Delhi High Court
Daiichi Sankyo Company Limited vs Malvinder Mohan Singh And Ors on 31 January, 2018
Equivalent citations: AIR 2019 (NOC) 135 (DEL.)
Author: Jayant Nath
Bench: Jayant Nath
$~J-
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 06.09.2017
% Pronounced on: 31.01.2018
+ O.M.P.(EFA)(COMM.) 6/2016
DAIICHI SANKYO COMPANY LIMITED ..... Petitioner
Through Mr.Gopal Subramanium, Sr. Adv.
Mr.Arvind Nigam, Sr.Adv. and Mr.Arun
Kathpalia, Sr. Adv. with Mr.Amit Mishra,
Mr.Mohit Singh, Ms.Hima Lawrence, Mr.Akshay
Puri, Mr.Abhijeet Sinha, Mr.Keshav
Raychaudhuri, Mr.Rohan Jaitley, Mr.Aditya
Shankar, Mr.Mikhil Sharda, Mr.Jayvardhan Singh,
Mr.Shivam Pandey, Ms.Samridhi Hota &
Mr.Samaksh Goyal, Advs.
versus
MALVINDER MOHAN SINGH AND ORS. .... Respondents
Through Mr.Harish N.Salve, Sr.Advocate with
Ms.Anuradha Dutt, Ms.Fereshte D.Sethna,
Ms.Vijaylakshmi Menon, Ms.Ekta Kapil,
Ms.Neeharika Aggarwal, Ms.Akanshsa Banerjee,
Mr.Anirudh Bakhru & Mr.Chaitanya Kaushik,
Advs. for R-1 to 4 & R-13.
Mr.Sandeep Sethi, Sr.Adv. with Mr.Siddharth
Aggarwal, Advocates for R-5 and 9 to 12.
Mr.Rohit Chaudhary and Ms.Preeti Kohli, Advs.
for R-6 to R-8.
Mr.Neeraj Kishan Kaul, Sr.Adv. with Mr.Varun
Mishra, Adv. for R-14.
Mr.Rajeev Nayyar, Sr. Advocate with Mr.Varun
Misra, Adv. for R-15 to 19
OMP (EFA) (COMM) 6/2016 Page 1 of 115
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J.
1. This petition has been filed under Part II of The Arbitration and
Conciliation Act,1996 by the petitioner M/s.Daiichi Sankyo Company
Limited seeking enforcement and execution of the Foreign Award dated 29 th
April 2016 passed by the Majority Arbitral Tribunal comprising of Mr.Karyl
Nairn QC and Professor Lawrence G.Boo ( a dissenting award being given
by Justice (Retd.) A.M.Ahmadi). By the present judgment, I will decide the
objections under section 48 of The Arbitration and Conciliation Act, 1996
filed by the respective respondents to enforcement of the Award. Separate
objections have been filed by Respondents No.1 to 3, Respondent No.4,
Respondents No.6 and 7, Respondent No.8, Respondents No.5 and 9 to 12
(minors) and by Respondents No.14 to 19 and Respondent No.20
respectively.
2. The controversy revolves around a Share Purchase and Share
Subscription Agreement (hereinafter referred to as SPSSA) dated 11.6.2008
whereby the petitioner agreed to purchase from the respondents their total
stake in Ranbaxy Laboratories Limited (hereinafter referred to as „Ranbaxy‟)
for a transaction valued at INR 198 billion (approximately 4.6 billion US
dollars).
3. Disputes having arisen between the parties, in terms of SPSSA, the
petitioner invoked the arbitration clause. In terms of the said arbitration
agreement the disputes were to be resolved by Arbitration to be administered
by the International Chamber of Commerce (hereinafter referred to as ICC).
OMP (EFA) (COMM) 6/2016 Page 2 of 115
The place of arbitration was to be Singapore. Each disputing side was to
appoint one Arbitrator and the two Arbitrators so appointed were to consult
and appoint a third Arbitrator. In case of failure to appoint respective
Arbitrators or two party Arbitrators or even to appoint the Chairperson, the
ICC was to appoint such Arbitrator or Chairperson, as the case may be. The
arbitration proceedings were to be conducted in English.
4. The petitioner nominated Ms.Karyl Nairn QC. Respondents
nominated Justice A.M.Ahmadi (Rtd.), former Chief Justice of India. ICC
appointed Professor Lawrence, G.S.Boo of The Arbitration Chambers,
Singapore as the President of the Arbitral Tribunal. The applicable
procedural law of arbitration was to be the International Arbitration Act of
Singapore. The governing law was to be the laws of Republic of India.
5. Some of the brief facts as urged by the claimant/petitioner are as
follows:-
6. The petitioner by a Share Purchase and Share Subscription Agreement
dated 11.6.2008 purchased the respondent‟s total stake in the company
Ranbaxy Laboratories Limited (Ranbaxy) for a value of over INR 198
billion (approximately US Dollar 4.6 billion at the relevant exchange rates).
In terms of the SPSSA the respondents received total amount of Rs.9,576.1
crores. In discharge of statutory duty under Security and Exchange Board of
India Act the petitioner had to purchase shares from the public. Hence, it
spent a total amount of Rs19,804/- crores approximately to complete the
transaction. The first installment of the payment was received by the
respondents on 20.10.2008 and the final payment was received on 7.11.2008.
On 19.12.2008 Dr.Une and Mr.Takshi Shoda were nominated on the Board
on behalf of the petitioners. Mr.Malvinder Singh/respondent No.1 continued
OMP (EFA) (COMM) 6/2016 Page 3 of 115
to be the CEO of Ranbaxy. Subsequently, on account of differences he
resigned on 24.5.2009. The claim of the petitioner arises out of the said
SPSSA. It is the case of the petitioner that during the acquisition process of
the respondent‟s shares in Ranbaxy Mr. Malvinder (respondent No.1) and his
business associates Mr. Vinay Kaul and Mr.Jay Deshmukh made false
representations to the petitioner by concealing a document known as Self
Assessment Report (hereinafter referred to as SAR) and also about the
genesis, nature and severity of pending investigations by the US Food and
Drug Administration (hereinafter referred to as FDA) and Department of
Justice (hereinafter referred to as DOJ) against Ranbaxy thereby fraudulently
inducing the petitioner to acquire the shares.
7. (a) It is stated that in 2004 Ranbaxy recruited Dr.Rajinder Kumar as
the President of the R&D department. Just a few months into the job the said
Dr.Kumar reported to the Company‟s Science Committee that Ranbaxy is
engaged in data falsification to obtain regulatory approvals more quickly for
hundreds of drug products in dozens of countries around the world. He is
said to have prepared this document termed as SAR which had details of the
stated falsification. Dr.Kumar is later said to have resigned from the
company having complained that the matters addressed in SAR were not
being given sufficient attention. It transpired that a former colleague of
Dr.Kumar, Shri Dinesh Thakur provided a copy of the SAR to the US
authorities, probably around 2005-06. Regulatory investigation is said to
have commenced sometimes in February 2006 into the Ranbaxy‟s facilities.
Warning letter is said to have been issued to Ranbaxy on 15.6.2006 which is
said to have identified various violations of Good Manufacturing Practices
and FDA Regulations. Various other steps are said to have been taken by
OMP (EFA) (COMM) 6/2016 Page 4 of 115
DOJ and FDA. It is the case of the petitioner that Mr.Malvinder Singh
(Respondent No.1) and his close business and family associates were fully
aware that SAR evidenced widespread fraudulent practices at Ranbaxy. The
company and its senior management being aware of its practices failed to
address its problems for years. It is further the case of the petitioner that
Mr.Malvinder Singh acting for himself and agent for other respondents
misrepresented and concealed from the petitioner the existence of SAR or
any document of that nature reporting that Ranbaxy had intentionally
fabricated data for regulatory submissions to various regulators or the fact
that the US Government was in possession of such documents. It is pleaded
that the respondents kept the SAR as a secret. The respondent
misrepresented the ongoing investigation by the US Regulatory authorities
as routine regulatory exercise and a meritless fishing expedition launched at
the behest of a competitor. It is the case of the petitioner that but for the
fraud it would not have acquired Ranbaxy shares at all and has thereby
suffered loss and damages.
(b) It is further stated by the petitioner that it first learnt in November
2009 that SAR was the true source of the US authorities concerns. On
coming to know about this aspect the petitioner is said to have worked
towards addressing the issues and an Agreement was entered into with the
US Regulatory Authority. A consent decree was entered into with FDA in
December 2011. The cost of complying with the terms of the consent decree
was estimated to be US$35-50 million per year. It further entered into a
Settlement Agreement with the Department of Justice, agreeing to pay a sum
USD$500 million penalty to resolve all potential, civil and criminal liability.
OMP (EFA) (COMM) 6/2016 Page 5 of 115
(c) The petitioner claims to have suffered direct and indirect losses as a
result of having entered into the SPSSA relying upon the false picture
painted by the misrepresentation and active concealment of material facts by
Mr.Malvinder Singh/his agents in the course of negotiations.
(d) The petitioners invoked arbitration clause on 14.11.2008 seeking
compensatory damages equivalent to US$ 1.4 billion or equivalent in such
other currency, pre-Award interest of 10% annually running from 7 th
November 2008, post-Award interest of 18% annually running from date of
Award till the amount is paid and costs.
(e) In April 2014 the petitioner entered into a market transaction with Sun
Pharma in which the petitioner agreed to sell all its Ranbaxy shares by
means of an arrangement by which Sun Pharma and Ranbaxy would merge
on a stock for stock basis with Sun Pharma as the surviving entity. The
transaction was finally closed on 25.3.2015 with Sun Pharma. The petitioner
is said to have received consideration of Rs.22,679 crores. The majority gave
its Award on 29.4.2016. The minority Award came on 30.4.2016.
(f) The respondent raised number of defences before the Arbitral
Tribunal. It was the case of the respondent that the petitioner was unable to
demonstrate any active concealment. It was the petitioner who had initiated
negotiations and was keen to acquire majority stake in Ranbaxy despite the
petitioner having knowledge of the ongoing FDA and DOJ investigations in
Ranbaxy. While negotiations were going on, a warning letter dated
15.6.2006 was published by FDA on its website.
(g) A DOJ search in the office of Ranbaxy in New Jersey took place on
which Ranbaxy issued a Press Statement which was reported online and was
publically available. The petitioner had raised queries on the ongoing FDA
OMP (EFA) (COMM) 6/2016 Page 6 of 115
and DOJ investigation during February 2008 to May 2008. It is hence
pleaded that it is manifest that the petitioner was fully aware about the
pending investigations and its ramifications. Further, it is stated by the
respondent that the petitioner and his representatives were given access to a
"data room" during the negotiations which contained all correspondence and
other documents relating to the stated investigation by US Authorities. The
claimants/petitioner also had access to publically available information such
as announcements by Ranbaxy, relevant stock exchanges, press releases and
other announcement made by FDA from time to time which was available on
FDA‟s website. Despite knowledge of all these facts, the petitioner acquired
the shareholding of the respondent in Ranbaxy on „as is where is basis‟. In
fact the petitioner had specifically asked for representations, warranties and
indemnities from the respondent relating to the investigation and it agreed to
drop that requirement. Hence, under advice they accepted the risks attendant
to and arising from the said investigations including the risk that FDA had
the power to bar Ranbaxy‟s products from entering into the US market and
other coercive steps. It is also the case of the respondent that there was no
positive duty to inform the petitioner about the SAR inasmuch as SAR was
not a material document.
(h) It is also pleaded by the respondent that for the first time the petitioner
made assertions of concealment of material information in its purported
notice dated 12.9.2012, more than three years after closing of the share
purchase transaction under SPSSA. Hence, it was pleaded by the respondent
that the claim is time barred under the limitation laws of India. Alternatively,
the claimant could have with reasonable diligence discovered the matters
complained of after completion of the transaction or any rate, after 24th May
OMP (EFA) (COMM) 6/2016 Page 7 of 115
2009 when Mr.Malvinder left Ranbaxy. It is further pleaded that elements of
active concealment are not made out in terms of section 17 of the Indian
Contract Act, 1872 (hereinafter referred to as The Contract Act). Further, the
respondent has suffered no loss direct or indirect as a result of the alleged
active concealment and wrong doing. In 2015 the petitioner sold the shares
to Sun Pharma at a profit i.e. above the price paid to the respondent.
8. The majority Award in the present case was passed by the two
Arbitrators, namely, Ms.Karyl Nairn and Professor Lawrence, G.S.Boo.
Justice A.M.Ahmadi (Retired) gave a dissenting Award. The Majority
Award grants the following relief to the petitioner:-
I. The Respondents shall forthwith pay to the Claimant,
damages in the sum of INR 25,627,847,918.31.
II. The Respondents shall pay to the Claimants interest on the
sum of INR 25,627,847,918.31 at the rate of 4.44% per annum
on a simple basis as from 7 November 2008 to the date of the
Award, amounting in aggregate to INR 8,510,692,333.80.
III. The Respondents shall bear and pay the attorneys' fees and
expenses incurred by the Claimant which we fixed at
US$ 14,549,684.60.
IV. The Respondents shall reimburse to the Claimant the sum
of US$ 599,250.00 for its share of the costs of arbitration as
fixed by the ICC Court.
V. The Respondents shall bear and pay interest to the Claimant
on all sums (including costs and interest accrued) awarded
herein to the Claimant at the rate of 5.33% per annum on a
simple basis from the date following the date of the Award
until the same is fully and finally paid."
9. The Arbitral Tribunal framed the issues for determination as follows:-
a. Whether the Respondents have fraudulently misrepresented
and/or concealed from the Claimant the source and severity of
OMP (EFA) (COMM) 6/2016 Page 8 of 115
the Company's regulatory problems in connection with the
Respondents' sale of their interest In the Company to the
Claimant pursuant to the SPSSA
b. Whether the Claimant agreed to forego any express
representation, warranty or indemnity in the SPSSA by the
Respondents and if so, whether that precludes the Claimant
from making a case of fraud.
c. Whether the elements of section l7 of the Contract Act have been
satisfied.
d. Whether the Claimant's claim is time-barred under the Limitation
Act?
{If the Respondents be found liable]
e. Whether the Claimant is entitled in law to recover the damages
claimed and/or has standing to advance the claims for damages that
have been made and if so, whether the Claimant has suffered any
actionable loss, direct or indirect, as a result of the alleged fraud by the
Respondents.
f. Whether the Claimant has taken such steps as are necessary and/or
appropriate and/or reasonable to mitigate any loss that it may have
suffered.
g. To ascertain such proper and appropriate reliefs and remedies to
which each Party may be entitled;
h. To ascertain who should bear the costs and expenses of Parties'
legal representation and the costs of this arbitration.
10. Issue No.(a) framed by the Arbitral Tribunal is whether the
respondents have fraudulently misrepresented and/or concealed from the
claimant the source and severity of the Company‟s regulatory problems. The
Majority Arbitral Tribunal (hereinafter referred to as Arbitral Tribunal) first
noted the legal position regarding the standard of proof. Relying upon the
judgment of the Privy Council in A.N.Narayanan Chettyar vs. Official
Assignee, AIR 1941 P.C.93 the Arbitral Tribunal held that as per the legal
position the claimant/petitioner was to discharge the higher burden of
proving any element of actual dishonesty by the respondent or the agent
OMP (EFA) (COMM) 6/2016 Page 9 of 115
beyond reasonable doubt. Based on the evidence on record the Arbitral
Tribunal concluded that at the time of due diligence meeting that took place
on 26.5.2008 it was beyond reasonable doubt that Mr.Malvinder, Mr. Kaul
and Mr.Deshmukh were aware about SAR and believed that it had triggered
both the US investigations and that Ranbaxy was very seriously exposed. It
noted that Mr.Kaul was a close family friend of the Singh family who had
retired as an Executive but had been asked by Mr.Malvinder to provide
guidance to Mr.Deshmukh in handling the US investigations. Similarly,
Mr.Deshmukh was employed by Ranbaxy till March 2009 and was
Ranbaxy‟s Director of Intellectual Property and Senior V.P. of Global
I.Department. He later acted as General Counsel of Ranbaxy. The Arbitral
Tribunal concluded that it is beyond reasonable doubt that Mr.Malvinder,
Mr.Kaul and Mr.Deshmukh acted fraudulently and dishonestly misleading
the petitioner/claimant about the genesis, nature and severity of the US
Regulatory investigations and deliberately concealed SAR from the
claimants. The Arbitral Tribunal concludes that the petitioner had established
on a preponderance of probabilities that Mr.Malvinder and Mr.Kaul were
aware that their representations would be relied upon by the petitioner and
would induce it to make a decision to enter into the SPSSA. It also
concluded that the petitioner did in fact reasonably rely upon these
misrepresentations in making its decision to enter into the SPSSA and that
but for those misrepresentations it would not have entered into it.
