had then given an undertaking to the Supreme Court that in the event of the rights issue and allotment being held void, the company shall refund the subscription amount.

INSIGHT
A booster dose

Clearance of the rights issue is good news for Cipla. The company is trading very close to its all-time high of Rs 1,924, and with this news reaching the market, it is very likely that this level will be penetrated. The most important point is that there will be no out flow of funds, which the company would have had to pay in the event of the rights issue and allotment being held void.

Further, the purpose for which the issue hadbeen planned was completed through other means of finance. Thus, the funds now available to the company will either result in windfall dividends to the shareholders or may be utilised for acquisitions.

--Shishir Asthana