[Case Brief] Daiichi Sankyo Company Limited v/s Malvinder Mohan Singh & Others – Delhi High Court

Case NameDaiichi Sankyo Company Ltd v/s Malvinder Mohan Singhndhra & Others
Case NumberO.M.P.(EFA) (Comm.) 6/2016
CourtDelhi high Court
BenchJustice Jayant Nath
Decided OnJanuary 31, 2018
Relevant Act/Sections1) Section 48 of The Arbitration and Conciliation Act,1996
2) Section 19 of the Contract Act,1878
Author of the case briefHarshul Vaghela

Brief Facts and Procedural History-

Ranbaxy  Laboratories has agreed to sell its whole stake to the petitioner for a value of Rs 1980 crores under a Share Purchase and Share Purchase Subscription Agreement(SSPA)dated 11 June 2008. A dispute arose in regard to SSPA and arbitration clause invoked and proceedings were started in Singapore as it was the place of arbitration. Arbitration agreement and its disputes were governed by International Chamber of Commerce(ICC). Procedural law applicable was  International Arbitration Act of Singapore and governing law was to be the laws of India. The petitioner invoked the arbitration clause as they got to know that during the acquisition process of respondent’s share there was one document named Self Assessment Report  (SAR) which was made by one of the employees of the company. Ranbaxy made false misrepresentation and concealed this document from the petitioner and also has failed to represent the true nature, genesis, and severity of pending investigation started by the US Food and Drug Administration and Department of Justice(DOJ) in February 2006 after they got the possession of SAR. SAR contained the reports of fraudulent activities carried out by Ranbaxy, such as data falsification to get regulatory approvals for a drug product.

So petitioner has to settle the matter with the said authorities at an estimated cost of USD 35 to 50 million per year with the FDA and enter into a settlement agreement with Department of Justice and has to pay $500 million as a penalty to resolve itself from all potential, civil and criminal liability. Petitioner claimed that they have suffered direct and indirect loss and damages under Section 19 of the Contract Act due to the entering into SPSSA and if they would have known about the fraud they would not have purchased the share. During the pendency of arbitration proceedings, Ranbaxy was sold to sun pharma for Rs 2267 crores. The arbitration tribunal gave a decision in favor of Petitioner and asked the respondent to pay Rs 2562 crores at a rate of 4.44% P.a on a simple basis till the award is not passed. To enforce this award the petitioner approached Delhi High court under Section 48 of the Arbitration and Conciliation Act,1996.

Issues Discussed-

  1. The relevant applicable parameters of section 48 of the Arbitration Act for refusing to enforce the present Award.

The court looked into section 48(2)(b) as it was invoked by the respondent and looked into relevant case laws such as Renusagar v. General Electric, Shri Lal Mahal Ltd. v. Progetto Grano Spa, ONGC Ltd. v. Saw Pipes Ltd and said that to refuse enforcement of foreign award under Section 48(2)(b), it is important to show that the award was against the public policy of India, interests of India, justice or morality. While giving importance to the public policy of India, it does not mean the laws of India but the principles and the legislative policy on which Indian Statutes and Law are founded.

  1. Whether the Award cannot be enforced as damages awarded are contrary to section 19 of the Contract Act and would shock the conscience of the court?

The Court, when they are awarding damages under the Second Part of Section 19 of the Contract Act, has to award reasonable compensation to ensure that the plaintiff is put in the same position he would have been if the representation had been true. The loss awarded must be a natural and direct consequence of the illegal acts done by the defendant. Remote damages suffered cannot be awarded. The plaintiff would have a duty to mitigate the damages. No general principles can be laid down for quantifying damages and every case must to some extent depend, on its own circumstances. while computing the damage the court noted the analysis of tribunal and took into consideration the reputational issues faced by petitioner, opportunity cost of six years by not entering into a transaction with a different generic company, diminution in its dividend and the cost of dealing with the investigations pursued by the authorities

The quantification of the damages is a fact-based inquiry and would necessarily be within the domain of the Arbitral Tribunal. The method used by the Arbitral Tribunal to quantify the damages to put the petitioner in the same position it would have been had the fraud not been played cannot be faulted within these proceedings. It is not for this Court to dwell deep into these aspects while considering objections under Section 48 of the Arbitration Act.