11. The next issue was issue No.(b) as to whether the claimant had agreed
to forego any express representation, warranty or indemnity in the SPSSA by
the respondent and if so, whether that precludes the claimant from making a
claim of fraud. The Arbitral Tribunal noted the contention of the respondent,
OMP (EFA) (COMM) 6/2016 Page 10 of 115
namely, that the petitioner sought warranties from the respondents which
were repeatedly refused. Only a limited warranty was expressed in clause 9.1
of the SPSSA.
The Arbitral Tribunal, however, took the view that the respondents
cannot hide behind absence of express warranty in relation to accuracy of
statements or express immunity provisions. They cannot excuse themselves
when they are found to have deliberately misled the petitioner either by way
of misinformation or withholding information. The Arbitral Tribunal
concluded that as a matter of public policy liability for fraud cannot be
simply avoided by express or implied agreement. The Arbitral Tribunal
concluded that under section 17 of The Contract Act an act of fraud cannot
be avoided by any express or implied agreement. The Arbitral Tribunal also
relied upon judgments of the Supreme Court which have enunciated the
principle that "fraud unravels all". The Arbitral Tribunal further concluded
that the petitioner is not precluded from making a case of fraud
notwithstanding the absence of any express representation warranty or
indemnity in the SPSSA. Hence, issue No.(b) was answered accordingly.
12. Issue No.(c) relates to whether the elements of Section 17 of The
Contract Act have been satisfied. The Arbitral Tribunal concluded that in
view of findings in relation to issues (a) and (b) the petitioner has discharged
the burden of proof of all the elements of Section 17 of The Contract Act.
The petitioner has established that Mr.Malvinder (respondent No.1) and his
associates Mr.Deshmukh and Mr.Kaul as agents for all the respondents and
Mr.Malvinder as a respondent in his own right made various representations
to the petitioner about the genesis, nature and severity of the US
investigations including actively concealing information about SAR from the
OMP (EFA) (COMM) 6/2016 Page 11 of 115
petitioner. While making these misrepresentations, the said Mr.Malvinder
intended to defraud the petitioner to induce them to enter into the SPSSA.
The petitioner was induced by the misrepresentations to enter into the
SPSSA.
13. Issue No.(d) is as to whether the claimant‟s claim is time-barred under
the Indian Limitation Act? The Arbitral Tribunal relies upon section 17(1) of
The Limitation Act, 1963 noting that the period of limitation was taken to
start once the plaintiff has discovered the fraud or could with reasonable
diligence have discovered it. On the issue of burden of proof the Arbitral
Tribunal concluded that the correct approach to burden of proof under
section 17(1) of the Limitation Act is that it is on the claimant/petitioner.
The Arbitral Tribunal further notes as to when the petitioner discovered the
fraud would be purely a factual matter for the Arbitral Tribunal to determine
on the basis of relevant evidence. The Arbitral Tribunal noted the plea of the
respondent that as early as in July 2008 i.e. before the transaction was closed
for a period of over 10 months and thereafter new developments arose
almost every one or two months which would, individually, if not
cumulatively have alerted the petitioner that the level of risk of regulatory
liability is of a high magnitude. The Arbitral Tribunal noted the following
events:-
(a) In July 2008, the DOJ filed a public motion to Enforce
Subpoenas which made serious allegations against Ranbaxy and which
could destroy the company.
(b) On 30.10.2008 the petitioner conducted an internal case study
where it concluded „high risk‟ facing Ranbaxy in US.
(c) In December 2008 the petitioner assumed majority control of
Ranbaxy Board and had total access to all documents and information.
OMP (EFA) (COMM) 6/2016 Page 12 of 115
(d) In February 2009, the FDA invoked the AIP against Ranbaxy. It
was admitted by the petitioner to be a serious step.
(e) In March 2009 the petitioner sought legal advice from its Indian
lawyers about the potential fraud claimed against Mr.Malvinder.\
(f) In April 2009, Dr.Une, the CEO of the petitioner attended a
meeting with the FDA wherein he came to know that there was a real
risk that Ranbaxy‟s ability to supply products to the US and rest of the
world would be in jeopardy.
14. The Arbitral Tribunal concluded that there was no contemporaneous
evidence in any of the documents or warning letters issued by FDA or DOJ
on account of which the petitioner could have reasonably discovered fraud as
on 30.10.2009.
15. The Arbitral Tribunal also noted various facts and events which as per
the respondent triggered the commencement of the limitation period. Each of
these were rejected by the Arbitral Tribunal as follows:-
(a)The Arbitral Tribunal noted that it is satisfied from the records that the
petitioner did not discover the fraud as a result of its majority control of the
Board and could not have with reasonable diligence discover the fraud
before November 2009. It noted that this was due to poor communication
and management within Ranbaxy under the leadership of Mr.Malvinder and
later after his resignation under the leadership of Mr.Sobti the next CEO of
Ranbaxy. This is also because of the nature of information and advice being
provided to the petitioner by external advisers to Ranbaxy. The Arbitral
Tribunal concludes that the petitioner‟s control of the Board of Ranbaxy by
itself does not create a situation in which the petitioner could have in fact
discovered with reasonable diligence that the respondents have knowingly or
recklessly misrepresented the genesis, nature and severity of the FDA and
DOJ investigations.
OMP (EFA) (COMM) 6/2016 Page 13 of 115
(b) The Arbitral Tribunal also noted that on 25th February 2009 an
Application Integrity Policy (AIP) was imposed by FDA on Ranbaxy. The
Arbitral Tribunal concludes that there was no proper basis from which it
could be said that by February 2009 the petitioner could have discovered the
fraud with reasonable diligence. The petitioner had been in control of the
Board only since November 2008 and in three months‟ time would hardly
have taken technical steps to try and obtain information about the FDA or
DOJ investigations. AIP letter would not itself trigger the start of the
limitation period.
(c)Another plea raised by the respondent was, namely, that legal advice was
sought after the AIP in March 2009, which would lead to discovery of the
fraudulent misrepresentation. The Arbitral Tribunal rejected the said plea
noting that the contemporaneous evidence shows that the petitioners‟
investigative efforts were leading them to believe that Mr.Malvinder
mishandled the FDA investigation and that poor management and quality
control within Ranbaxy and poor handling of FDA by Mr.Malvinder lay
behind AIP.
(d) Another serious contention raised by the respondent was that in a
meeting held on 11.3.2009 the issue of SAR had come up. The Arbitral
Tribunal accepts that the issue of SAR was mentioned in the meeting.
However, it concludes that the petitioners were unaware of the SAR‟s true
import and significance. The Arbitral Tribunal holds that it is satisfied that
the petitioner has discharged its burden to demonstrate that notwithstanding
the meeting held in March 2009, in which SAR was mentioned, this was
insufficient to fix the petitioner with the requisite knowledge of fraud. The
petitioner remained unaware that the respondents had deliberately concealed
OMP (EFA) (COMM) 6/2016 Page 14 of 115
from it the existence of highly damaging "confession of wrongdoing" which
was in possession of the US Regulators.
The Arbitral Tribunal concludes that from the time the claimant
exercised control over the Ranbaxy Board upto 19.11.2009 the claimant
acted with reasonable diligence in the way it established and executed its
cross corporate committees and sought to become involved directly in the
handling of the FDA and DOJ discussions. The Arbitral Tribunal concludes
that the petitioner has established that it could not have discovered the fraud
earlier without exceptional measures which it could not have been expected
to take. The Arbitral Tribunal noted that it was satisfied that the petitioner
acted in a way that a company in its position would act if it had adequate but
not unlimited staff and resources and were motivated by reasonable but not
excessive sense of urgency. The Arbitral Tribunal concludes that the
petitioner has satisfied his burden that it did not discover and could not with
reasonable diligence have discovered the fraud earlier than 19.11.2009. The
arbitration having been initiated on 14.11.2012 was, therefore, held to be not
barred by limitation.
16. Issue No.(e) is as to whether claimant/petitioner is entitled to recover
the damages claimed/whether he has standing to advance the claims for
damages and if so, whether the claimant suffered any actionable loss as a
result of the alleged fraud by the respondents. The Award notes that the
petitioner did not seek to avoid SPSSA but instead elected to seek damages
that would put it in the position in which it would have been had the
representations made had been true. The Award further notes that the
petitioner measures the damages by reference to the purchase price it paid
for the Ranbaxy shares less the benefits received which includes the "true
OMP (EFA) (COMM) 6/2016 Page 15 of 115
market value" for the shares being the price at the time when the market was
aware of the fraud. The Award also concludes that there is no dispute that
under Indian law the measure of damages recoverable by the party defrauded
under section 19 of The Contract Act would be similar to those recoverable
for fraudulent misrepresentation under general tort principles. It relied upon
the judgment of the Gujarat High Court in R.C.Thakkar vs. Gujarat House,
AIR 1973 Gujarat 34. The Award also relies upon the judgment of the
English House of Lords in Smith New Court Securities Ltd. vs. Scrimogeour
Vickers (Asset Management) Limited, 1997 AC 254 to consider the correct
measure of damages where a plaintiff has acquired property in reliance of a
fraudulent misrepresentation made by the defendant. It notes that both the
sides accept that the Arbitral Tribunal should apply the principles stated in
the said case. Relying on the said case the Arbitral Tribunal holds that the
claimant/petitioner is entitled to recover damages in a sum equal to the
difference between what it paid for the Ranbaxy shares and any other direct
losses, less any benefits it had received. The object was to restore the
claimant/petitioner to its position before the acquisition.
The award noted the submissions of the respondent that the petitioner
has failed to show that it suffered any loss caused by misrepresentation. It
also noted the plea of the respondent that there is no justification to make a
claim based on the subsequent sale of its shares to Sun Pharma. It was
pleaded by the respondent that the petitioner was not purchasing shares over-
the-counter from the general stock market as in the Smith New Court Case.
Therefore, the market price of Ranbaxy‟s shares at that time would be
irrelevant. It was seeking to control Ranbaxy for which it was prepared to
pay a premium. Further, the price was negotiated premised on limited due
OMP (EFA) (COMM) 6/2016 Page 16 of 115
diligence. The petitioner was aware that there was future US Regulatory
liability which could result in potential claim of over a hundred million
dollars. The petitioner was ready to take the risk of huge potential liability.
It also noted the plea of the petitioner that it had been totally misled,
given limited due diligence, inaccurate, insufficient information, assurances
that all would be well and that the DOJ investigations were merely "fishing
expeditions" or prompted by rival competitors. It turned out that Ranbaxy
had a culture of regulatory corruption, falsification of records and had much
larger exposures for regulatory fraud than what has been disclosed to the
claimant.
The Arbitral Tribunal rejected the contentions of the respondent. It
concluded that the respondent‟s representation during the due diligence
period fraudulently induced the petitioner to enter into the SPSSA. It accepts
the petitioner‟s plea that it would not have entered into the SPSSA had it not
believed and relied upon the respondent‟s representations and assurances.
The existence of SAR in the hands of the US authorities meant that
Ranbaxy‟s shares were pregnant with disaster. Hence, the Arbitral Tribunal
concluded that the petitioner suffered losses caused by the respondent‟s
fraud which led to the claimant‟s entry and closing of the SPSSA. Issue (e)
was accordingly disposed of.
17. Coming to issue (g), namely, to ascertain the appropriate reliefs and
remedies, the Arbitral Tribunal noted that the guiding principle from the case
of Smith New Court Securities Ltd. is that it needs to determine what
damages, if any, would be required to place the petitioner in the position it
was in before the acquisition occurred. Noting that the losses suffered by the
petitioner must not be too remote and the petitioner must have acted to
OMP (EFA) (COMM) 6/2016 Page 17 of 115
mitigate its loss the Arbitral Tribunal notes that the petitioner paid for its
stake in Ranbaxy Rs.198,040,245,051. The Arbitral Tribunal notes that in
assessing the loss, account must be taken of the value the petitioner
recovered from the Sun Pharma transaction which was closed on 23.3.2015,
the benefits the petitioner received by way of dividends; and the present day
value of money keeping into account the period of six years when it was
holding the Ranbaxy shares. It noted that the petitioner paid Rs.737 per share
and sold the same to Sun Pharma at Rs.844/- per share. It did not affix any
value for the claim of the respondent about positive synergies and other
benefits resulting to the petitioner from the Ranbaxy acquisition. The
Arbitral Tribunal noted that the petitioner would have received
Rs.226,792,356,612 for its disposal of the Ranbaxy shares to Sun Pharma.
Further, it had received dividends of Rs.537,422,646/-. The Arbitral Tribunal
chose to resort to the "present value" method of calculation. The Arbitral
Tribunal accepted the plea of the petitioner that it intended to receive a return
equal to average return it receives on its capital (WACC). It took the
WACC rate of 4.44% for purpose of giving effect to the present value of the
amount received from Sun Pharma transaction. The amount received from
Sun Pharma was discounted by 4.44% per annum to obtain the present value
(as on November 2008) of the amount received which was assessed at
Rs.172,412,397,132/-. The petitioner had paid Rs.198,040,245,051/- for the
Ranbaxy deal. Based on the above calculations, namely, claimant‟s loss of
opportunity, the Arbitral Tribunal concludes the loss to be
Rs.25,627,847,918.31 (2,562 crores). It noted that it was conscious that it
shall not award punitive, exemplary, multiple or consequential damages.
OMP (EFA) (COMM) 6/2016 Page 18 of 115
For benchmark purposes two alternative methods of computing
damages are considered. The plea of the respondent that the losses suffered
by the petitioner be calculated by measuring the incremental effect that SAR
would have on the price of Ranbaxy‟s shares was considered. The Arbitral
Tribunal noted that the main factor that resulted in the penalty of USD 500
million was the effect of SAR being in the hands of the DOJ. But for the
SAR, the penalty would not have reached a figure beyond USD 100 million.
The Arbitral Tribunal, therefore, noted that SAR had an incremental effect of
about USD 400 million which itself translates to loss of INR 8060 million
after discounting with weighted cost of capital of 11.95% for 4.95 year. It
also noted a second formula of calculating damages by taking the daily
closing prices of shares of Ranbaxy from 13 to 31 May 2013 (i.e. around the
time Ranbaxy entered into a plea Agreement with DOJ). The average share
price of Ranbaxy shares at NSC was Rs.423. Applying a premium of 47.3 %
on account of the fact that the controlling interest of Ranbaxy had been
purchased the price was pegged at Rs.622. Based on this, the damages were
noted to come to Rs.30,364.379,499 (Rs.3,360.43 crores). The Arbitral
Tribunal accepted the methodology of petitioner‟s present day value of
money and pegged the damages at Rs.25,627,847,918.31.
18. On issue No.(f) as to whether the petitioner has taken steps to mitigate
any losses suffered, the Arbitral Tribunal held in favour of the petitioner.
Legal costs and expenses of USD 14,549,684.60/- were imposed on
the respondent. On pre-Award interest the Arbitral Tribunal noted that it had
powers under section 20 of the International Arbitration Act of Singapore to
award both pre-award and post-award interest. The Arbitral Tribunal
awarded interest @ 4.44% per annum on a simple basis commencing from
OMP (EFA) (COMM) 6/2016 Page 19 of 115
7th November 2008 until the date of the Award being a total of
Rs.8,510.692,333.80. Post-Award Simple Interest of Rs.5.33% per annum
was also awarded on the sums awarded including interest and costs until the
same are fully and finally paid.
DISSENTING AWARD
19. For the purpose of completeness I may also mention the findings
recorded by Justice Ahmadi (retired) in the dissenting Award. On issue
No.(a), namely, whether the respondents have fraudulently misrepresented,
the dissenting Award notes that the respondents could not have concealed
the severity of the company‟s regulatory problems. Dr.Une (CEO of the
petitioner) from the very beginning was cautioned and advised by Mehta
Partners, the firm which introduced the parties, about the substantial risk in
undertaking this transaction, seriousness of the matter and that the mess that
Ranbaxy was in public domain. Hence the Minority Award concluded that
the respondents have not fraudulently misrepresented to the petitioner.
