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Delhi HC upholds arbitral award in favour of Daiichi Sankyo, directs Ranbaxy Singh Brothers to pay penalty of USD 500 mn

The Delhi High Court in Daiichi Sankyo Company Limited v. Malvinder Mohan Singh and Ors. deciding on a petition filed under Part II of The Arbitration and Conciliation Act,1996 by the petitioner M/s.Daiichi Sankyo Company Limited seeking enforcement and execution of the Foreign Award dated 29th April 2016 passed by the Majority Arbitral Tribunal upheld award of the Tribunal while accepting reasoning behind passage of order and directed major respondents to pay the penalty as assessed by the Tribunal to the petitioner.

A Single-judge bench of Justice Jayant Nath, however, spared minor respondents from the ramifications of the award holding at the same time that inapplicability of award and its non-execution against minor respondents won’t exempt major respondents from execution of the award.

The bone of contention between the parties was a Share Purchase and Share Subscription Agreement (SPSSA) dated 11.6.2008 whereby the petitioner agreed to purchase from the respondents their total stake in Ranbaxy Laboratories Limited for a transaction valued at INR 198 billion (approximately 4.6 billion US dollars).

As dispute arose between the parties, in terms of SPSSA, the petitioner invoked the arbitration clause. In terms of the said arbitration agreement the disputes were to be resolved by Arbitration to be administered by the International Chamber of Commerce.

Brief facts of the case are the petitioner by a Share Purchase and Share Subscription Agreement dated 11.6.2008 purchased the respondent’s total stake in the company Ranbaxy Laboratories Limited (Ranbaxy) for a value of over INR 198 billion (approximately US Dollar 4.6 billion at the relevant exchange rates). In terms of the SPSSA, the respondents received total amount of Rs.9,576.1 crores. In discharge of statutory duty under Security and Exchange Board of India Act, the petitioner had to purchase shares from the public. Hence, it spent a total amount of Rs.19,804/- crores approximately to complete the transaction. The first installment of the payment was received by the respondents on 20.10.2008 and the final payment was received on 7.11.2008. On 19.12.2008, Dr.Une and Takshi Shoda were nominated on the Board on behalf of the petitioners. Malvinder Singh/respondent No.1 continued to be the CEO of Ranbaxy.

Subsequently, on account of differences he resigned on 24.5.2009. The claim of the petitioner arises out of the said SPSSA. It is the case of the petitioner that during the acquisition process of the respondent’s shares in Ranbaxy Malvinder and his business associates Vinay Kaul and Mr.Jay Deshmukh made false representations to the petitioner by concealing a document known as Self Assessment Report and also about the genesis, nature and severity of pending investigations by the US Food and Drug Administration and Department of Justice against Ranbaxy thereby fraudulently inducing the petitioner to acquire the shares. He is said to have prepared this document termed as SAR which had details of the stated falsification. Dr.Kumar is later said to have resigned from the company having complained that the matters addressed in SAR were not being given sufficient attention.

It is the case of the petitioner that Malvinder Singh and his close business and family associates were fully aware that SAR evidenced widespread fraudulent practices at Ranbaxy. The company and its senior management being aware of its practices failed to address its problems for years. It is further the case of the petitioner that Malvinder Singh acting for himself and agent for other respondents misrepresented and concealed from the petitioner the existence of SAR or any document of that nature reporting that Ranbaxy had intentionally fabricated data for regulatory submissions to various regulators or the fact that the US Government was in possession of such documents.

The petitioner pleaded that the respondents kept the SAR as a secret. The respondent misrepresented the ongoing investigation by the US Regulatory authorities as routine regulatory exercise and a meritless fishing expedition launched at the behest of a competitor. It is the case of the petitioner that but for the fraud it would not have acquired Ranbaxy shares at all and has thereby suffered loss and damages.

The Arbitral Tribunal assessing the case from all sides passed majority award in favour of petitioner and respondent raised objections to that before Dehli High Court which dismissed objections of respondents upholding award of Tribunal. The Majority award upheld by the Court had granted following relief to the petitioner:

  • The Respondents shall forthwith pay to the Claimant, damages in the sum of INR 25,627,847,918.31.
  • The Respondents shall pay to the Claimants interest on the sum of INR 25,627,847,918.31 at the rate of 4.44% per annum on a simple basis as from 7 November 2008 to the date of the Award, amounting in aggregate to INR 8,510,692,333.80.
  • The Respondents shall bear and pay the attorneys’ fees and expenses incurred by the Claimant which we fixed at US$ 14,549,684.60.
  • The Respondents shall reimburse to the Claimant the sum of US$ 599,250.00 for its share of the costs of arbitration as fixed by the ICC Court.
  • The Respondents shall bear and pay interest to the Claimant on all sums (including costs and interest accrued) awarded herein to the Claimant at the rate of 5.33% per annum on a simple basis from the date following the date of the Award until the same is fully and finally paid.”

The Arbitral Tribunal noted in favour of the plaintiff, “that it is satisfied from the records that the petitioner did not discover the fraud as a result of its majority control of the Board and could not have with reasonable diligence discover the fraud before November 2009.

It noted further that “this was due to poor communication and management within Ranbaxy under the leadership of Mr.Malvinder and later after his resignation under the leadership of Mr.Sobti the next CEO of Ranbaxy. This is also because of the nature of information and advice being provided to the petitioner by external advisers to Ranbaxy.”

The Tribunal came to the conclusion that the petitioner’s control of the Board of Ranbaxy by itself does not create a situation in which the petitioner could have in fact discovered with reasonable diligence that the respondents have knowingly or recklessly misrepresented the genesis, nature and severity of the FDA and DOJ investigations.”

The Award also concluded in terms of section 19 of The Contract Act that “there is no dispute that under Indian law the measure of damages recoverable by the party defrauded under section 19 of The Contract Act would be similar to those recoverable for fraudulent misrepresentation under general tort principles.” It placed reliance on judgment of the Gujarat High Court in R.C.Thakkar vs. Gujarat House, AIR 1973 Gujarat 34.

The Award also relied upon the judgment of the English House of Lords in Smith New Court Securities Ltd. vs. Scrimogeour Vickers (Asset Management) Limited, 1997 AC 254 to consider the correct measure of damages where a plaintiff has acquired property in reliance of a fraudulent misrepresentation made by the defendant.

It noted that both the sides accept that the Arbitral Tribunal should apply the principles stated in the said case. Relying on the said case the Arbitral Tribunal held that the claimant/petitioner is entitled to recover damages in a sum equal to the difference between what it paid for the Ranbaxy shares and any other direct losses, less any benefits it had received. The object was to restore the claimant/petitioner to its position before the acquisition.

The High Court dismissed objections of the respondent(s) and upheld the award of the Tribunal and quantum of damages assessed by the Tribunal.

Read the judgment below:

JAN31012018OMPECOMM62016-watermark

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