IS IT GAME OVER FOR THE SINGH BROS

From putting Ranbaxy on the global

pharmaceutical map to selling their

stake in it to daiichi sankyo to their

subsequent downfall, Legal Era

chronicles the saga of the company’s

former Promoters, Malvinder and

Shivinder Singh

Back in 1937, when cousins Ranjit and Gurbax started

a drug distribution firm in Amritsar, Punjab, little did

they imagine that Ranbaxy would go on to become the

face of India’s booming pharmaceuticals industry. After

defaulting on a loan however, the duo was forced to sell the

company to one Bhai Mohan Singh, a man who had left Rawalpindi,

Pakistan, for Delhi, following the Partition. Under Bhai Mohan Singh,

the firm launched its first bestselling drug, Calmpose, in 1961. Over the years, the baton passed from Bhai Mohan Singh to

his son Parvinder Singh and finally to his grandsons

Malvinder and Shivinder Singh who became Promoters

of Ranbaxy Pharmaceuticals. In 2008, when Ranbaxy

was at the peak of its glory, particularly in the generics’

space, Malvinder and Shivinder Singh decided to sell

their stake in it to Japanese drug manufacturer Daiichi

Sankyo for a jaw-dropping $4.6 billion.

A marriage gone wrong

The Ranbaxy deal could not have come at a more

opportune time for Daiichi Sankyo which was looking

to enter the generics’ space. However, days into the

deal, the US Food and Drug Administration (FDA)

decided to ban nearly 30 drugs manufactured by

Ranbaxy at two of its factories, on grounds of poor

quality of drugs. A shocked Daiichi posted a net loss of

$3.45 billion in the year through March 2009. In 2013,

it sued Ranbaxy promoters Malvinder and Shivinder

Singh for fraudulent misrepresentation and active

concealment of material facts and information related

to Ranbaxy Laboratories Limited at the time of the

Daiichi-Ranbaxy deal. A year later in 2014-15, Daiichi

sold Ranbaxy to Sun Pharmaceuticals but by then, the

Japanese drug maker had reportedly already lost INR

'6,000 crore.

International Arbitration Award favors

DAIICHI

On 29 April, 2016, the Singapore Arbitral Tribunal

comprising Ms. Karyl Nairn, Justice A.m. Ahmadi

(Retd.), And Professor Lawrence G.S. Boo issued

an international arbitration award favoring Daiichi

Sankyo, which had purchased a majority stake in

Ranbaxy in 2008. The Arbitral Tribunal concluded

that Malvinder Singh and his affiliates were aware of

an incriminating internal document called the Self-

Assessment Report (SAR), which chronicled in great

detail the fabricated regulatory filings in over 40

countries in relation to over 200 products manufactured

by Ranbaxy and sale of adulterated drugs by the

company; and yet, they misled, actively concealed, and

fraudulently misrepresented to Daiichi about the SAR,

its genesis and severity, and its possession by the US

authorities. Accordingly, the Arbitral Tribunal granted

Daiichi Sankyo '2500 Crore plus interest in damages.

In May 2016, Daiichi Sankyo approached the Delhi High

Court to collect its dues; however, the Singh Brothers

had challenged the petition saying that “substantive

objections” existed under India’s arbitration law to

make the award unenforceable. That’s not all. Late in

January this year, there were media reports about a New

York investor having dragged the Singh brothers to the

Delhi High Court for allegedly siphoning nearly $300 million to their privately-held firms. The brothers had also

allegedly siphoned out $78 million from the hospital chain,

Fortis Healthcare, of which they are Founder-Promoters.

Delhi HC upholds foreign award

On 31 January, 2018, the Daiichi Sankyo Vs Malvinder

and Shivinder Singh battle took yet another interesting

turn, with the Delhi High Court dismissing objections

raised by the Singh Brothers and passing a landmark

judgment which paved the way for enforcement of

the international arbitration award in favor of Daiichi

Sankyo. The Delhi High Court, in its 115-page order, found

the foreign award to be enforceable under Indian law.

The HC said that it was clearly within the Arbitration

Tribunal’s domain to assess the damages. On the subject

of Daiichi having sold Ranbaxy to Sun Pharmaceuticals,

the HC said that Daiichi did not suffer any monetary loss

thereafter but the negative effects of Daiichi’s acquisition

far outweighed the positives. With the Delhi High Court

verdict, Daiichi was free to recover '3500 crore from the

assets of the Singh Brothers towards satisfaction of the

award amount.

Soon after the Delhi HC order, on 8 February, 2018, the

Singh Brothers resigned from the Board of the country’s

second-largest hospital chain, Fortis Healthcare. In a

stock-exchange statement, the brothers reportedly said,

“In light of the recent High Court judgment upholding the

plea of Daiichi to enforce the international arbitration

award, we believe this is in the interest of propriety

and good governance.” They added that the Fortis Board

would be “better enabled and empowered to guide the

organization without being hampered by the judgment

and our (their) association at the Board.” Within a week

of resigning from the Board of Fortis Healthcare, on 14

February, the Singh Brothers also quit the Board of financial

services firm Religare Enterprises, of which too, they were

Promoters.

SC rejects appeal against Delhi HC order

While the Singh Brothers moved the Supreme Court against

the Delhi High Court’s order allowing Daiichi Sankyo to

recover '3500 crore from them, the highest court of the land,

too, rejected the brothers’ appeal. The apex court bench said,

“Heard the counsels for the petitioners and perused the

relevant material. We are not inclined to interfere. Special

Leave Petitions are accordingly dismissed. Consequently,

all applications are also disposed of.” Justice Ranjan Gogoi

said, “We can only say: Wish you all the best for Singapore.”

Reacting to the SC verdict, the Singh Brothers in an official

statement said, “We respect the ruling by the Hon’ble

Supreme Court of India. However, we are disappointed by

the decision. The court decided not to go into the merits

of the majority arbitration award. We maintain that there

was no misrepresentation in the Ranbaxy deal to Daiichi

Sankyo and these are false accusations against us made

four years after Daiichi bought Ranbaxy” The brothers also

said that they were now evaluating the option to challenge

the majority arbitration award in Singapore courts. Amit

Misra of P&A Law Office, which represented Daiichi Sankyo,

issued a statement reading, “Meanwhile, the Apex Court’s

ruling ‘clears the way’ for the award to be executed and for

Daiichi to recover the money.”

Rocky road

Even as the Singh Brothers consider challenging the majority

arbitration award in Singapore courts, the Delhi HC has

barred them from selling or mortgaging their assets. The

court order will be effective till 26 February, which is the next

date of hearing for a plea for execution of the '3,500 crore

international arbitration award passed by the Singapore

Tribunal. It is disheartening that the Singh Brothers, who

at one time were credited with putting India on the global

pharmaceutical map, are today the subject of much scrutiny

and litigation. That the Securities and Exchange Board of

India (SEBI) has initiated an investigation into their alleged

siphoning of funds only adds to their cup of woes.

Disclaimer - Statements and opinions expressed in this article are those from the editorial and are well researched from

various sources. The content in the article is purely informative in nature.