20. On issue No.(b) whether the petitioners agreed to forego any express
representation/warranty, the minority Award answers that from the evidence
the petitioner did agree to forego representations and warranties. On issue
No.(c) as to whether the elements of Section 17 of the Indian Contract Act,
1872 have been satisfied the Minority Award holds in the negative. On issue
No.(d) as to whether the claimant‟s claim is time barred under the Indian
Limitation Act, 1963, the Minority Award holds that the claim is time
barred. The said Award states that even if we ignore that the petitioner knew
from beforehand, the documentary evidence shows that Dr.Une was
contemplating fraudulent action from March 2009 itself. The SAR also finds
a mention in the Lavesh Santani‟s minutes of the meeting of March 2009.
OMP (EFA) (COMM) 6/2016 Page 20 of 115
Ranbaxy had been already acquired by the petitioners and the knowledge of
SAR can be attributed to the petitioner. Similarly, other issues are also
answered against the petitioner further reiterating that the petitioner has not
been able to show any actual losses suffered.
21. Learned senior counsel for the parties have pointed out that apart from
resisting the enforcement of the Award in the present court the respondents
have also challenged the Award in the proceedings before the Court in
Singapore. However, both the senior counsel stated that the pendency of the
proceedings in Singapore would not in any manner prevent this court from
adjudicating the present objections filed by the respondents.
SUBMISSIONS
I have heard Mr.Harish N.Salve, senior Advocate appearing for
respondents No.1 to 4 and 13, Mr.Sandeep Sethi, senior Advocate appearing
for respondents No.5 and 9 to 12, Mr.Neeraj Kishan Kaul, Senior Advocate
appearing for Respondent No.14 and Mr.Rajiv Nayar, Senior Advocate
appearing for Respondents No.15 to 19. I have also heard Mr.Gopal
Subramanium, Senior Advocate, Mr.Arun Kathpalia, Senior Advocate and
Mr.Arvind Nigam, Senior Advocate for the petitioner. I have also pursued
the written submissions filed by the parties.
SUBMISSIONS OF RESPONDENT
22. Mr.Harish N. Salve, learned Senior Advocate, appearing for
respondents No.1 to 4 and respondent No.13 has pleaded as follows in
support of the objections under section 48 of The Arbitration and
Conciliation Act, 1996:-
(I) There is no Fraudulent Representation for grant of any relief under
section 19 of the Contract Act.
OMP (EFA) (COMM) 6/2016 Page 21 of 115
It is stated that SAR was an error ridden self assessment report made
by Dr.Rajender Kumar in 2004. The Award holds that the existence of SAR
was concealed and further that oral representations were made by respondent
No.1, which were untrue. It is pleaded that SAR does not relate to USA and
could never constitute a false representation about the genesis, nature and
severity of FDA and DOJ investigations. In any case, SAR was remedied by
2008. Even otherwise large number of documents pertaining to the pending
investigation by DOJ/FDA were in public domain. Petitioner cannot plead
ignorance of the same. Hence, section 19 of the Contract Act was not
attracted as there was no fraudulent representation.
(II) The Award Grants Consequential Damages which were Beyond the
Jurisdiction of the Arbitral Tribunal and the award cannot be enforced under
section 48(1)(c) of the Arbitration Act.
In support of the above plea, the following submissions were made:
(a) Learned senior counsel has relied upon clause 13.14.1 of the SPSSA
to contend that under the said Clause pertaining to resolution of disputes by
arbitration, the clause specifically prohibits the Arbitrators to Award
Punitive, Exemplary, Multiple or Consequential damages. He also pleads
that under clause 13.15 of the SPSSA, the governing law was Law of India.
He relies upon the definition of consequential damages as explained by
McGregaor on damages (19th Edition) whereby it is stated that in contract,
normal loss is generally the market value of the property that the claimant
should have received under the contract, less the market value of what he
does receive but for the breach. Consequential losses are anything beyond
this normal measure and are recoverable, if not too remote. Hence, it is
pleaded that the normal loss would have been the market value of shares that
OMP (EFA) (COMM) 6/2016 Page 22 of 115
the petitioner paid under SPSSA, less the actual market value of shares on
the date of acquisition. The sale price of the share if it is on a date
approximate, and in the course of events that continues may reflect the price
of the share on the date of execution of the Agreement. The logical exercise
for the arbitral tribunal would have been to ascribe the negative value to
SAR and determine how the market would have priced the shares with the
knowledge of SAR. It is pleaded that the arbitral tribunal however made no
endeavour to look in this direction but on the contrary rejected the said
procedure.
(b) It was pleaded that in the present case the share prices of Ranbaxy
were on record. There was nothing to suggest that the disclosure of the
Settlement with DOJ/FDA had any significant effect on the listed price of
the shares meaning thereby that the petitioner suffered no losses. However,
the Arbitral Tribunal wrongly awarded the difference between the original
price paid to the respondent and the sale price of the shares received from
Sun Pharma after discounting the sale price by a rate equivalent to Weighted
Average Cost of Capital (WACC).
It is further pleaded that reducing the amount received on the sale of
shares by the weighted average cost of capital on the principle that the
amount spent by the petitioner would have earned a return no less than the
WACC is a case of awarding restitution of loss of opportunities. This is
purely a consequential loss. Reliance was placed on various judgments to
contend that awarding loss of opportunity is consequential damages
including the judgments in Smith New Court Securities Ltd. vs. Scrimgeour
Vickers (Asset Management) Ltd. (1997) AC 254; Tennessee Gas Pipeline
OMP (EFA) (COMM) 6/2016 Page 23 of 115
vs. Technip USA Corporation and Technip, [2008 WL 3876 141 (Tex. App.
2008]
(c) It is further urged that damages have been awarded on an amount of
Rs.19,804 crores whereas the amount paid to the respondents was only
Rs.9,576.1 crores. Under SEBI Take Over Code, moneys were paid to the
public for acquisition of shares which element/component has wrongly been
added for the purpose of computing the damages. Shares purchased from the
public were in discharge of statutory obligations laid down by the Securities
and Exchange Board of India Act, 1992 and clearly grant of such damages
are consequential damages and were beyond the jurisdiction of the Arbitral
Tribunal.
(d) It is also pleaded that what has been awarded are consequential
damages arising from the tort of deceit which could only have been granted
by the court of law and not by the arbitral tribunal.
(e) It is also pleaded that a Arbitral Tribunal has the right to decide on its
own jurisdiction in the first instance but the said decision is not final. The
jurisdictional challenge ultimately will have to be decided by the court in the
proceedings where the award is challenged or the award is sought to be
enforced. It was pleaded that this Court has the jurisdiction to go into the
said issue i.e. whether the Arbitral Tribunal had jurisdiction to award the
damages as done. Reliance was placed on the following judgments to
support the said proposition:-
(i) Dallah Real Estate and Tourism Holding Co. Vs. Ministry of
Religious Affairs of the Government of Pakistan (2011) 1 AC 76,
(ii) Cruz City 1 Mauritius Holdings vs. Unitech Limited (2017 SCC
Online Del 7810) and
OMP (EFA) (COMM) 6/2016 Page 24 of 115
(iii) M/s. Value Advisory Services vs. M/s.ZTE Corporation
Ex.P.198/2012
(III) The Arbitral Tribunal has awarded damages beyond Section 19 of the
Contract Act and is hence contrary to the provisions of codified law of India,
The Fundamental Policy of Indian Law, morality and justice and, therefore,
against the public policy of India. The following submissions were made to
support the above contention.
(a) Even assuming the contention of the petitioner that the consent was
induced by fraud or fraudulent misrepresentation is believed, the petitioner
has elected to affirm the contract and has, therefore, insisted to be put in a
position as if the representations made had been true. An issue was posed as
to what damages can arise in the second limb of section 19 of the Contract
Act to place an innocent party in the position as if the representations were
true. Reliance was placed on the judgment of the Nagpur High Court in
Prem Chand vs,. Ram Sahai, AIR 1932 NAGPUR 148 to plead that in the
absence of recession of contract the plaintiffs could not claim damages or
compensation but can only plead that it should be put in the position he
would have been if the representation made had been true. Similarly, reliance
was placed on judgment of the Bombay High Court in Sorabshah Pestonji
vs. The Secretary of State for India, AIR 1928 Bom 17 and judgment of Delhi
High Court in Gaurav Monga vs. Premier Inn India Pvt. Ltd. and Ors.
237(2017) DLT 67. It is stated that the only damages that could be awarded
to the petitioner under section 19 of the Contract Act were to compensate the
petitioner for the impact of SAR on the penalty paid by Ranbaxy to DOJ and
the consequent impact on the petitioner‟s investment in Ranbaxy. In other
words, the loss in value of the investment of the petitioner caused by the
OMP (EFA) (COMM) 6/2016 Page 25 of 115
incremental sum paid as damages on account of the SAR could alone have
been awarded. It is pleaded that the Award has wrongly rejected this method
of computing damages and has wrongly applied "but for" test which is
applicable to Section 73 of the Contract Act where damages are awarded for
breach. Such a test it is pleaded could only apply to a recession occasioned
by fraud. Hence, the Award grants damages contrary to the principles of
Section 19 of the Contract Act
(b) It is further pleaded that the arbitral tribunal has wrongly applied the
dicta of the judgment of the House of Lords in Smith New Court Securities
Ltd. vs. Scrimgeour Vickers (Asset Management) Ltd. (supra).
(c) It is further stated that Award of damages has been done which were
never claimed in the Statement of Claim i.e. the trade loss.
(d) It is also pleaded that the alleged fraud became known to the public on
15th May 2013 when an article called dirty medicine was published in
Fortune Magazine. The price of Ranbaxy shares did not fall but in fact rose.
It was only when news of suing the erstwhile owners of Ranbaxy came in
public domain that the prices fell. Damages have been awarded when no
actual loss was suffered by the petitioner.
(e) It was pleaded that rejection of the principles of Section 19 of the
Contract Act for determining damages was contrary to the provisions of law
in India and is also contrary to the fundamental policy of Indian Law,
morality, justice and is, therefore, against public policy of India. Award of
damages beyond the second limb of Section 19 of the Contract Act is also
unenforceable under section 48(1)(c) of the Act. The damages awarded also
suffer from absurdities and perversities and would shock the conscience of
the Court.
OMP (EFA) (COMM) 6/2016 Page 26 of 115
(f) Reliance is placed on Agritrade International Pte. Ltd. vs. National
Agricultural Co-operative Marketing Federation of India Ltd. (2012) 187
DLT 510 and Xstrata Coal Marketing AG vs. Dalmia Bharat (Cement) Ltd.
(2016 SCC Online Del 5861) to hold that where damages are awarded
without any basis the foreign Award is liable to be set aside.
(IV) The claim of the petitioner was barred by limitation.
It is pointed out that the petitioner pleaded that concealment of SAR
came to its knowledge only on 19th November 2009 and hence invocation of
Arbitration on 14th November 2012 was within the limitation period. It was
pleaded that in a claim of fraud, time period for limitation not being
specifically provided in the schedule to Limitation Act the limitation would
be three years. However, under Section 17 of the Limitation Act the
limitation period would be taken to run from the date from which the
petitioner became aware of SAR or could have with reasonable diligence
discovered SAR. It was further pleaded that a meeting was held between
Guiliani Partners a consulting firm engaged by Ranbaxy and Ranbaxy which
was attended by the Sr.Management including Dr.Une (CEO of the
petitioner) on 11.3.2009. Mr. Hess from Guiliani partners had categorically
mentioned that the Government has a document called SAR which is like a
whistle blowing document against Ranbaxy. Petitioner was then in control of
the Board. The petitioner with reasonable diligence could have discovered
the alleged fraud of concealment of SAR. Therefore, the arbitration
proceedings filed in November 2012 were barred by limitation. It is pleaded
that the Award comes to a finding that the minutes of the meeting of 11th
March 2009 were accurate and mentions SAR. However, it does not accept
the said date to be the starting point of limitation on the ground that the
OMP (EFA) (COMM) 6/2016 Page 27 of 115
officers of the petitioner had not seen SAR and did not understand the true
merit and significance of SAR. It is pleaded that the said finding recorded by
the Award is perverse and shocking.
It is further pleaded that limitation under the Indian Law is a
jurisdictional issue and goes to the root of the matter. Reliance is placed on
the following judgments to support the above contention:-
(a) Noharlal Verma vs.Disst. Coop.Central Bank Limited, (2008) 14 SCC
445
(b) Kamlesh Babu vs. Lajpat Rai Sharma, (2008) 12 SCC 577 and
(c)Amar Nath Satya vs. Union of India, 55 (1994) DLT 683)
It was stated that the attempt of the petitioner to argue that limitation is a
procedural issue and is a mixed question of law and fact and cannot be
revisited by this court is an incorrect submission.
(V) The Majority Award has awarded Multiple Damages by way of Award of
Interest.
It has been pleaded that grant of pre award interest on damages and post
award interest by the award is beyond the jurisdiction of the arbitral tribunal.
It is pleaded that damages calculated represent time value of money arrived
at by calculating and discounting at the rate of 4.44% which is in the nature
of interest. The pre award interest on damages as granted by the Arbitral
Tribunal tantamounts to grant of damages on damages. It was urged that this
is beyond the jurisdiction of the arbitral tribunal as Article 13.14.1 of SPSSA
prohibits the Arbitral Tribunal from granting multiple or consequential
damages. Even otherwise, it is pleaded that pre-award interest could not have
been granted as damages were determined on the date of the decree or
award. Interest can at best run after such adjudication culminates in a
OMP (EFA) (COMM) 6/2016 Page 28 of 115
decree/award of damages. It is further pleaded that the pre-award interest
was awarded on a reasoning or basis which was never put to the respondents
and the respondents were unable to present their case.
(VI) Tax Benefit received by the petitioner has been Ignored.
It is pleaded that the quantum of damages is shocking as it refused to
take into account the benefit already received by the petitioner by way of tax
benefits. It is pleaded that the petitioner had to be put back to the same
position as on the date of acquisition of shares. All benefits received by the
petitioner would have to be quantified and deducted. Tax advantage was one
such benefit which had to be taken into account. It was pointed out that the
respondent had filed application IA No.3488/2017 where it was specifically
pleaded that Daiichi received monetary benefits as a result of various tax
filing from 2008-09 to 2013-14 in excess of Rs.8,000/- crores on account of
the SPSSA. It is pleaded that like dividend this would also be a benefit
received by the petitioner. The refusal of the Arbitral Tribunal to accept this
as a benefit received is shocking and would shock the conscience of the
Court.
23. Mr.Rajiv Nayyar, learned senior counsel appearing for respondents
No.14 to 19 has made the following submissions:-
(i) He submits that the claim of the petitioners was barred by Limitation
as per applicable law in India. He relies on Section 17 of the Limitation Act
to state that under section 17 the period of limitation does not begin to run
until the plaintiff/applicant has discovered the fraud or with reasonable
diligence could have discovered it.
(ii) He submits that the relevant starting point of limitation as per facts
concluded by the learned Arbitral Tribunal would be 11.3.2009 when the
OMP (EFA) (COMM) 6/2016 Page 29 of 115
Minutes of Meeting that took place termed as "Internal Ranbaxy Report
Meeting" whose minutes were also prepared by the joint counsel Mr.Lavesh
Samtani. In the said meeting Mr.Brian Tempset who was then on the Board
of Directors of Ranbaxy was also present. He submits that Minutes
specifically refers to the SAR Report. He further submits that the Arbitral
Tribunal in its Award in para 744 records that SAR was discussed in a
meeting held on 11.3.2009. The Arbitral Tribunal wrongly ignored the said
date for the purpose of computing limitation.
(iii) He further submitted that the Minutes of the said meeting dated
11.3.2009 were prepared by Mr.Samtani who was the best witness to depose
on the same. Yet, he submits that his best evidence has been withheld by the
petitioners deliberately.
(iv) He relied upon judgments in the cases of Noharilal Verma vs. District
Cooperative Central Bank Limited, Jagdalpur (supra); Shri Amar Nath
Satya vs. Shri Amar Nath Satya (supra) and Kamlesh Babu and Others vs.
Lajpat Rai Sharma and Others (supra)to contend that limitation goes to the
root of the matter and that if a suit or proceeding is barred by limitation a
court or adjudicating authority has no jurisdiction, power or authority to
maintain such suit or appeal and to decide it on merits.
