India Law Update
Asia  Europe  USA  UK  Middle East  Africa

Enforceability of Foreign Awards in India

An arbitration court in Singapore has ordered former owners of Ranbaxy Laboratories, to pay damages worth Rs 2,562.78 crore (based on Thursday's exchange rate) to Japan's Daiichi Sankyo Co. Ranbaxy will have to pay the fine for concealing and misrepresenting facts from the Japanese drug giant when it purchased about 35 per cent stake in Ranbaxy from them in 2008.

The court has ruled that the Ranbaxy did not share information with Daiichi on investigations into Ranbaxy by the US Department of Justice (DOJ) and Food and Drug Administration (FDA). It has issued an award by a majority of 2:1 in favor of the claimant.

History of the Case:

  • In 2013, Daiichi had filed an arbitration case in Singapore, accusing the Ranbaxy of concealment and misrepresentation of facts, after which Ranbaxy paid $500 million to the US Department of Justice as settlement for misrepresenting facts.
  • In April 2016, Tribunal awards Daiichi Rs. 3500 crore (inclusive of interest and legal fees.)
  • In May 2016, Daiichi Sankyo moved to the Delhi High Court to freeze assets of owners of Ranbaxy.
  • In Aug 2016, Ranbaxy filed objection against enforceability of the foreign award.

Counsel for Ranbaxy told the Delhi High Court that "Substantive objections" exist under India's Arbitration law to make the order unenforceable. The tribunal wasn't entitled to award consequential damages, besides which Daiichi Sankyo withheld certain documents that would prove it was aware of the inquiries before agreeing to the acquisition, said the Ranbaxy’s counsel. If the Ranbaxy’s contention on enforceability is accepted by the Delhi High Court, the award can't be implemented through the sale of assets in India. Along with interest and legal fees, the total liability is pegged at Rs 3,500 crore. Ranbaxy have appealed against. The tribunal wasn't entitled to award consequential damages, besides which Daiichi Sankyo withheld certain documents that would prove it was aware of the inquiries before agreeing to the acquisition, said the Ranbaxy’s counsel.

Justice Manmohan Singh has asked Daiichi Sankyo's counsel to respond to the objections at the next hearing, which has been scheduled for November 28. Counsel for the Ranbaxy cited provisions under section 48 in the Arbitration and Conciliation Act, 1996, that lays down conditions under which arbitration orders can be rejected. Details of Ranbaxy's owner assets were submitted to the court in a sealed cover on Monday. The other respondents have been asked to file similar affidavits. The court, which is also hearing a related case regarding freezing of assets, accepted an assurance by the Ranbaxy that no changes would be made to ownership, pending a decision.

Applicability of Indian Partnership Act to Arbitral Proceedings

Whether the expression "other proceedings" contained in Section 69(3) of the Indian Partnership Act will include Arbitral proceedings and can be equated to a suit filed in a Court.

An interesting but very important legal question arose for consideration before Supreme Court relating to interpretation of Section 69(3) of the Indian Partnership Act with reference to its applicability to Arbitral proceedings. The question of consideration in this appeal is by virtue of Sub-section (3) whether the expression "other proceedings" contained therein will include Arbitral proceedings and can be equated to a suit filed in a Court and thereby the ban imposed against an unregistered firm can operate in the matter of arbitral proceedings. If Sub-sections (1) and (2) are virtually lifted whole hog and incorporated in Sub-section (3), it must be stated that it is not the mere ban that is imposed in Sub-sections (1) and (2) that alone is contemplated for the application of Sub-section (3). In other words, when the whole of the ingredients contained in Sub-sections (1) and (2) are wholly incorporated in Sub-section (3), the resultant position would be that the ban can operate in respect of an unregistered firm even relating to a set off or other proceedings only when such claim of set off or other proceedings are intrinsically connected with the suit that is pending in a Court. To put it differently, in order to invoke Sub-section (3) of Section 69 and for the ban to operate either the firm should be an unregistered one or the person who wants to sue should be a partner of an unregistered firm, that its/his endeavor should be to file a suit in a Court, in which event even if it pertains to a claim of set off or in respect of 'other proceedings' connected with any right arising from a contract or conferred by the Partnership Act which is sought to be enforced through a Court by way of a suit then and then alone the said Sub-section can operate to its full extent.

The learned Senior Counsel contented that if it is read in that sense the expression "other proceedings" in sub section (3) can have no relevance nor referable to Arbitral proceedings in isolation. The learned Senior Counsel further contended that going by the plain reading of the Statute and if the golden rule of construction is applied, an arbitrator by himself is not a court for the purpose of Section 69 of the Statute. The learned Senior Counsel then submitted that there is a vast difference between an arbitrator and the Court, that though an arbitrator may exercise judicial powers, he does not derive such powers from the State but by the agreement of the parties under a contract and, therefore, he cannot be held to be a Court for the purpose of Section 69 of the Partnership Act. While referring to Section 36 of the 1996 Act, the learned Senior Counsel submitted that it is only a statutory fiction by which for the purpose of enforcement, the award is deemed to be a decree and it cannot be enlarged to an extent to mean that by virtue of the said award to be deemed as a decree, the arbitrator can be held to be a Court. Lastly, it was contended by him that in order to invoke Section 69(3), three mandatory conditions are required to be fulfilled, namely, that

  1. There should be a suit and the other proceedings should be intrinsically connected to the suit,
  2. Such suit should have been laid to enforce a right arising from the contract and
  3. Such a suit should have been filed in a Court of law.

As against the above submissions, learned Senior Counsel for the respondent submitted that the expression "other proceedings" will include arbitral proceedings and that the foundation for it must only be based on a right in a contract. In support of the said submission, learned senior counsel contended that this Court has held while interpreting Section 14 of the Limitation Act that arbitral proceedings are to be treated on par with civil proceedings. The learned Senior Counsel also submitted that under Section 2(a) of the Interest Act, arbitral proceedings have been equated to regular suits and, therefore, the expression "other proceedings" in Section 69(3) of the Partnership Act should be held to include an Arbitral Proceeding on par with a suit. The learned counsel, therefore, contented that the arbitrator should be held to be a Court and the proceedings pending before it are to be treated as a suit and consequently other proceedings. By referring to Sections 35 and 36 of the 1996 Act where an award of the arbitrator has been equated to a decree of the Court and applicability of Civil Procedure Code for the purpose of execution has been prescribed, the learned Senior Counsel contended that the arbitral proceedings should be held to be civil proceedings before a Court.

Supreme Court held that Arbitral Proceedings will not come under the expression "other proceedings" of Section 69(3) of the Partnership Act; the ban imposed under the said Section 69 can have no application to Arbitral proceedings as well as the Arbitration Award.

26 August 2016
In this issue:
Lajpat Nagar-1
New Delhi - 110 024, India
Ph: +91-11-29814816 / 29814817
Fax: +91-11-29815116
International Desks
Asia & Australia
Shivkumar Idnani
UK & Europe
Sameer Rastogi
Rahul Gupta
Middle East
Dinesh Sabharwal
INDIA JURIS I I Presentation, Awards & Rankings I Publications I Disclaimer