The legal position regarding quantification of damages is well settled. Different formulas or methods can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula having regard to the facts and circumstances of a particular case would fall within the domain of the Arbitrator.

The plea of the respondents that a proper computation method has not been followed cannot be accepted. It is not possible to come to a conclusion that the computation done by the Arbitral Tribunal is in complete breach of statutory provisions or is contrary to the fundamental policy of Indian Law inasmuch as the said computation suffers from patent illegality going to the root of the matter.

  1. Whether the award cannot be enforced as it grants consequential damages which are b\eyond the jurisdiction of the arbitral tribunal?

The court took into consideration the definition of consequential damages given by McGregor which said that for the tort of deceit the normal measure and the consequential loss have the same meaning and the Arbitral Tribunal has not awarded any damages pertaining to any special circumstances which under the contract were communicated and were known to both the parties. So the damages were not beyond Section 19 of the Contract Act and in any case, the clause could not have intended to oust/exclude an award of damages as stated in Section 19 of the Contract Act. Hence, the plea of the respondents that the damages awarded are consequential damages and was beyond the jurisdiction of the Arbitral Tribunal does not have any basis.

  1. Whether the Award can be enforced or not as a claim of the petitioner is barred by limitation?

This Court cannot go into the finding of fact recorded by the Arbitral Tribunal. The findings recorded by the Arbitral Tribunal cannot be said to be contrary to Fundamental Policy of Indian Law. This plea is rejected as being without merit. The Arbitral Tribunal, as is settled law, is the master of quantity & quality of evidence. Finding of facts recorded by the Arbitral Tribunal cannot be challenged.

  1. Whether the Award cannot be enforced as Award of interest on the awarded damages amounts to an award of multiple damages?

The tribunal awarded a pre-award interest at 4.44 %  P.A on S.I and the court placed reliance on SPSSA which provides for interest from the date of the breach at such rate as specified by the arbitral tribunal. The interest has been awarded as per SPSSA and cannot be held to be contrary to the public policy of India. The court looked at Hyder Consulting (UK) Ltd. v. Governor, State of Orissa and said that interest may be provided for the pre-award period by the arbitral tribunal. So the Court held that awarding of interest on pre-award period cannot be said to cause multiple damages.

  1. Whether the Award of damages against the minor respondents, namely, respondent No. 5 and 9 to 12 is illegal, non-est and void and cannot be enforced as being in conflict with Public Policy of India?

The Court held that the conclusions in the award that the minor respondent’s No. 9 to 12 are guilty of fraud through the said agent is a finding that is contrary to the statutory position in India. The finding recorded by the Arbitral Tribunal that the minor respondents have fraudulently misrepresented and/or concealed from the petitioner the source and severity of Ranbaxy’s problems is a finding contrary to the statutory law of India including the provisions of The Contract Act and the Guardian and Wards Act. The fraudulent act committed by natural guardian cannot bind the minor with penalty or adverse consequences and so respondent No.5 is also not liable for the act done by  natural guardian under Section 8 of the Hindu Minority and Guardianship Act  & no guardian would have power to carry out a fraud on behalf of minor and incur liability on minor’s estate.

In India. it is the fundamental policy of Indian Law to protect a minor. Article 15, 39(e) and (f) and 45 of the Constitution of India empower the state to make special provisions for the protection of children.  Hence a minor cannot be held guilty of the fraudulent act committed by himself or through his agent. So the protection of the minor is a fundamental policy of Indian law. It is a substantial principle on which Indian law is founded.

Decision Held-

The Delhi High Court enforced the award of the tribunal against the Singh brothers and made them liable to pay a sum of Rs 3500 crores to the Japanese company and once again has set an example of minimal interference of Indian courts in International Commercial Arbitration.