24. Mr.Sandeep Sethi, learned senior counsel who appeared for
respondent No.5 and 9 to 12 the minors submitted as follows:-
(i) He submits that the parties he represents are minors and no guardian
was ever appointed to defend them before the arbitration proceedings. It is
stressed that counsels did appear for the said minor respondents but the
Arbitral Tribunal in its wisdom chose not to appoint any guardian which
vitiates the Award.
OMP (EFA) (COMM) 6/2016 Page 30 of 115
(ii) It is stressed that the petitioners had notice that the said parties were
minors. Reliance is placed on SPSSA dated 11.6.2008 where it is pointed out
that Shri Malvinder Singh has signed as Guardian on behalf of his daughter
Nimrita Singh and Shri Shivender Mohan Singh has signed as guardian of
respondents No.9 to 12. Despite this, the petitioners in their statement of
claim did not chose to sue the minors in the manner described as per law and
filed no application for appointment of a guardian to defend the said minors.
It was further pointed out that this court while dealing with the present
petition on 4.11.2016 had appointed guardians for the said minors.
(iii) Reliance is also placed on the arbitration clause between the parties
whereby Applications under section 9 of the Arbitration Act have been
saved. It is pointed out that under section 9 of the Arbitration Act, a party
can before the arbitral proceedings apply to a court for appointment of a
guardian for a minor for the purpose of arbitral proceedings. It is urged that
despite application of this statutory provision the petitioners failed to do the
needful. It is further submitted that even if for a moment it is presumed that
section 9 of the Arbitration Act is not applicable, the provisions of CPC
including order 32 would apply. Reliance is placed on judgments of this
court to submit that though provisions pertaining to Order 32 may not be
contained in the Arbitration and Conciliation Act but such principles would
be applicable to arbitration proceedings. Reliance is placed on the following
judgments:-
Aspire Investments Pvt.Ltd. vs. Nexgen Edusolutions Pvt. Ltd., 2015(149)
DRJ 332; Goel Associates vs. Jivan Bima Rashtriya Avas Samati Ltd.,
114(2004) DLT 478 (DB).
OMP (EFA) (COMM) 6/2016 Page 31 of 115
Hence, it is pleaded that non-compliance of these statutory provisions
vitiates the Award.
(iv) It is further stressed that out of the total sale consideration the four
minors received a total consideration of only about Rs.14 lacs. They have
now been saddled by an Award with the liability of about Rs.3,500 crores
which abundantly shows how unjust and unfair the said Award is.
(v) It is further stressed that the so-called misrepresentation which is the
foundation of the arbitration proceedings is said to have been done by
Mr.Malvinder Singh. It is stated that under section 183 of the Contract Act it
is only a person who is of the age of majority can employ an agent. Reliance
is placed on paragraphs 383 to 385 of the award where the Arbitral Tribunal
has noted that the petitioner has commenced the proceedings against
respondents asserting that Mr.Malvinder has acted as agent for all the other
19 respondents. The Award further notes the assertion of the petitioner that
Mr.Jay Deshmukh and Mr.Vinay Kaul acted as agents for all the other
respondents. Hence, it was the case of the petitioners that the respondents
would be vicariously liable for any fraudulent representation of any or of
Mr.Malvinder, Mr.Kaul and Mr.Deshmukh who induced the petitioner to
enter into the SPSSA. It is urged that the entire foundation of the case is
misplaced as none of the said minor respondents could have appointed an
agent in law.
(vi) Learned Senior counsel has relied upon the following judgments to
contend that a minor cannot be saddled with a penalty or liability for any
omission committed by others acting on behalf of the minor. Reliance is
placed on the following judgments:-
OMP (EFA) (COMM) 6/2016 Page 32 of 115
Ritesh Agarwal and Another vs. Securities and Exchange Board of India and
Others, (2008) 8 SCC 205; Commissioner of Income Tax vs. Master Sunil
R.Kalro, [2007] 292 ITR 86 (KAR); Commissioner of Income Tax vs.
R.Srinivasan, (1997)228 ITR 214 (MAD); Mt.Mariam and another vs.
Mt.Amina and others, AIR 1937 Allahabad 65; Imperial Bank of India vs.
P.L.A.Veerappa, AIR 1934 Madras 595;
(vii) Hence, it is urged that in terms of section 48(2) of the Arbitration and
Conciliation Act the enforcement of the Award would be contrary to the
public policy of India and also in contravention of the fundamental policy of
Indian law. He stressed that Indian courts have always afforded protection to
the interests and rights of minors.
25. (i) Mr.N.K.Kaul learned senior Advocate appearing for respondent
No.14 has reiterated the submissions made by Mr.Harish Salve, learned
senior counsel appearing for respondents No.1 to 4 and 13. He has pleaded
that the Award has awarded consequential damages which were beyond the
jurisdiction of the arbitral tribunal. Other than para 1081 of the Award it is
pleaded that the Award does not deal at all with its jurisdiction to award
consequential damages. It is stressed that consequential damages are
unknown to section 19 of the Contract Act.
(ii) It is further pleaded that the claimant/petitioner failed to lead evidence
to show the effect SAR had in any way on its investments. There is also no
proof given as to the effect of SAR on the DOJ settlement. Hence, it is
pleaded that the arbitral tribunal has awarded damages without any cogent
basis. The damages have been awarded completely alien to the provisions of
section 19 of the Contract Act and also contrary to the Arbitration and
OMP (EFA) (COMM) 6/2016 Page 33 of 115
Conciliation Act.
(iii) The plea of limitation is reiterated pleading that the issue of limitation
is a jurisdictional issue.
SUBMISSIONS OF THE PETITIONER
26. (i) Mr.Arvind Kumar Nigam, the learned senior counsel for the
petitioner has made submissions to rebut the contentions of respondent
Nos.5 and 9 to 11 (minors) regarding illegality of the Award on account of
the said respondents being minors. Reliance is placed on the SPSSA dated
11.06.2008 to contend that Sh.Malvinder Mohan Singh and Sh.Shivinder
Mohan Singh have respectively signed as guardian of their children. It is
urged that despite a lapse of almost 9 years since the execution of the
agreement, no steps have been taken by any of the parties to repudiate the
said agreement and repatriate the benefit gained by the minors.
(ii) It has further been urged that, in any case, under Section 8 of the Hindu
Minority & Guardianship Act, 1956, a natural guardian of a Hindu minor has
power to do all acts which are necessary or reasonable and proper for the
benefit of the minor or for the realization, protection or benefit of the minor's
estate. It is urged that sale of shares by the natural guardian is legal and
valid. Reliance has been placed on the instructions of Security & Exchange
Board of India which permits operation of a Demat Account by a natural
guardian without any order of the court. It is also pointed out that shares in
the present case, which belonged to the minors, were in demat account and
had been operated by their natural guardians.
It has also been urged that in all the proceedings, the lawyers have
specifically warranted as representatives of all the parties, including the
OMP (EFA) (COMM) 6/2016 Page 34 of 115
minors. Reliance was placed on communication dated 21.09.2012 of Vaish
Associates Advocates, where they categorically stated that they were
submitting on behalf of the sellers. Reliance is also placed on
communication dated 20.12.2012 of Drew & Napier LLC where again it is
manifest that the said lawyers were representing all the respondents.
Similarly, reliance is placed on an answer to the request for arbitration dated
06.02.2013, which has also been filed on behalf of all the minor respondents.
Based on these communications and other such communications on record, it
has been pleaded that all along all the respondents were being represented
and at no stage sought to argue that the minors were not being represented.
(iii) Reliance is also placed on para 19 of the award to point out that so far
as procedures are concerned, the International Arbitration Act of Singapore
was applicable where the proceedings were being held. Reliance is also
placed on the Arbitration & Conciliation Act, 1996 to contend that the
parties had agreed upon the arbitration rules. It is urged that provisions of
Order 32 of CPC which are relied upon by the respondents have no
application in the International Arbitration Act or the Arbitration Rules and
Mediation Rules of the International Chamber of Commerce. Hence, it is
pleaded that the reliance of the respondents on the alleged non-compliance of
Order 32 of the CPC has no meaning.
(iv) The learned senior counsel has relied upon the judgment of the Privy
Council in Sr.Kakulam Subrahmanyam & Anr. v. Kurra Subba Rao, (1948)
61 LW 441; and judgments of various High Courts in the case of Vadakattu
Suryaprakasam v. Ake Gangraju & Others, AIR 1956 AP 33 and; N.B.
Sitarama Rao v. Venkatarama Reddiar & Ors.(Full Bench, Madras High
OMP (EFA) (COMM) 6/2016 Page 35 of 115
Court), AIR 1956 Mad. 261 to contend that under Hindu Law a natural
guardian is empowered to enter into a contract on behalf of the minor and the
contract would be binding and enforceable on the minor. It was also stated
that in view of these judgments, a party cannot approbate reprobate at the
same time. The respondents at the time of execution of the agreement
enjoyed the fruits, but now are trying to plead that minors are not bound by
the terms of the agreement and the arbitration proceedings.
(v) Mr. Nigam, has further argued relying upon judgment of the Bombay
High Court in Popat Namdeo Sodanvar v.Jagu Pandu Govekar, AIR 1969
Bombay 140 that a contract can be specifically enforced by or against a
minor.
(vi) It was also pointed out that the reliance of learned senior counsel for
the respondent on the judgment of the Supreme Court in Ritesh Agarwal and
Another vs. Securities and Exchange Board of India and Others, (supra) was
misplaced. It is urged that that was a case in which the father was shown to
be a promoter in the brochure issued by the company. The two minor sons
were said to have made contributions. The company came out with a public
issue. The company and its promoters played a fraud on the public. The
Board debarred the promoters and the company from having access to the
Capital Market for a period of ten years. It was in these facts the court had
held that the minors could not have been proceeded against strictly in terms
of the Contract Act. It is urged that the facts of this case do not lead to any
proposition of law that a guardian cannot enter into a contract for sale of
moveable properties on behalf of a minor. Similarly, it was pointed out that
the judgment relied upon by the learned counsel for the minor respondent in
OMP (EFA) (COMM) 6/2016 Page 36 of 115
Commissioner of Income-Tax vs. R.Srinivasan (supra) and Commissioner of
Income-Tax vs. Master Sunil R.Kalro (supra) do not lay down any
proposition that guardian of a minor cannot sell shares of a company owned
by the minor.
27. Mr.Gopal Subramanium, learned senior Advocate appearing for the
petitioner has made the following submissions:-
(i) He has vehemently submitted that review of a foreign award on merits
or re-assessment of evidence is not permissible under Section 48 of the
Arbitration Act. He relies upon the judgment of the Supreme Court in
Renusagar Power Company Limited vs. General Electric Company,
1994 Supplementary 1 SCC 644 to contend that the scope of enquiry
before a Court in which an Award is sought to be enforced is limited and
does not enable a party to the said proceedings to impeach the Award on
merits. The Supreme Court in the said judgment explained that the
expression public policy as used in Section 7(1)(b)(ii) of the Foreign
Awards Act (which was then applicable) has to be construed to the effect
that the said expression public policy would mean only if such an
enforcement would be contrary to fundamental policy of Indian law, the
interest of India or justice and morality. The said interpretation it is
urged continues to be applicable in the Arbitration Act. He also relies
upon the judgment of the Supreme Court in Shri Lal Mahal Limited vs.
Progetto Grano Spa 2014(2) SCC 433 to contend that the doctrine of
"public policy of India" for the purpose of Section 48(2)(b) of the Act is
more limited in its application than the same expression in respect of
domestic arbitral Tribunal. The wider meaning of the expression "public
OMP (EFA) (COMM) 6/2016 Page 37 of 115
policy of India" as stated in the judgment of the Supreme Court in Oil
and Natural Gas Corporation Ltd. vs. SAW Pipes Ltd., 2003 (5) SCC 705
would have no application to foreign Awards. Reliance was also placed
on judgments of this court in Cruz City 1 Mauritius Holdings vs. Unitech
Limited,(supra); Xstrata Coal Marketing vs. Dalmia Bharat (Cement)
Ltd, (supra). Hence, it was urged that patent illegality of an Award may
be a ground for setting aside a domestic award without going into the
merits of a dispute but patent illegality cannot be considered as a ground
for refusing enforcement of a foreign award under section 48 and nor can
there be a review of the merits of the dispute. Hence, it has been urged
that the submissions of the respondent pertaining to computation of
damages and the contention that the claim is barred by limitation are
beyond the scope of review under section 48 of the Act.
(ii) On the issue of limitation it has been strongly urged that the
plea of limitation cannot be a bar to the enforcement of a foreign award.
It was further stated that determination of an issue of limitation is a
mixed question of law and fact neither of which is reviewable under
section 48 of the Act. Hence, findings of the arbitral tribunal on this
aspect are conclusive and cannot be impeached. It is also pleaded that
even on facts, the arbitral tribunal rightly found that the petitioner did not
know and could not have known about the true impact of SAR until 19th
November 2009.
(iii) It is further pleaded that the damages awarded to the petitioner
are consistent with the Contract Act. It was stressed that under section 19
of the Contract Act the contract was voidable on account of the fraud.
The section, it is pleaded enables the defrauded party to insist that the
OMP (EFA) (COMM) 6/2016 Page 38 of 115
contract be performed and the defrauded party be put in the position he
would have been if the representations made were true. It is urged that
the petitioner was sought to be put back in the same financial position by
the Arbitral Tribunal. It was stressed that the arbitral tribunal was aware
that ordinarily the measure of damages would mean the difference
between the price paid by the plaintiffs and the actual market value of the
shares purchased by them. However, there can be instances where there
can be no market value of the security. In such circumstances, the arbitral
tribunal can proceed to determine the intrinsic value of shares. It is
further pleaded that the scope of awarding damages under section 19 of
the Contract Act is wider than damages awardable under section 73 of
the Act. It is stressed that the general principle cannot be laid down for
measuring damages and every case must to some extent depend on its
own circumstances. Reliance is placed on the judgments of the Supreme
Court in Trojan and Company Ltd. vs. N.N. Nagappa Chettiar, 1953
SCR 789 and McDermott International INC vs. Burn Standard Co. Ltd.
and ors., (2006) 11 SCC 181. It is urged that the arbitral tribunal has
chosen to award damages based on the following factors:-
(a) Damages on account of payment of 500 million USD
(b) Drop in share price on publication of the article dirty medicine in
Fortune Magazine on 15.5.2013
(c) The steps taken by Ranbaxy to remedy defects
(d) Attempts to mitigate damages were made which is evident from the
sale of the company after taking arbitral measures.
(iv) It is further pleaded that the manner of computation of damages is
within the scope of the Arbitral Tribunal and the damages awarded were
OMP (EFA) (COMM) 6/2016 Page 39 of 115
within the jurisdiction of the arbitral Tribunal. It has been pleaded that the
respondents have waived the submission that the damages awarded were
beyond the jurisdiction of the arbitral tribunal. The respondents themselves
submitted before the arbitral tribunal evidence on the petitioner‟s mode of
quantification including using a discount rate. Hence, it is urged that the
respondent cannot now plead that the said method accepted by the Arbitral
Tribunal suffers from any jurisdictional error.
(v) It is reiterated that the damages awarded by the Arbitral Tribunal are
neither consequential nor exemplary nor punitive nor multiple damages. It is
also pleaded that on a proper construction of the exclusion clause as
contained in clause 13.14.1 of SPSSA the parties intended to exclude
punitive damages not direct or restitutionary damages that would put the
petitioner in the same position it would have occupied had the respondent‟s
fraudulent misrepresentation been true. Reliance is placed on the judgment
of Common Cause A. Registered Society vs. Union of India & Ors, (1999) 6
SCC 667 to explain punitive and exemplary damages.
It is further urged that application of the discount rate in the Award
cannot be held to be consequential damages. It was merely compensatory in
nature meant to put the petitioner in the same position as if representation by
the respondent made had been true.
(vi) It is reiterated that mistake of fact or law is not a ground for non-
enforcement of the award under section 48 of the Act.
(vii) It has further been pleaded that the arbitral tribunal rightly rejected the
submission of the respondent that the tax benefits accruing to the petitioner
after execution of SPSSA should be reduced from the damages awarded. It is
urged that this plea has been taken in the rejoinder in this court claiming that
OMP (EFA) (COMM) 6/2016 Page 40 of 115
the petitioner received significant monetary benefit as a result of various tax
filing, which factor it is pleaded has been ignored by the arbitral tribunal. It
is stated that respondents cannot now tender new evidence, at this stage. The
arbitral tribunal has rejected this plea and hence is of no consequence.
