Once upon a time (2007) the author was invited
to an international panel to discuss the value of arbitration clauses in
contracts designed to capture commercial terms in India.
Frankly the invitation was a surprise not being
a lawyer with vested interests but an experienced litigator or supervisor of
vested interests on behalf of the fodder for the Indian judiciary, the client.
Any number of well-funded international legal
scholars have drawn the conclusion is some form that the client in the Indian
Judicial process is inertia.
To wit: courts at half strength, a backlog of
over 4 million cases which, if no new cases were filed it would require 24
years to clear (an estimate provided by an expert witness in a contest between
Indian joint venture partners in US courts), and remarkably opaque procedures
from service of process to execution of judicial decrees if ever obtained in
any lifetime.
The lively discussion centered on whether to
include an arbitration clause in commercial contracts, whether the arbitration
should be held in India or internationally (the seat of the arbitration), and
if internationally then where.
The esteemed Indian lawyers indicated that
arbitration clauses were un-necessary in the event that underlying assets were
in India because even were an international decree to be awarded the
enforcement would have to take place in India (a Himalayan challenge in its own
right)
The less esteemed and international experts (the
author straddling a shaky bridge) opined that the pace, transparency, and
efficiency of an international process in achieving a decree would more than
offset the time required in India to reach such a stage (if that was even
possible or probable) and enforcement in India would be, well, enforcement in
India sooner rather than later.
Ten years later Japanese firms (Dai Ichi and NTT
DoCoMo, health care and telecom) have sailed forth into international arbitral
arenas against less than forthright Indian partners.
Dai Ichi’s tryst is particularly revealing
because it involves the personal assets in multiple jurisdictions. The
brothers Singh sold an Indian pharmaceutical company to a Japanese company for
a few billion dollars without disclosing that the US FDA was poised to issue a
notice with respect to manufacturing practices that would make the products ineligible
for US markets.
Dai Ichi completed the transaction and sought to
recover half the purchase price from the brothers Singh invoking arbitration in
Singapore (a decree was awarded) to be enforced in Indian High Courts.
The hunt is on while the brothers Singh have
pledged 80 % of some assets during the pendency of the proceedings and now seek
to dispose of others through separate transactions.
Enjoy
A
Singapore tribunal had last year ordered the Singh brothers to pay the Japanese
drugmaker Rs 2,562 crore in damages for concealing information regarding
wrongdoing at Ranbaxy while selling the company for $4.6 billion in 2008. The Singh brothers are contesting this
arbitration award in the Delhi HC. Along with interest and legal fees, the
total liability was last pegged at Rs 3,500 crore.
Daiichi, which is no longer the owner of
Ranbaxy after it sold the company to Sun Pharma for $3.2 billion in 2014, has
sought a direction to Singh brother to secure the award amount by depositing it
in the HC or attachment of the movable and immovable assets and properties in
which the Singh brothers have any beneficial interests until the disposal of
the petition. This was after reports surfaced that the
Singh brothers were looking to rope in an investor in Fortis Healthcare and any
divestment would dilute assets and hamper recovery of damages from them.
Senior counsel Harish Salve, who
represented the Singh brothers, argued that value of the duo’s shares is more
than twice the arbitration award and they are not selling a single share in the
companies, but are only looking to bring in strategic investments. He said that
the Indian hospitals chain Fortis Healthcare is looking to raise further
capital and is in talks for raising funds through a share issue and only fresh
shares were being issued.
He also told the court that Fortis
Healthcare is expecting a healthy premium for shares of the Singh brothers.
However, senior counsel CA
Sundaram and Arvind Nigam, appearing on behalf of Daiichi, argued that the past
conduct of the Singh brothers doesn’t give much confidence. Sundaram argued
that the brothers were planning to sell their controlling stake in Fortis
Healthcare to global private firm TPG Capital for Rs 3,000 crore. The brothers
currently own 63 per cent stake in Fortis Healthcare. However, 80 per cent of
this is already pledged with lenders.
Last week, the brothers had assured the
HC that they would not pursue any stake sale in Fortis Healthcare, a plea
sought by Daiichi to secure the arbitration award. Daiichi has been seeking an
interim order from the HC since May last year when the matter first reached the
courts after the arbitral award that the brothers be directed not to dispose of
any of their assets.
Daiichi had alleged the brothers had
concealed crucial information while selling majority stake in Ranbaxy
Laboratories for $4.6 billion in 2008. However, soon after,
Ranbaxy came under the scrutiny of the US Food and Drug Administrator for
non-compliance with the manufacturing standards for exporting drugs to US,
Daiichi — the new owners of Ranbaxy — agreed to pay $500 million in settlement
fees in 2013, but sought legal recourse to recover the amount from previous
promoters — the Singh brothers — following which a Singapore tribunal last year
ordered the brothers to pay $385 million (Rs 2,562 crore) as compensation.
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