Mumbai/New Delhi: The former promoters of Ranbaxy Laboratories Ltd —Malvinder Mohan Singh and Shivinder Mohan Singh—have been asked by an arbitration court in Singapore to pay damages to the tune of Rs.2,562.78 crore, for concealing facts from Japan’s Daiichi Sankyo Co. Ltd when they sold their 34.82% stake in Ranbaxy to the latter for $2.4 billion in 2008.
The total deal value was $4.6 billion.
The facts relate to an investigation by the US Food and Drug Administration (FDA) of Ranbaxy’s processes that was ongoing at the time of the investigation.
The Singapore International Arbitration Centre (SIAC), which provides neutral arbitration services to global business community, issued the award against the Singh brothers after Daiichi filed an arbitration case in 2013 in Singapore, accusing the Indian promoters of concealment and misrepresentation of facts and seeking compensation for losses that it was forced to pay the US Department of Justice.
While Malvinder Singh declined comment, RHC Holdings Pvt. Ltd, one of the respondents in the arbitration proceedings and the holding company through which the Singh brothers made the sale, said in a press release that it was considering a legal challenge to the award. It added that the arbiters had ruled 2:1 in favour of Daiichi.
Daiichi Sankyo could not be reached for comment.
In 2013, Ranbaxy, under Daiichi’s management, agreed to pay a fine of $500 million after pleading guilty to criminal charges made by the US FDA and the US Department of Justice of “falsifying data” and “concealing & misrepresenting” in the manufacturing and distribution of drugs manufactured at its factories in Paonta Sahib (Himachal Pradesh) and Dewas (Madhya Pradesh).
Following this, the US drug regulator banned products made at Ranbaxy’s Indian plants—in Mohali (Punjab), Dewas, Paonta Sahib and Toansa (Punjab)—from entering the US.
Daiichi applied for arbitration the same year.
Arun Sawhney, who headed Ranbaxy from 2008 to 2015, said that he isn’t “familiar” with the developments.
In 2014, Sun Pharmaceutical Industries Ltd agreed to acquire Ranbaxy Laboratories in an all-stock transaction at an enterprise value of $4 billion.
A year later, Daiichi Sankyo sold the around 9% stake which it acquired in Sun Pharma, as a result of that deal, for $3.2 billion and exited India.
A spokesperson for Sun Pharma declined comment, saying the company has “nothing to do with the case”.
According to a person familiar with the legal developments, “As the arbitration was held in Singapore as per the New York Convention, the award can be enforced anywhere by Daiichi. And since the Singh brothers are personally liable, Daiichi can move an Indian court to seek permission to sell their assets and enforce the award.”
“The verdict will bring back confidence in investors in the Indian pharma space after Japanese investors burnt their hands with the Ranbaxy deal. The outcome through the ongoing legal process, which Indian legal system also allows, will give transparency over the investment scenario in India,” said a partner with a leading Indian audit firm who asked not to be identified.