(viii) The Award of interest it is pleaded is within the jurisdiction of the
arbitral tribunal. Reliance is placed on clause 13.14.4 of the SPSSA which
expressly requires award of interest running from the date when the loss
occurs. It is urged that the arbitral tribunal correctly determined that the
award of interest was a question of Singapore Law as Singapore was the seat
of arbitration. Reliance is also placed on the judgment of the Supreme Court
in Hyder Consulting (UK) Ltd. vs. Governor, State of Orissa, 2015 2 SCC
189 to contend that an arbitral tribunal can award interest upon interest, if so
required.
28. Keeping in view the submissions of learned senior counsel for the
parties following propositions need to be considered by this Court:-
(i)The relevant applicable parameters of section 48 of the Arbitration Act
for refusing to enforce the present Award.
(ii)Whether the Award cannot be enforced as damages awarded
are contrary to section 19 of the Contract Act and would shock
the conscience of the court?
(iii) Whether the award cannot be enforced as it grants
consequential damages which are beyond the jurisdiction of the
arbitral tribunal?
(iv) Whether the Award cannot be enforced as claim of the
petitioner is barred by limitation?
OMP (EFA) (COMM) 6/2016 Page 41 of 115
(v) Whether the Award cannot be enforced as Award of interest
on the awarded damages amounts to award of multiple damages.
(vi) Whether the Award of damages against the minor
respondents, namely, respondent No.5 and 9 to 12 is illegal, non
est and void and cannot be enforced being in conflict with Public
Policy of India.
The relevant applicable parameters of Section 48 of The Arbitration Act
for refusing to enforce the present Award.
29. Section 48 of the Arbitration and Conciliation Act reads as follows:-
"48. Conditions for enforcement of foreign awards.--
(1) Enforcement of a foreign award may be refused, at the
request of the party against whom it is invoked, only if that
party furnishes to the court proof that--
(a) the parties to the agreement referred to in section 44 were,
under the law applicable to them, under some incapacity, or
the said agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon,
under the law of the country where the award was made; or
(b) the party against whom the award is invoked was not
given proper notice of the appointment of the arbitrator or of
the arbitral proceedings or was otherwise unable to present his
case; or
(c) the award deals with a difference not contemplated by or
not falling within the terms of the submission to arbitration, or
it contains decisions on matters beyond the scope of the
submission to arbitration:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted, that
part of the award which contains decisions on matters
submitted to arbitration may be enforced; or
OMP (EFA) (COMM) 6/2016 Page 42 of 115
(d) the composition of the arbitral authority or the arbitral
procedure was not in accordance with the agreement of the
parties, or, failing such agreement, was not in accordance with
the law of the country where the arbitration took place; or
(e) the award has not yet become binding on the parties, or
has been set aside or suspended by a competent authority of
the country in which, or under the law of which, that award
was made.
(2) Enforcement of an arbitral award may also be refused if the
Court finds that--
(a) the subject-matter of the difference is not capable of settlement
by arbitration under the law of India; or
(b) the enforcement of the award would be contrary to the public
policy of India.
Explanation 1.--For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,-
(i)the making of the award was induced or affected by fraud or
corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian
law; or
(iii) it is in conflict with the most basic notions of morality or
justice.]
[Explanation -2 For the avoidance of doubt, the test as to
whether there is a contravention with the fundamental policy of
Indian law shall not entail a review on the merits of the
dispute]
(3) If an application for the setting aside or suspension of the
award has been made to a competent authority referred to in
clause(e) of sub-section(1) the Court may, if it considers it
proper, adjourn the decision on the enforcement of the award
and may also, on the application of the party claiming
OMP (EFA) (COMM) 6/2016 Page 43 of 115
enforcement of the award, order the other party to give suitable
security."
30. The respondents have pleaded that Section 48(1)(c) and Section 48
(2)(b) are attracted in this case.
31. Regarding Section 48(2)(b) the Supreme Court in Renusagar vs.
General Electric, (supra) held as follows:-
"65. This would imply that the defence of public policy which
is permissible under Section 7(1)(b)(ii) should be construed
narrowly. In this context, it would also be of relevance to
mention that under Article I(e) of the Geneva Convention Act
of 1927, it is permissible to raise objection to the enforcement
of arbitral award on the ground that the recognition or
enforcement of the award is contrary to the public policy or to
the principles of the law of the country in which it is sought to
be relied upon. To the same effect is the provision in Section
7(1) of the Protocol & Convention Act of 1837 which requires
that the enforcement of the foreign award must not be contrary
to the public policy or the law of India. Since the expression
"public policy" covers the field not covered by the words "and
the law of India" which follow the said expression,
contravention of law alone will not attract the bar of public
policy and something more than contravention of law is
required.
.....
92. This would show that award of interest on damages or
interest on interest i.e. compound interest is not regarded as
being against public policy in these countries."
32. The above proposition was reiterated by the Three Judge Bench of
the Supreme Court in Shri Lal Mahal Ltd. vs. Progetto Grano Spa,
(supra). While interpreting Section 48 of the Arbitration and Conciliation
Act, 1996 the Supreme Court held as follows:-
OMP (EFA) (COMM) 6/2016 Page 44 of 115
"25. In Saw Pipes [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC
705] the ambit and scope of the Court's jurisdiction under Section
34 of the 1996 Act was under consideration. The issue was
whether the court would have jurisdiction under Section 34 to set
aside an award passed by the Arbitral Tribunal, Gafta which was
patently illegal or in contravention of the provisions of the 1996
Act or any other substantive law governing the parties or was
against the terms of the contract. This Court considered the
meaning that could be assigned to the phrase "public policy of
India" occurring in Section 34(2)(b)(ii). Alive to the subtle
distinction in the concept of "enforcement of the award" and
"jurisdiction of the court in setting aside the award" and the
decision of this Court in Renusagar [Renusagar Power Co. Ltd.
v. General Electric Co., 1994 Supp (1) SCC 644] , this Court
held in Saw Pipes [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC
705] that the term "public policy of India" in Section 34 was
required to be interpreted in the context of the jurisdiction of the
court where the validity of the award is challenged before it
becomes final and executable in contradistinction to the
enforcement of an award after it becomes final. Having that
distinction in view, with regard to Section 34 this Court said that
the expression "public policy of India" was required to be given
a wider meaning. Accordingly, for the purposes of Section 34,
this Court added a new category -- patent illegality -- for setting
aside the award. While adding this category for setting aside the
award on the ground of patent illegality, the Court clarified that
illegality must go to the root of the matter and if the illegality is
of trivial nature it cannot be held that the award is against public
policy. Award could also be set aside if it was so unfair and
unreasonable that it shocks the conscience of the court.
......
OMP (EFA) (COMM) 6/2016 Page 45 of 115
27. In our view, what has been stated by this Court in Renusagar
[Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp
(1) SCC 644] with reference to Section 7(1)(b)(ii) of the Foreign
Awards Act must apply equally to the ambit and scope of Section
48(2)(b) of the 1996 Act. In Renusagar [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it has been
expressly exposited that the expression "public policy" in Section
7(1)(b)(ii) of the Foreign Awards Act refers to the public policy
of India. The expression "public policy" used in Section
7(1)(b)(ii) was held to mean "public policy of India". A
distinction in the rule of public policy between a matter governed
by the domestic law and a matter involving conflict of laws has
been noticed in Renusagar [Renusagar Power Co. Ltd. v. General
Electric Co., 1994 Supp (1) SCC 644] . For all this there is no
reason why Renusagar [Renusagar Power Co. Ltd. v. General
Electric Co., 1994 Supp (1) SCC 644] should not apply as
regards the scope of inquiry under Section 48(2)(b). Following
Renusagar [Renusagar Power Co. Ltd. v. General Electric Co.,
1994 Supp (1) SCC 644] , we think that for the purposes of
Section 48(2)(b), the expression "public policy of India" must be
given a narrow meaning and the enforcement of foreign award
would be refused on the ground that it is contrary to the public
policy of India if it is covered by one of the three categories
enumerated in Renusagar [Renusagar Power Co. Ltd. v. General
Electric Co., 1994 Supp (1) SCC 644] . Although the same
expression "public policy of India" is used both in Section
34(2)(b)(ii) and Section 48(2)(b) and the concept of "public
policy in India" is same in nature in both the sections but, in our
view, its application differs in degree insofar as these two
sections are concerned. The application of "public policy of
India" doctrine for the purposes of Section 48(2)(b) is more
limited than the application of the same expression in respect of
the domestic arbitral award.
...
29. We accordingly hold that enforcement of foreign award
would be refused under Section 48(2)(b) only if such
enforcement would be contrary to (1) fundamental policy of
OMP (EFA) (COMM) 6/2016 Page 46 of 115
Indian law; or (2) the interests of India; or (3) justice or morality.
The wider meaning given to the expression "public policy of
India" occurring in Section 34(2)(b)(ii) in Saw Pipes [ONGC
Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] is not applicable
where objection is raised to the enforcement of the foreign award
under Section 48(2)(b).
....
45. Moreover, Section 48 of the 1996 Act does not give an
opportunity to have a "second look" at the foreign award in the
award enforcement stage. The scope of inquiry under Section 48
does not permit review of the foreign award on merits.
Procedural defects (like taking into consideration inadmissible
evidence or ignoring/rejecting the evidence which may be of
binding nature) in the course of foreign arbitration do not lead
necessarily to excuse an award from enforcement on the ground
of public policy.
46. In what we have discussed above, even if it be assumed that
the Board of Appeal erred in relying upon the report obtained by
the buyers from Crepin which was inconsistent with the terms on
which the parties had contracted in the contract dated 12-5-1994
and wrongly rejected the report of the contractual agency, in our
view, such errors would not bar the enforceability of the appeal
awards passed by the Board of Appeal.
47. While considering the enforceability of foreign awards, the
court does not exercise appellate jurisdiction over the foreign
award nor does it enquire as to whether, while rendering foreign
award, some error has been committed. Under Section 48(2)(b)
the enforcement of a foreign award can be refused only if such
enforcement is found to be contrary to: (1) fundamental policy of
Indian law; or (2) the interests of India; or (3) justice or morality.
The objections raised by the appellant do not fall in any of these
categories and, therefore, the foreign awards cannot be held to be
contrary to public policy of India as contemplated under Section
48(2)(b)."
OMP (EFA) (COMM) 6/2016 Page 47 of 115
33. In Xstrata Coal Marketing vs. Dalmia Bharat (Cement) Ltd. (supra)
this court held as follows:-
"42. In the circumstances, the finding as to the quantum of
damages cannot be stated to be perverse. The measure of
damages adopted by the Arbitral Tribunal is also not alien to
Indian law and in the given circumstances, a party is entitled to
claim loss of profits resulting from a breach of contract on the
part of the other party. There is much merit in Mr. Banerji's
contention that objections as raised by Dalmia would not be
sustainable even under Section 34 of the Act as the conclusion of
the Arbitral Tribunal is neither perverse nor patently illegal.
....
52. Plainly, the expression "fundamental Policy of Indian law"
does not mean the provisions of Indian Statutes. The key words
are Fundamental Policy; they connote the substratal principles
on which Indian law is founded."
34. Similarly, in Cruz City 1 Mauritius Holdings vs. Unitech Limited,
(supra) this court held as follows:-
"97. It plainly follows from the above that a contravention of a
provision of law is insufficient to invoke the defence of public
policy when it comes to enforcement of a foreign award.
Contravention of any provision of an enactment is not
synonymous to contravention of fundamental policy of Indian
law. The expression fundamental Policy of Indian law refers to
the principles and the legislative policy on which Indian Statutes
and laws are founded. The expression "fundamental policy"
connotes the basic and substratal rationale, values and principles
which form the bedrock of laws in our country.
Hence, under section 48(2)(b) enforcement of a foreign award can be
only refused is if such an enforcement is found to be contrary to (a)
OMP (EFA) (COMM) 6/2016 Page 48 of 115
fundamental policy of Indian Law (b) interest of India and (c) justice or
morality. "Fundamental Policy of Indian Law" does not mean provisions
of the statute but substratal principles on which Indian Law is founded.
Whether the Award cannot be enforced as the damages awarded are
contrary to Section 19 of the Contract Act and the Damages awarded
would shock the conscience of the Court.
35. The common case of both the parties is that damages, if fraud was
proved, had to be quantified as provided under Section 19 of the Indian
Contract Act, 1872.
36. Section 19 of the Contract Act reads as follows:-
"19. Voidability of agreements without free consent.--When
consent to an agreement is caused by coercion, 1[***] fraud or
misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused.
A party to contract, whose consent was caused by fraud or
misrepresentation, may, if he thinks fit, insist that the contract
shall be performed, and that he shall be put in the position in
which he would have been if the representations made had been
true."
37. It is also a position accepted by the parties that the petitioner has
chosen not to avoid the contract and hence, damages have to be quantified
under part two of the above Section, namely, he shall be put in the position,
in which he would have been if the representations made had been true.
What are the aspects to be considered while awarding damages under the
Second Part of Section 19?
38. The Supreme Court has dealt with the second part of Section 19 of the
Contract Act in the case of M/s.Trojan and Company vs. Nagappa Chettiar
(supra). That was a case in which the plaintiff had come into possession of
OMP (EFA) (COMM) 6/2016 Page 49 of 115
property. In the hope of obtaining quick gain by speculating on the stock
exchange through certain stockbrokers he entered into a series of speculative
transactions. Actual facts had been misrepresented to the plaintiff on account
of which the prices of shares fell drastically. The Supreme Court held as
follows:-
"15. Now the rule is well settled that damages due either for
breach of contract or for tort or damages which, so far as
money can compensate, will give the injured party reparation
for the wrongful act and for all the natural and direct
consequences of the wrongful act. Difficulty however arises in
measuring the amount of this money compensation. A general
principle cannot be laid down for measuring it, and every case
must to some extent depend upon its own circumstance. It is,
however, clear that in the absence of any special circumstances
the measure of damages cannot be the amount of the loss
ultimately sustained by the represented. It can only be the
difference between the price which he paid and the price which
he would have received if he had resold them in the market
forthwith after the purchase provided of course that there was a
fair market then. The question to be decided in such a case is
what could the plaintiff have obtained if he had resold
forthwith which he had been induced to purchase by the fraud
of the defendants. In other words, the mode of dealing with
damages in such a case is to see what it would have cost him to
get out of the situation i.e. how much worse off was his estate
owing to the bargain in which he entered into. The law on this
subject has been very appositely stated
in McConnel v. Wright [1903 1 Ch 546] by Lord Collins in
these terms:
"As to the principle upon which damages are
assessed in this case, there is no doubt about it now.
It has been laid down by several Judges, and
particularly by Cotton, L.J. in Peek v. Derry [37 Ch
D 541] ; but the common sense and principle of the
thing is this. It is not an action for breach of contract,
and, therefore, no damages in respect of prospective
OMP (EFA) (COMM) 6/2016 Page 50 of 115
gains which the person contracting was entitled by
his contract to expect to come in, but it is an action
of tort -- it is an action for a wrong done whereby
the plaintiff was tricked out of certain money in his
pocket; and therefore, prima facie, the highest limit
of his damages is the whole extent of his loss, and
that loss is measured by the money which was in his
pocket and is now in the pocket of the company.
That is the ultimate final, highest standard of his
loss. But, insofar as he has got an equivalent for that
money, that loss is diminished; and I think, in
assessing the damages, prima facie the assets as
represented are taken to be an equivalent and no
more for the money which was paid. So far as the
assets are an equivalent, he is not damaged; so far as
they fall short of being an equivalent, in that
proportion he is damaged.
16. The sole point for determination therefore in the case is
whether the shares handed over to the plaintiff were an
equivalent for the money paid or whether they fell short of
being the equivalent and if so, to what extent. Ordinarily the
market rate of the shares on the date when the fraud was
practised would represent their real price in the absence of any
other circumstance. If, however, the market was vitiated or was
in a state of flux or panic in consequence of the very fact that
was fraudulently concealed, then the real value of the shares
has to be determined on a consideration of a variety of
circumstances disclosed by the evidence led by the parties.
