Delhi HC Upholds Rs 3500-Cr Arbitral Award Against Singh Brothers Of Ranbaxy For Fraud Played On Daiichi [Read Judgment]

In a huge setback to former promoters of Ranbaxy -- Malvinder Mohan Singh and Shivinder Mohan Singh -- and major win for Japanese Daiichi Sankyo Company Limited, the Delhi High Court has upheld the international arbitral award of Rs 3,500 crore against the Singh brothers.

Justice Jayant Nath held the award to be enforceable after hearing a petition filed by Daiichi seeking enforcement and execution of the Foreign Award dated April 29, 2016, passed by the tribunal in Singapore after it found the former promoters had intentionally withheld a self assessment report (SAR) of fraudulent practices at Ranbaxy.

While holding the award to be enforceable, Justice Nath concluded that the award was not enforceable against five minors, including Singh's children, as "Article 15, 39(e) and (f) and 45 of the Constitution of India empower the state to make special provisions for protection of children".

"It is clear that protection of the minor is a fundamental policy of Indian law. It is a substratal principle on which Indian law is founded. Hence, a minor cannot be guilty of having perpetuated a fraud either himself or through any agent. If the natural guardian commits the fraud he cannot bind the minor or the estate of the minor with any penalty or adverse consequences that would result on account of the fraud played by the natural guardian," said Justice Nath.

The court was also of the opinion that the award against the minor was shockingly disproportionate as, "at best on account of the fraud played by the guardian/agent, the estate of the minor gained four to five lacs of rupees. For this act, they have been saddled with a liability of Rs.3,500 crores approximately".

Genesis of the controversy

The controversy revolves around a Share Purchase and Share

Subscription Agreement (SPSSA) dated June 11, 2008, whereby Daiichi agreed to purchase from Singh brothers their total stake in Ranbaxy Laboratories Limited for a transaction valued at INR 198 billion (approximately US$4.6 billion).

Appearing for Daiichi, senior advocate Gopal Subramanium argued that during the acquisition process of the respondent's shares in Ranbaxy, Malvinder and his business associates Vinay Kaul and Jay Deshmukh made false representations by concealing a document known as

SAR and also about the genesis, nature and severity of pending investigations by the US Food and Drug Administration (FDA) and Department of Justice (DOJ) against Ranbaxy, thereby, fraudulently inducing Daiichi to acquire the shares.

Daiichi alleged 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.

Daiichi also argued that Malvinder, 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.

It was pleaded that the respondents kept the SAR a secret and 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.

Daiichi said but for the fraud, it would not have acquired Ranbaxy shares at all and has thereby suffered loss and damages.

Appearing for the Singh brothers, senior advocate Harish Salve said there was no fraudulent representation on their part and the arbitral award was much beyond the jurisdiction of Arbitral Tribunal.