Annual Arbitration Review 2018

Daiichi Sankyo Company Ltd. v. Malvinder Mohan Singhndhra & Ors

Reading Time: 3 minutes

Citation:2018 SCC OnLine Del 6869

Court:High Court at New Delhi

Date of Judgment: 31-January-2018

Coram:J. Jayant Nath

Issue:Whether a foreign award against a minor can be enforced in India?

Facts:

The Petitioners in this case agreed to purchase from the Respondents their entire stake in the company Ranbaxy Laboratories Limited (RLL) of around 1980 crores under a Share Purchase and Share Subscription Agreement making the entire payment in November 2008. After a year, the petitioners discovered that an Self-Assessment Report (SAR) which contained relevant information about  RLL conducting fraudulent practices against certain regulators to get  certain permits. The petitioners stated that this led to investigations by the US Food and Drug Administration and RLL had to settle the dispute with the authorities for a huge sum of money. The Respondents had deliberately concealed the document and misrepresented the nature of investigations and disputes which in turn lead to the purchase of the shares by the Petitioners at RLL’s peril. Hence the petitioners claimed damages under Section 19 of the Indian Contracts Act, 1872.

The Arbitral Tribunal was held at Singapore and it awarded its decision in favor of the Petitioner and held that the Respondents had played a fraud by concealing the documents and misrepresented the facts relating to the investigations. The tribunal also enforced the award against the minor involved in the proceedings by stating that the minor was also proportionately liable as the Respondents as Section 183 of the Contract Act makes minors liable though acting through agents. There was a suit filed to enforce the award in the Delhi High Court and the Delhi High Court under Section 48 of the Arbitration Act discussed certain issues and pronounced a judgment to enforce the award after making certain changes to it.

Analysis:

The Respondents had raised certain contentions stating that they did not conceal or misrepresent any facts or documents as the information regarding the investigations was available of public domain. Hence, no award could be passed under section 19 of the Contracts Act. Further, subsequent to the investigations and the settlement there was no loss or affect on the share prices of RLL. Hence, the only damages that could be awarded to the petitioners would be to compensate for the impact of SAR and the penalties paid by RLL to the authorities.

 

The Delhi High Court in its judgment stated that-

  1. The limited scope of section 48(2)(b) of the Arbitration Act the court could only refuse the enforcement of award if it is contrary to the fundamental policy of India, interest of India, justice or morality. The award could also not be set aside if it violates the provisions of a statute. Only when there is a violation of the substantial principles on which Indian law is founded the award can be set aside.
  2. The Court further stated that the award in terms of compensation was correct and the method of calculating the amount and damages was also as per the substantial laws. Due to the fraud and misrepresentation the Petitioners incurred a opportunity cost of six years by not entering into a transaction with different generic companies, loss in the amount of dividends and also the cost incurred in the ongoing investigations. Hence, the amount of award made was correct.
  • The Court also rejected the argument that the proceeding were time barred as the Petitioners could not have discovered the fact of such mis-representation prior to November 2009.

The Delhi High Court refused to enforce one part of the award which was made against the minor. This is because as per the Indian Contracts Act and Hindu Minority and Guardianship Act, 1956, a fraud committed by a major could not be binding upon a minor and as it is important to protect the fundamental policy of India relating to a minor and to protect the status of minors the Court refused to enforce the award against the minor involved in the case.

Judgment:

Relying on the landmark judgments of the Supreme Court the Delhi High Court upheld the principle of limited scope of interference with respect to enforcement of a foreign award. The Delhi High Court also laid down a principle of not enforcing a foreign award against a minor for the acts committed by the other Respondents involved in this case.

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