Thus though ordinarily the market rate on the earliest date
when the real facts became known may be taken as the real
value of the shares, nevertheless, if there is no market or there
is no satisfactory evidence of a market rate for sometime which
may safely be taken as the real value, then if the representee
sold the shares, although not bound to do so, and if the resale
has taken place within a reasonable time and on reasonable
terms and has not been unnecessarily delayed, then the price
fetched at the resale may well be taken into consideration in
OMP (EFA) (COMM) 6/2016 Page 51 of 115
determining retrospectively the true market value of the shares
on the crucial date. If there is no market at all or if the market
rate cannot, for reasons referred to above, be taken as the real
or fair value of the thing and the representee has not sold the
things, then in ascertaining the real or fair value of the thing on
the date when deceit was practised subsequent events may be
taken into account, provided such subsequent events are not
attributable to extraneous circumstances which supervened on
account of the retaining of the thing. These, we apprehend, are
the well settled rules for ascertaining the loss and damage
suffered by a party in such circumstances."
39. A learned Single Judge of this Court in the case of Gaurav Monga vs.
Premier Inn India Pvt.ltd. & Ors. (supra) held as follows:-
"9. Thus, as far as India is concerned, the aforesaid provisions
provide for the consequences of a pre-contract
misrepresentation, which is the basis of the plaintiff's suit. Such
misrepresentation makes the contract voidable at the option of
the party whose consent to the contract was caused by
misrepresentation and entitles that party to insist that the
contract be performed and he should be put in a position in
which he should have been, if the representation made had been
true. However, the exception to Section 19 clarifies that if the
party, whose consent to contract was caused by
misrepresentation, had the means of discovering the truth by
ordinary diligence, the contract is not voidable. It thus follows
that even if the plaintiff's consent to accepting employment with
the defendant No. 1 was caused by representations made by the
defendants to the plaintiff as reproduced in the plaint and which
at this stage have to be accepted as true and which have turned
out to be misrepresentation, under the Indian Law, such a
contract is voidable at the instance of the plaintiff and the
remedy of the plaintiff is to rescind the contract of employment
in accordance with Section 66 of the Contract Act or to insist
that the contract be performed and that the plaintiff be put in the
position in which he would have been, if the representation
made had been true."
OMP (EFA) (COMM) 6/2016 Page 52 of 115
xxx
"23. The field of pre-contract misrepresentation having been
covered by Section 19 of the Contract Act, there can be no
claim in tort on the basis thereof. Supreme Court in Rajkot
Municipal Corporation v. Manjulben Jayantilal Nakum, (1997)
9 SCC 552 was concerned with a claim for damages in tort on
account of death owing to a roadside tree falling on the
pedestrian on the way to his office. It was held that if the statute
creates a right and remedy, damages are recoverable by
establishing the breach of statute as the sole remedy available
under the statute; but where a statute merely creates a duty
without providing any remedy for breach, appropriate remedy,
is inter alia the action for damages in respect of special damage
suffered by an individual. It was further held that where special
remedy is expressly provided, it is intended to be the only
remedy and by implications excludes the resort to common law
and that an action for damages will not lie if the damage
suffered is not a type intended to be guarded against. A claim in
tort cannot, in my opinion, be contrary to the statutory law of
the land. The Legislature of our country having provided for the
remedy for precontract representation, no claim for damages for
pre-contract misrepresentation can be maintained under the law
of tort. A Division Bench of High Court of Bombay also, in
Sorabshah Pestonji v. The Secretary of State for India: AIR
1928 Bom 17 (followed by me in Sikka Promoters Pvt. Ltd. v.
National Agricultural Co-operative Marketing Federation of
India Ltd.: (2013) 202 DLT 49, appeal where against was
dismissed by Division Bench of this Court vide National
Agricultural Cooperative Marketing Federation of India Ltd. v.
Sikka Promoters Pvt. Ltd. held that the only remedy of a party
to a contract for omission of a material fact is one under Section
19 of the Contract Act and finding that the plaintiff therein had
waited too long, the remedy of rescission was held to be no
longer available and finding that the plaintiff had already been
put in a position as if the representation had been true, the
plaintiff was also not held entitled to relief in that regard. The
OMP (EFA) (COMM) 6/2016 Page 53 of 115
judgment of the Supreme Court of Canada in Douglas J. Queen
supra on which strong reliance was placed by the counsel for
the plaintiff does not show the existence, in law prevalent in
Canada, of a provision as Section 19 of the Contract Act.
Douglas J. Queen supra turned on a finding of existence of
duty. However because of Section 19 of Contract Act there is
no such duty qua matters which could have been discovered
with ordinary diligence."
40. Similarly, the Nagpur High Court in Premchand vs. Ram Sahai &
Anr. (supra) held as follows:-
"5. It remains however to be considered whether such
misrepresentation gives the plaintiff, appellant in the present
case any cause of action. I am of opinion that it does not, for
two reasons : firstly, because I do not think that Ballulal was
deceived by the misrepresentation and, secondly, even if he was
actually deceived, I am of opinion that the exception to S. 19,
Contract Act, would apply, as Ballulal had the means of
discovering the truth with ordinary diligence. I would here note
that under the Contract Act no distinction has been drawn as
regards remedies between fraud and misrepresentation. Fraud
has been defined in S. 17 of the Act and misrepresentation has
been defined in S. 18 of the Act, but the remedy for both is
given by the same S. 19. In English law there is a distinction
between innocent misrepresentation and willful
misrepresentation or fraud: as a general rule, innocent
misrepresentation never gives a cause of action for damages,
but it is ground for resisting an action for breach of contract or
for specific performance and also for asking to have the
contract set aside: see Newbigging v. A. Adam and R.S. Adam
[1887] 34 Ch. D. 582 and Derry v. Peek. In the case of willful
misrepresentation or fraud the injured party has two remedies:
one of action for damages for deceit, which is an action in tort
or ex delicto, and the other on the contract. In the second case
he may treat the contract as binding and may demand
fulfillment of those terms which misled him, or damages for
such loss as he has sustained by their non-fulfillment, or he may
OMP (EFA) (COMM) 6/2016 Page 54 of 115
avoid or repudiate the contract by taking steps to get it
cancelled on the ground of fraud. He will not have any remedy
however unless it can be proved that he was actually deceived.
6. Under S. 19, Contract Act, the remedy of avoiding the
contract is given, and further there is a remedy that the party
whose consent was caused by fraud or misrepresentation may,
if he thinks fit, insist that the contract shall be performed, and
that he shall he put in the position in which he would have been
if the representations made had been true. These remedies, in
substance, are the two remedies given in English law on
contract in a case where consent has been induced by fraud; but
both under English and Indian law it must be proved that the
consent of the party who claims to avoid the contract was
caused by fraud or misrepresentation and that he was actually
deceived......"
41. A Division Bench of the Bombay High Court in Sorabshah Pestonji
& Others vs. The Secretary of State for India (supra) held as follows:-
"13. It is, however, unnecessary for us to go into authorities on
English law for it all comes back to this that under Section 19 of
the Indian Contract Act the plaintiffs at most can only be entitled
to be put in the same position as if the representation that was
made had been true, supposing, as here, rescission is no longer
open to them. In my judgment the plaintiffs had already been put
in that position by Government before this suit, was ever
brought. Consequently it follows that in ray judgment the
conclusion arrived at by the learned District Judge was correct,
and that this appeal must be dismissed with costs."
42. It would follow that the provisions of Section 19 of the Contract Act
does not need much elaboration. In Gaurav Monga vs. Premier Inn India
Pvt.Ltd. & Ors.(supra), this court has held that if damages are recoverable
by establishing a breach of statute that would be the sole remedy available.
OMP (EFA) (COMM) 6/2016 Page 55 of 115
Hence, there can be no claim in tort in a case of fraud in view of the fact that
the field is covered by Section 19 of the Contract Act. As this is a judgment
of a Coordinate Bench of this court, it would be binding on this court.
43. Similarly, the Division Bench of the Bombay High court in
Sorabshah Pestonji vs. The Secretary of State of India (supra) has stated it
all comes back to Section 19 of the Contract Act, and it is unnecessary to go
to the authorities in English Law.
44. However, Section 19 of the Contract Act does have a grey area. The
learned author Pollock and Mulla has opined that there is a lack of clarity in
the said section where restitution is not literally possible.
45. This aspect was noted by the Law Commission of India in its 13 th
Report as follows:
"Section 19.- The second paragraph of the section merely states
what is involved in the conception of a contract being voidable.
Pollock and Mulla opine that the thought underlying this
paragraph is not really clear and point out cases in which
restitution is not literally possible, for example, if the owner of an
estate subject to a lease for an unexpired term, contracts to sell it
to a purchaser who requires immediate possession and conceals
the existence of the lease, the purchaser cannot be put in the same
position as if the representation that there was no lease, had been
true, or where A sells a house to B and by some blunder of A's
agent, the annual value is represented as being Rs.2,000 when it is
in truth only Rs.1,000. According to the letter of the present
paragraph, so say the learned authors, we may insist on
completing the contract and on having the difference between the
actual and the stated value paid to him by A and A's successor-in-
title for all time. Obviously, such could not be the intention of the
Legislature. In order to clarify the intention, we suggest that a
qualification be added so that the power of restitution be limited
to the extent considered reasonable by the Court. In the
OMP (EFA) (COMM) 6/2016 Page 56 of 115
consideration of the this question the Court, of course, will
examine, inter alia, whether it is in the power of the party against
whom the contract is voidable to perform it fully."
46. Pollock & Mulla on The Indian Contract & Specific Relief Acts (15th
Edition, 2017) in latest edition states as follows:
"Damages can be awarded in lieu of completion or enforcement.
If the default is wholly or partly due to the non-existence of facts
which the defaulting party represented as existing, this party can
obviously not set up the falsity of his own statement by way of
defence or mitigation, and, if the case is a proper one for specific
performance and if it is in his power to perform the contract
fully, though with much greater cost and trouble than if his
statement had been originally true, he will have to perform it
accordingly. Is anything more than this meant by the declaration
of the affirming party‟s right to „be put in the position in which
he would have been if the representations made had been true.‟?
The earlier editors have opined that it is not certain that the
present enactment can be literally relied upon. A sells a house to
B, and by some blunder of A‟s agent, the annual value is
represented as being Rs.2000/- when it is in fact only Rs.1000/-.
According to the letter of the present paragraph, B may insist on
completing the contract and the difference between the actual
and the stated value being paid to him and his successors in title
by A and A's successors in title for all time. Nothing short of that
will put him „in the position in which he would have been if the
representations made had been true.‟ This, they had said, is not
the intention of the enactment. In response to this view, the Law
Commission of India recommended that the power of restitution
must be limited to the extent considered reasonable by the court.
It also recommended that it should be open to the Court to award
compensation if it refuses to enforce the contract. While the
(English) Misrepresentation Act gives power to award damages
OMP (EFA) (COMM) 6/2016 Page 57 of 115
in lieu of rescission, the recommendation of the Law
Commission of India has been to award compensation in lieu of
performance."
47. Chitty on Contracts (32nd Edition 2015) states the principles for
computation of damages by English Courts as follows:-
"Unforeseeable losses. In Doyle v. Olby (Ironmongers) Ltd., it
was held that in cases of fraud the plaintiff was entitled to
damages for any such loss which flowed from the defendants‟
fraud, even if the loss could not have been foreseen by the latter.
Thus the claimant may recover not only the difference between
the price paid and the value of what he received but also
expenditure wasted in reliance on the contract and compensation
for other opportunities passed over in reliance on it.
In Smith New Court Securities Ltd. v. Scrimgeour Vickers
(Asset Management) Ltd. Lord Browne-Wilkinson described
Doyle v. Olby (Ironmongers) Ltd. as restating the law correctly.
He stated the principles applicable in assessing damages where a
party has been induced by a fraudulent misrepresentation to buy
property as follows:
"(1) The defendant is bound to make reparation for all the
damage directly flowing from the transaction;
(2) Although such damage need not have been foreseeable, it
must have been directly caused by the transaction;
(3) In assessing such damage, the plaintiff is entitled to
recover by way of damages the full price paid by him, but he
must give credit for any benefits which he has received as a
result of the transaction;
(4) As a general rule, the benefits received by him include the
market value of the property acquired at the date of the
transaction; but such general rule is not to be inflexibly applied
OMP (EFA) (COMM) 6/2016 Page 58 of 115
where to do so would prevent him obtaining full compensation
for the wrong suffered;
(5) Although the circumstances in which the general rule
should not apply cannot be comprehensively stated, it will
normally not apply where either (a) the misrepresentation has
continued to operate after the date of the acquisition of the asset
so as to induce the plaintiff to retain the asset or (b) the
circumstances of the case are such that the plaintiff is, by reason
of the fraud, locked into the property.
(6) In addition, the plaintiff is entitled to recover
consequential losses caused by the transaction;
(7) The plaintiff must take all reasonable steps to mitigate his
loss once he has discovered the fraud."
Lost Opportunity. The points that damages for fraud will not
compensate the claimant for loss of bargain but may cover loss
caused by passing up other profitable opportunities are well
illustrated by East v. Maurer. The plaintiffs bought a
hairdressing business in reliance on a false representation that
the defendant had no intention of working regularly at a second
hairdressing business he owned in the same town. In fact he
continued to work at the second business and the plaintiffs were
forced to resell the business they had bought at a substantial
loss. They were awarded damages for the difference between the
price they had paid and the price they received on resale, plus
expenditure wasted in attempting to improve the business and in
other ways. They were also awarded the sum they could have
expected to make as profit had they bought another similar
business in the same area. However, they were not entitled to the
higher amount they might have earned from the actual business
bought had the defendant kept to his stated intention; he had not
OMP (EFA) (COMM) 6/2016 Page 59 of 115
warranted that they would keep all his old customers or that he
would not compete...."
48. I may however add here that the Supreme Court in Superintendence
Company of India (P.) Ltd. vs. Sh.Krishan Murgai, (1981) 2 SCC 246 has
clarified that the Contract Act is not a complete code dealing with the law
relating to contracts. However, to the extent it deals with a particular subject,
it is exhaustive and it is not permissible to import the principles of English
Law de hors the statutory provisions unless the statute is such that it cannot
be understood without the aid of English Law. The Court held as follows: -
"25. While the Contract Act, 1872, does not profess to be a
complete code dealing with the law relating to contracts, we
emphasise that to the extent the Act deals with a particular
subject, it is exhaustive upon the same and it is not permissible
to import the principles of English law de hors the statutory
provision, unless the statute is such that it cannot be understood
without the aid of the English law. The provisions of Section
27 of the Act were lifted from Hom. David D. Field's Draft
Code for New York based upon the old English doctrine of
restraint of trade, as prevailing in ancient times. When a rule of
English law receives statutory recognition by the Indian
Legislature, it is the language of the Act which determines the
scope, uninfluenced by the manner in which the analogous
provision comes to be construed narrowly, or, otherwise
modified, in order to bring the construction with the scope and
limitations of the rule governing the English doctrine of
restraint of trade.
26. It has often been pointed out by the Privy Council and this
Court that where there is positive enactment of Indian
Legislature the proper course is to examine the language of the
statute and to ascertain its proper meaning uninfluenced by any
OMP (EFA) (COMM) 6/2016 Page 60 of 115
consideration derived from the previous state of the law -- or
the English law upon which it may be founded. In Satyabrata
Ghose v. Mugneeram Bangur, Mukherjee, J. while dealing with
the doctrine of frustration of contract observed that the courts
in India are to be strictly governed by the provisions of Section
56 of the Contract Act and not to be influenced by the
prevailing concepts of the English law, as it has passed through
various stages of the development since the enactment of the
Contract Act and the principles enunciated in the various
decided cases are not easy to reconcile. What he says of the
doctrine of frustration under Section 56 of the Contract Act, is
equally true of the doctrine of restraint of trade under Section
27 of the Act."
49. What follows from the above judgments is that a Court while
awarding damages under the Second Part of Section 19 of the Contract Act
would have to take care to award reasonable compensation to ensure that the
plaintiff is put in the same position he would have been if the representation
had been true. The loss awarded must be a natural and direct consequence of
the illegal acts done by the defendant. Remote damages suffered cannot be
awarded. The plaintiff would have a duty to mitigate the damages. No
general principles can be laid down for quantifying damages and every case
must to some extent depend, on its own circumstances.
50. I may add here regarding the reliance of the award on a judgment of
the Division Bench of the Gujarat High Court in M/s. R.C.Thakkar vs. The
Gujarat Housing Board, (supra). The Arbitral Tribunal has concluded
based on this judgment that the damages recoverable by a party defrauded
under Section 19 of the Contract Act would be similar to those recoverable
for fraudulent misrepresentation under general tort principles. The
OMP (EFA) (COMM) 6/2016 Page 61 of 115
respondent had pleaded that this judgment of the Gujarat High Court had
been overruled by the Supreme Court in Civil Appeal No. 2652/1972 dated
18.11.1986.
In my opinion, this controversy is not relevant. It is true that the
judgment of the Division Bench of the Gujarat High Court was set aside by
the Supreme Court as noted above. However, the judgment of the Supreme
Court was confined to overturning the findings on facts of the Gujarat High
Court that a fraud had been committed. The Arbitral Tribunal has noted that
the measure of damages recoverable by a defrauded party under Section 19
would be the same as those recoverable for fraudulent misrepresentation
under general tort principles. This position adopted by the Arbitral Tribunal
is no doubt contrary to the judgment of this court in Gaurav Monga v.
Premier Inn India Pvt. Ltd. & Ors (supra) where this court has taken a view
that a case seeking damages on fraud and misrepresentations would be
covered by Section 19 of the Contract Act and no claim for damages can be
maintained under law of torts. The award, however also notes that the
plaintiff is entitled to be put back in the position he would have been, had the
wrong not been committed i.e. if the representations were true. It also
concludes that in most cases, the measure of damages will effectively result
in the same quantification as breach of torts claims. Hence, this controversy
need not detain me as the Arbitral Tribunal has kept in view the provisions
of section 19 of The Contract Act.
51. The Arbitral Tribunal in the present case used the principles
enunciated by the House of Lords in Smith New Court Securities Ltd. v.
Scrimgrean Vicky (supra) as a guiding principle to determine the damages.
OMP (EFA) (COMM) 6/2016 Page 62 of 115
It also noted that the petitioner was required to be placed in the position as it
was before the acquisition of shares occurred being mindful of the need to
ensure that the losses suffered by the claimant were caused by fraud and
must not be too remote and that the claimant must have acted to mitigate its
loss. The Arbitral Tribunal accepted the claimant‟s approach in using the
Sun Pharma transaction stating that it has the advantage of providing a
number of actual benefits which the petitioner realized in selling the shares
which it would otherwise have not acquired if the misrepresentation had not
been made. To this amount, it noted that the claimant had added the benefit
of dividends received by the claimant during the time it owned the shares
and that the claimant then set off the acquisition price with appropriate
adjustments for "the time value of money". It noted that there were some
difficulties in the method suggested by the petitioner. One of them was the
transaction date being April 2014 as opposed to the closing date of the Sun
Pharma transaction of March 2015. It also noted that the criticism of using
Sun Pharma transaction to measure possible loss as there is a more than six
years time gap between the acquisition and the sale which is a significant
one. There was a possibility of many intervening events in which benefits or
loss could accrue which events have not occurred as a result of any fraud.
52. The Arbitral Tribunal rejected the plea of the respondent that the
petitioner suffered no loss as a result of the transaction. It noted that this
proposition does not take into account the element of time, cost and the
rehabilitative work carried out by the petitioner‟s officers in order to assist
Ranbaxy. It does not take into account various other issues including
reputational issues faced by the Daiichi by entering into a transaction to
acquire a tainted generic company, it does not take into account the
OMP (EFA) (COMM) 6/2016 Page 63 of 115
opportunity cost of six years of the claimant not entering into a transaction
with different generic companies, etc.
53. The Arbitral Tribunal noted that the petitioner bought the shares in
Ranbaxy for Rs.198,040,245,051 (Rs.19,804/- crores approx.). The Sun
Pharma deal was closed in March 2015 when the petitioner received
Rs.226,792,356,612/- (Rs.22,679/- crores approx.) for its entire stake in
Ranbaxy. Another amount of Rs. 2/- per share as dividend was declared on
16.05.2011. Hence, the petitioner received a dividend of Rs.53.74 crores.
Hence, a net amount of Rs.227,329, 779,258/- (Rs.22,732/- crores approx.)
was received by the petitioner.
54. The Arbitral Tribunal noted that there is a gap of six years between
acquisition of the shares and the sale thereof making it difficult to assess
whether the benefits and losses experienced by the claimant from holding the
Ranbaxy shares were properly those flowing from the fraudulent actions of
the respondents. The Arbitral Tribunal chose to accept the plea of the
petitioner that it intended to receive a return equal to average return it
receives on all its investments as represented by weighted cost of capital
(WACC). The award accepted WACC at a rate of 4.44%. The amount
received by the petitioner from the Sun Pharma transaction was accordingly
sought to be discounted by the said figure of 4.44% per annum to obtain the
present value (as on November 2008) of the amount received from Sun
Pharma Transaction which was assessed at Rs.172,412,397,132/-. This
amount was less than the amount i.e. (Rs.198,040,245,051/-) paid by the
petitioner to acquire Ranbaxy Shares in November 2008 by
Rs.25,627,847,918/-. The said amount i.e. Rs.2562.78/- crores was the
damages that the Arbitral Tribunal awarded in favour of the petitioner.
OMP (EFA) (COMM) 6/2016 Page 64 of 115
55. Two other methods to calculate damages payable to the petitioner
were noted by the Arbitral Tribunal which it did not accept but mentioned
them for the purpose of being a bench mark for cross-checking. Regarding
the first method, it noted that the respondents experts calculated losses
suffered by the claimant by using the Incremental Effects of SAR on the
price of Ranbaxy shares. It sought to compare the prices of the Ranbaxy
Shares with and without SAR. But the Arbitral Tribunal did not accept this
method to be a fair application of the principle as the claimant was entitled to
recover all direct losses from the transactions. Such a approach would, it
held, ignore other losses suffered by the petitioner including the four years
spent on negotiations with the US Authorities. The Arbitral Tribunal
however took the view that the SAR had an incremental effect of about US
$400 million which translates to about INR 8,060 million as petitioner‟s loss
after discounting with WACC of 11.95% for 4.95 years.
56. Regarding the second method, the Arbitral Tribunal sought to compare
the share prices as on date of sale of shares by the respondents and as on
13.05.2013, the date when DOJ made its public statement on Ranbaxy‟s plea
of guilt. The petitioner had paid a price of Rs.737/- per share to the
respondent and the public in November 2008. It noted that between 13 to 31
May 2013, the average share price of Ranbaxy works out at Rs.423.
Applying the same level of premium of 47.3% over i.e. the premium the
petitioner had paid when acquiring the shareholdings of Ranbaxy the price
works out to Rs.622/- with the premium (for the period 13 to 31 May 2013).
The Arbitral Tribunal assessed the damages on this formulation at
Rs.30,364,379,499/-.
OMP (EFA) (COMM) 6/2016 Page 65 of 115
57. The Arbitral Tribunal however noted that the above two approaches
were at best a helpful cross check to the Arbitral Tribunal to benchmark its
calculation of the claimant's losses. The Arbitral Tribunal hence held that the
damages calculated, namely, Rs.25,627,847,918/- represents the appropriate
compensation for the claimant's loss.
58. The respondents have severally criticized the above method adopted
by the Arbitral Tribunal to compute the alleged loss suffered by the
petitioner. The respondent argues that the Award suffers from absurdity
and/or perversity which ought to shock the conscious of the court. The
respondent pleads as follows:-
a. Loss of opportunity has been awarded as damage which is based on
the principles of "but for" i.e. as if the petitioner has not entered into a
SPSSA. It is urged that this is an absurd basis to award damages as the
petitioner chose not to rescind the contract but affirmed the same.
b. Instead of awarding damages under the second limb of Section 19 of
the Contract Act, the Award grants damages under Section 73 of the
Contract Act which would have been awarded in a case of breach of contract
claim.
c. No examination was undertaken to see the impact of SAR on the
settlement agreement made with DOJ or the payment of 500 million USD
that was paid as penalty by Ranbaxy to DOJ. The Arbitral Tribunal ought to
have examined that out of 500 Million USD, how much was attributable to
SAR and then proceed to compute damages payable to the petitioner.
d. It is the fundament policy of Indian Law not to grant damages where
there has been no loss suffered by the innocent party. It is an admitted
OMP (EFA) (COMM) 6/2016 Page 66 of 115
position that the petitioner made a profit on the sale of shares in 2015 to Sun
Pharma. There cannot hence be any award of damages.
e. The value in 2015 discounted by WACC cannot reflect the true value
of 2008 in the facts and circumstances of the case where the petitioner has
been in management and enjoying voting rights on shares for seven years.
f. The respondents also attack the method of computation of the
damages stating that in effect the petitioner has been awarded refund of the
entire sale price of Rs.19,804/- crores along with simple interest @4.44%
being a total of Rs25,627/- crores. Hence, the petitioner retains the full
company and also has received back the entire consideration paid for
purchase of the shares of Ranbaxy along with interest for the period its
money remained locked in the shares.
59. On the first blush it may appear that the criticism of the respondent
has some force. The petitioner had bought the shares of Ranbaxy for
Rs.19,804/- crores in 2008. Out of this amount only about Rs. 9,576.1 crores
was paid to the respondent and the balance had been paid to the general
public in terms of the statutory regulations pursuant to a public offer of
purchase of shares. The petitioner pursuant to the Sun Pharma Deal closed
in March 2015 received Rs. 22,679/- crores for the sale of its entire shares of
Ranbaxy. In addition, a dividend of Rs.53.74 crores was also received.
Hence, the petitioner in all received a sum of Rs. 22,732/- crores. The
petitioner did not suffer a loss.
60. The question that arises is has the Arbitral Tribunal come to a palpably
wrong computation of damages to warrant a conclusion that the Award is in
contravention of the fundamental policy of Indian Law and hence, its
enforcement may be refused.
OMP (EFA) (COMM) 6/2016 Page 67 of 115
61. Regarding the plea that the petitioner did not suffer a loss, the Arbitral
Tribunal rejects the said plea pointing out that there are various other aspects
including reputational issues faced by the petitioner from acquiring a tainted
generic company, opportunity cost of six years of the petitioner not entering
into the transaction with a different generic company or opportunities which
it could have availed of, diminution in Ranbaxy dividends, the onerous costs
faced by Ranbaxy in addressing the US investigations including 500 million
USD paid as a settlement money, the business opportunities lost by Ranbaxy
as a result of taking so long to resolve the various US regulatory issues. It
also noted that some of the synergies that the petitioner received from
Ranbaxy may also not get noticed. However, the Arbitral Tribunal did not
accept the so called benefits received on account synergies inasmuch as the
negative effects of the acquisition upon the petitioner as a breach could also
not be ignored. The Arbitral Tribunal concluded that if the synergies
received by the petitioner from acquisition of Ranbaxy were compared to the
negative effects, the negative impact of the petitioner‟s acquisition far
outweigh the positive synergy in favour of the petitioner. The above
reasoning of the Arbitral Tribunal cannot be faulted in these proceedings
under Section 48 of the Arbitration Act.
62. Regarding the plea of the respondent regarding quantification of
damages, Section 19 of the Contract Act, provides that a party shall be put in
the same position in which he would have been if the representations made
have been true. Hence, the petitioner had to be put in the same position as in
2008 when it paid for the shares purchased, had there been no SAR in
existence.
OMP (EFA) (COMM) 6/2016 Page 68 of 115
63. Keeping in view the above legal position, the Arbitral Tribunal
concludes that the use of Sun Pharma transaction to be more workable than
the approach suggested by the respondent. Based on the price of Sun Pharma
transaction, it quantifies the damages by discounting the amount received
from the Sun Pharma transaction by WACC of 4.44% to obtain the present
value as on November 2008 so as to put the petitioner back into the same
position as if the representations made by the respondent were true. WACC
of 4.44% was taken being the average return that the petitioner received on
all its investments.
64. It is quite clear that Section 19 envisages taking into account various
facts including cost and damages that the petitioner incurred and various
benefits which would have flowed in favour of the petitioner had there not
been any misrepresentations to the petitioner. The quantification of the
damages and the various factors that would have to be taken in account in
the facts and circumstances of a case would necessarily be a fact based
enquiry and would necessarily be within the domain of the Arbitral Tribunal.
The method used by the Arbitral Tribunal to quantify the damages to put the
petitioner in the same position it would have been had the fraud not been
played cannot be faulted with in these proceedings. It is not for this Court to
dwell deep into these aspects while considering objections under Section 48
of the Arbitration Act.
65. The legal position regarding quantification of damages is well settled.
Different formulas or methods can be applied in different circumstances and
the question as to whether damages should be computed by taking recourse
to one or the other formula having regard to the facts and circumstances of a
particular case would fall within the domain of the Arbitrator.
OMP (EFA) (COMM) 6/2016 Page 69 of 115
66. Reference may be had to the judgment of Supreme Court in the case
of McDermott International Inc. vs. Burn Standard Co. Ltd. and Ors.
(supra) where the Court held as follows:-
"100. While claiming damages, the amount therefore was not
required to be quantified. Quantification of a claim is merely a
matter of proof.
101. In fact BSCL never raised any plea before the arbitrator
that the said claim was arbitrary or beyond its authority. Such
an objection was required to be raised by BSCL before the
arbitrator in terms of Section 16 of the 1996 Act. It may also be
of some interest to note that this Court even prior to the
enactment of a provision like Section 16 of the 1996 Act in
Waverly Jute Mills Co. Ltd. v. Raymon & Co.: [1963]3SCR209
; Dharma Prathishthanam v. Madhok Construction:
AIR2005SC214 clearly held that it is open to the parties to
enlarge the scope of reference by inclusion of fresh dispute and
they must be held to have done so when they filed their
statements putting forward claims not covered by the original
reference.
METHOD FOR COMPUTATION OF DAMAGES
102. What should, however, be the method of computation of
damages is a question which now arises for consideration.
Before we advert to the rival contentions of the parties in this
behalf, we may notice that in M.N. Gangappa v. Atmakur
Nagabhushanam Setty & Co. and Anr.: AIR1972SC696 , this
Court held that the method used for computation of damages
will depend upon the facts and circumstances of each case.
102-A. In the assessment of damages, the court must consider
only strict legal obligations, and not the expectations, however
reasonable, of one contractor that the other will do something
that he has assumed no legal obligation to do.[See Lavarack v.
Woods of Colchester Ltd (1967) 1 QB 278]
OMP (EFA) (COMM) 6/2016 Page 70 of 115
103 The arbitrator quantified the claim by taking recourse to the
Emden formula. The learned arbitrator also referred to other
formulae, but, as noticed hereinbefore, opined that the Emden
Formula is a widely accepted one.
104. It is not in dispute that MII had examined one Mr. D.J.
Parson to prove the said claim. The said witness calculated the
increased overhead and loss of profit on the basis of the formula
laid down in a manual published by the Mechanical Contractors
Association of America entitled 'Change Orders, Overtime,
Productivity' commonly known as the Emden Formula. The
said formula is said to be widely accepted in construction
contracts for computing increased overhead and loss of profit.
Mr. D.J. Parson is said to have brought out the additional
project management cost at US$1,109,500. We may at this
juncture notice the different formulas applicable in this behalf.
(a) Hudson Formula: In Hudson's Building and Engineering
Contracts, Hudson formula is stated in the following terms:
In the Hudson formula, the head office overhead percentage is
taken from the contract. Although the Hudson formula has
received judicial support in many cases, it has been criticized
principally because it adopts the head office overhead
percentage from the contract as the factor for calculating the
costs, and this may bear little or no relation to the actual head
office costs of the contractor.
(b) Emden Formula: In Emden's Building Contracts and
Practice, the Emden formula is stated in the following terms:
Using the Emden formula, the head office overhead percentage
is arrived at by dividing the total overhead cost and profit of the
contractor's organization as a whole by the total turnover. This
formula has the advantage of using the contractors actual head
office and profit percentage rather than those contained in the
contract. This formula has been widely applied and has received
judicial support in a number of cases including Norwest Holst
OMP (EFA) (COMM) 6/2016 Page 71 of 115
Construction Ltd. v. Cooperative Wholesale Society Ltd.,
decided on 17 February, 1998, Beechwood Development
Company (Scotland) Ltd. v. Mitchell, decided on 21 February,
2001 and Harvey Shoplifters Ltd. v. Adi Ltd., decided on 6
March, 2003.
(c) Eichleay Formula: The Eichleay formula was evolved in
America and derives its name from a case heard by Armed
Services Board of Contract Appeals, Eichleay Corp. It is
applied in the following manner:
This formula is used where it is not possible to prove loss of
opportunity and the claim is based on actual cost. It can be seen
from the formula that the total head office overheads during the
contract period is first determined by comparing the value of
work carried out in the contract period for the project with the
value of work carried out by the contractor as a whole for the
contract period. A share of head office overheads for the
contractor is allocated in the same ratio and expressed as a lump
sum to the particular contract. The amount of head office
overhead allocated to the particular contract is then expressed
as a weekly amount by dividing it by the contract period. The
period of delay is then multiplied by the weekly amount to give
the total sum claimed. The Eichleay formula is regarded by the
Federal Circuit Courts of America as the exclusive means for
compensating a contractor for overhead expenses.
105. Before us several American decisions have been referred
to by Mr. Dipankar Gupta in aid of his submission that the
Emden formula has since been widely accepted by the
American courts being Nicon Inc. v. United States, decided on
10 June, 2003 (USCA Fed. Cir.), Gladwynne Construction
Company v. Balmimore, decided on 25 September, 2002 and
Charles G. William Construction Inc. v. White 271 F.3d 1055.
106. We do not intend to delve deep into the matter as it is an
accepted position that different formulas can be applied in
different circumstances and the question as to whether damages
OMP (EFA) (COMM) 6/2016 Page 72 of 115
should be computed by taking recourse to one or the other
formula, having regard to the facts and circumstances of a
particular case, would eminently fall within the domain of the
Arbitrator.
107. If the learned Arbitrator, therefore, applied the Emden
Formula in assessing the amount of damages, he cannot be said
to have committed an error warranting interference by this
Court.
ACTUAL LOSS : DETERMINATION OF
108. A contention has been raised both before the learned
Arbitrator as also before us that MII could not prove the actual
loss suffered by it as is required under the Indian law, viz.,
Sections 55 and 73 of the Indian Contract Act as Mr. D.J.
Parson had no personal knowledge in regard to the quantum of
actual loss suffered by the MII. D.J. Parson indisputably at one
point of time or the other was associated with MII. He applied
the Emden Formula while calculating the amount of damages
having regard to the books of account and other documents
maintained by MII. The learned Arbitrator did insist that
sufferance of actual damages must be proved by bringing on
record books of account and other relevant documents.
109. Sections 55 and 73 of the Indian Contract Act do not lay
down the mode and manner as to how and in what manner the
computation of damages or compensation has to be made.
There is nothing in Indian law to show that any of the formulae
adopted in other countries is prohibited in law or the same
would be inconsistent with the law prevailing in India."
67. The above judgment of the Supreme Court was again reiterated by the
Supreme Court in Associate Builders. vs. DDA., (2015) 3 SCC 49. The
Court held as follows:-
"22. In McDermott International Inc. v. Burn Standard Co.
Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd.,
(2006) 11 SCC 181] , this Court held:
OMP (EFA) (COMM) 6/2016 Page 73 of 115
"58. In Renusagar Power Co. Ltd. v. General Electric
Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994
Supp (1) SCC 644] this Court laid down that the arbitral
award can be set aside if it is contrary to (a) fundamental
policy of Indian law; (b) the interests of India; or (c) justice or
morality. A narrower meaning to the expression „public
policy‟ was given therein by confining judicial review of the
arbitral award only on the aforementioned three grounds. An
apparent shift can, however, be noticed from the decision of
this Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC
705 : AIR 2003 SC 2629] (for short „ONGC‟). This Court
therein referred to an earlier decision of this Court in Central
Inland Water Transport Corpn. Ltd. v. Brojo Nath
Ganguly [(1986) 3 SCC 156 : 1986 SCC (L&S) 429 : (1986)
1 ATC 103] wherein the applicability of the expression
„public policy‟ on the touchstone of Section 23 of the
Contract Act, 1872 and Article 14 of the Constitution of India
came to be considered. This Court therein was dealing with
unequal bargaining power of the workmen and the employer
and came to the conclusion that any term of the agreement
which is patently arbitrary and/or otherwise arrived at because
of the unequal bargaining power would not only be ultra vires
Article 14 of the Constitution of India but also hit by Section
23 of the Contract Act, 1872. In ONGC [(2003) 5 SCC 705 :
AIR 2003 SC 2629] this Court, apart from the three grounds
stated in Renusagar [Renusagar Power Co. Ltd. v. General
Electric Co., 1994 Supp (1) SCC 644] , added another ground
thereto for exercise of the court's jurisdiction in setting aside
the award if it is patently arbitrary.
59. Such patent illegality, however, must go to the root of the
matter. The public policy violation, indisputably, should be so
unfair and unreasonable as to shock the conscience of the
court. Where the arbitrator, however, has gone contrary to or
beyond the expressed law of the contract or granted relief in
the matter not in dispute would come within the purview of
Section 34 of the Act. However, we would consider the
OMP (EFA) (COMM) 6/2016 Page 74 of 115
applicability of the aforementioned principles while noticing
the merits of the matter.
60. What would constitute public policy is a matter dependent
upon the nature of transaction and nature of statute. For the
said purpose, the pleadings of the parties and the materials
brought on record would be relevant to enable the court to
judge what is in public good or public interest, and what
would otherwise be injurious to the public good at the
relevant point, as contradistinguished from the policy of a
particular Government."
68. The Supreme Court has clearly held in Shri Lal Mahal Ltd. vs.
Progettor Grano Spa, (supra) that enforcement of a foreign award would be
refused only if such enforcement would be contrary to the fundamental
policy of Indian Law. While considering enforceability of foreign awards,
the court does not exercise appellate jurisdiction over the foreign award nor
does it enquire as to whether while rendering the foreign award some errors
have been committed. In Associate Builders. vs. DDA (supra), the Supreme
Court clarified that the patent illegality must go to the root of the matter.
69. In the light of the legal position as stated above, it was clearly within
the domain of the Arbitral Tribunal to assess damages. The award has given
various reasons for having rejected the suggested formula/computation by
the respondent. The respondent received Rs.9,576.1 crores for sale of their
shares. Damages have been assessed at Rs.2,562 crores plus interest and
costs. The plea of the respondents cannot be accepted.
70. It is not possible to come to a conclusion that the computation done by
the Arbitral Tribunal is in complete breach of statutory provisions or is
OMP (EFA) (COMM) 6/2016 Page 75 of 115
contrary to fundamental policy of Indian Law inasmuch as the said
computation suffers from patent illegality going to the root of the matter.
Whether the Award Cannot be enforced as it Grants Consequential
Damages which are beyond the Jurisdiction of the Arbitral Tribunal
and hit by Section 48(1)(c) of the Act.
71. It has been pleaded by the respondents/objectors that the award grants
consequential damages which were beyond the jurisdiction of the Arbitral
Tribunal. Reliance is placed on Clause 13.14.1 of the SPSSA to contend that
the Arbitral Tribunal could not award punitive, exemplary, multiple or
consequential damages. It is urged that the Arbitral Tribunal has wrongly
awarded consequential damages.
It was further pleaded that when a jurisdictional issue is raised before
the Arbitral Tribunal, it would have the powers to adjudicate upon the said
jurisdictional issue but the same is not binding on this court and this court
can go into the said issue. Reliance is placed on Dallah Real Estate and
Tourism Holding Co. Vs. Ministry of Religious Affairs of the Government of
Pakistan, (2011) 1 AC 763 and the judgments of this court being Cruz City
1 Mauritius Holdings vs. Unitech Ltd.,(supra) and M/s. Value Advisory
Services vs. M/s. ZTE Corporation, 2017 Indlaw Del 1852 to contend that
this court has the powers to go into the jurisdiction of the Arbitral Tribunal
to award what are consequential damages.
72. Clause 13.14.1 of the SPSSA reads as follows:-
"13.14.1 Any and all claims, disputes, questions or
controversies involving the Sellers (or any of them) and the
Company on the one hand and the Buyer and/or its Affiliates on
the other hand (together, the "Disputing Sides'' and each
individually a "Disputing Side") arising out of or in connection
OMP (EFA) (COMM) 6/2016 Page 76 of 115
with this Agreement, or the execution, interpretation, validity,
performance, breach or termination hereof (collectively,
"Disputes") which cannot be finally resolved by such Parties
within 60 (sixty) calendar days of the arising of a Dispute by
amicable negotiation and conciliation shall be resolved by final
and binding arbitration to be administered by the International
Chamber of Commerce (the "ICC" in accordance with its
commercial arbitration rules then in effect (the "Rules"),
provided that following the Subsequent Sale Shares Closing,
the Sellers on the one hand and the Company and the Buyer on
the other hand shall be considered as separate Disputing Sides.
The place of arbitration shall be Singapore. Each Disputing
Side shall appoint 1 (one) arbitrator and the 2 (two) arbitrators
so appointed shall together select and appoint the third
arbitrator. If either of the Disputing Sides, fail to appoint their
respective arbitrator within thirty (30) days after receipt by
respondent(s) of the demand for arbitration or if the two party~
appointed arbitrators are unable to appoint the chairperson of
the arbitral tribunal within thirty (30) days of the appointment
of the second arbitrator, then the ICC shall appoint such
arbitrator or the chairperson, as the case may be, in accordance
with the listing, ranking and striking provisions of the rules.
The arbitration proceedings shall be conducted in English. The
arbitrators shall not award punitive, exemplary, multiple or
consequential damages. In connection with the arbitration
proceedings, the Disputing Sides hereby agree to cooperate in
good faith with each other and the arbitral tribunal and to use
their respective best efforts to respond promptly to any
reasonable discovery demand made by such party and the
arbitral tribunal."
(emphasis added)
It is clear from a reading of the above clause that the Arbitral Tribunal
has no powers to award "punitive, exemplary, multiple or consequential
damages". According to the respondents, the Arbitral Tribunal has awarded
consequential damages.
OMP (EFA) (COMM) 6/2016 Page 77 of 115
73. I may now look at the judgments relied upon by the respondents to
plead that this court has jurisdiction to deal with the said objections of the
respondents.
74. In Dallah Real Estate and Tourism Holding Co. Vs. Ministry of
Religious Affairs of the Government of Pakistan(supra), the Court held as
follows:-
26. An arbitral tribunal's decision as to the existence of its own
jurisdiction cannot therefore bind a party who has not submitted
the question of arbitrability to the tribunal. This leaves for
consideration the nature of the exercise which a court should
undertake where there has been no such submission and the
court is asked to enforce an award. Domestically, there is no
doubt that, whether or not a party's challenge to the jurisdiction
has been raised, argued and decided before the arbitrator, a
party who has not submitted to the arbitrator's jurisdiction is
entitled to a full judicial determination on evidence of an issue
of jurisdiction before the English court, on an application made
in time for that purpose under s.67 of the Arbitration Act 1996,
just as he would be entitled under s.72 if he had taken no part
before the arbitrator: see e.g. Azov Shipping Co. v Baltic
Shipping Co. [1999] 1 Lloyd's Rep 68. The English and French
legal positions thus coincide: see the Pyramids case.
xxx
29. None of this is in any way surprising. The very issue is
whether the person resisting enforcement had agreed to submit
to arbitration in that country. Such a person has, as I have
indicated, no obligation to recognise the tribunal's activity or
the country where the tribunal conceives itself to be entitled to
carry on its activity. Further, what matters, self-evidently, to
both parties is the enforceability of the award in the country
where enforcement is sought. Since Dallah has chosen to seek
to enforce in England, it does not lie well in its mouth to
complain that the Government ought to have taken steps in
OMP (EFA) (COMM) 6/2016 Page 78 of 115
France. It is true that successful resistance by the Government
to enforcement in England would not have the effect of setting
aside the award in France. But that says nothing about whether
there was actually any agreement by the Government to
arbitrate in France or about whether the French award would
actually prove binding in France if and when that question were
to be examined there. Whether it is binding in France could
only be decided in French court proceedings to recognise or
enforce, such as those which Dallah has now begun. I note,
however, that an English judgment holding that the award is not
valid could prove significant in relation to such proceedings, if
French courts recognise any principle similar to the English
principle of issue estoppel (as to which see The Sennar (No. 2)
[1985] 1 WLR 490). But that is a matter for the French courts
to decide.
30. The nature of the present exercise is, in my opinion, also
unaffected where an arbitral tribunal has either assumed or,
after full deliberation, concluded that it had jurisdiction. There
is in law no distinction between these situations. The tribunal's
own view of its jurisdiction has no legal or evidential value,
when the issue is whether the tribunal had any legitimate
authority in relation to the Government at all. This is so
however full was the evidence before it and however carefully
deliberated was its conclusion. It is also so whatever the
composition of the tribunal - a comment made in view of
Dallah's repeated (but no more attractive for that) submission
that weight should be given to the tribunal's "eminence", "high
standing and great experience". The scheme of the New York
Convention, reflected in ss.101-103 of the 1996 Act may give
limited prima facie credit to apparently valid arbitration awards
based on apparently valid and applicable arbitration
agreements, by throwing on the person resisting enforcement
the onus of proving one of the matters set out in Article V(1)
and s.103. But that is as far as it goes in law. Dallah starts with
advantage of service, it does not also start fifteen or thirty love
up.
OMP (EFA) (COMM) 6/2016 Page 79 of 115
75. Similarly this court in Cruz City 1 Mauritius Holdings vs. Unitech
Ltd.(supra) held as follows:-
"52. It stands to reason that where the inherent jurisdiction of
the arbitral tribunal to render an award is challenged, the
enforcing Court would have to examine the challenge raised
and it would not be open for the Court to simply rely on the
finding of the arbitral tribunal. Where the authority of the
arbitral tribunal to make an award is challenged, its decision
would not have any evidential value. However, once it is
accepted that the arbitral tribunal had the jurisdiction and was
competent to decide the issues between the parties, no challenge
to the merits of the decision ought to be entertained. In such
cases, the arbitral tribunal's decision on the issues having a
bearing on the grounds set out in Section 48(1) of the Act also
cannot be ignored."
76. A similar view has been taken by this court in M/s. Value Advisory
Services vs. M/s. ZTE Corporation(supra) holding as follows:-
"55. There is much merit in Mr. Ganju's contention that the
finding of an arbitral tribunal regarding its own jurisdiction is
not final and binding on this Court while considering an
application under Section 48 of the Act. This is also the
consistent view expressed by this Court (See: Sudhir Gopi v
Indira Gandhi National Open University and Anr; 2017 SCC
OnLineDel 8345, Falcon Progress Ltd. v. Sara International
Ltd: 238 (2017) DLT 565 and Cruz City 1 Mauritius Holdings
v. Unitech Limited 239 (2017) DLT 649). Thus, the party
against whom a foreign award is sought to be enforced is to be
provided full opportunity to provide evidence to show that the
arbitral tribunal lacked the jurisdiction to make the foreign
award. In Shin-Etsu Chemical Co. Ltd. (supra), the Supreme
Court held that a finding regarding an arbitration agreement
rendered under Section 45 of the Act would only be a prima
facie finding and would not preclude a full examination at the
post award stage. There can be no quarrel to this proposition.
However, the onus to prove that the arbitral tribunal lacked
OMP (EFA) (COMM) 6/2016 Page 80 of 115
jurisdiction or that any of the other grounds as set out under
Section 48(1) of the Act are attracted, lies squarely on a party
challenging the enforcement of the foreign award. Thus, ZTE
was required to provide all material necessary for establishing
that enforcement of the impugned awards ought to be declined
as the arbitral proceedings were not in accordance with the
Agreement. The only material referred to by ZTE is the
arbitration clause (Clause 8) as well as the decision of the
Singapore High Court in Insigma Technology Co. Ltd. (supra).
Accordingly, this Court has independently examined the
contentions regarding the interpretation of the arbitration
agreement (Clause 8) and finds no reason to differ with the
view taken by the arbitral tribunal."
77. Clearly, in view of the above stated legal position, the findings of the
Arbitral Tribunal in this regard, namely, that the damages awarded are not
punitive, exemplary, multiple or consequential damages would not bind this
court. This court would have to go into the issue raised namely whether the
damages awarded by the Arbitral Tribunal are consequential damages and
beyond the jurisdiction of the Arbitral Tribunal.
78. It may also be noted that this plea that the Arbitral Tribunal has
awarded consequential damages has not been dealt with by the Arbitral
Tribunal. In fact it is the plea of the petitioner that the respondent had not
made any such submission before the Arbitral Tribunal about stated damages
being beyond the jurisdiction of the Arbitral Tribunal. Before the Arbitral
Tribunal, it is pleaded that the respondents had submitted evidence on the
petitioner's suggested mode of quantification of damages including use of the
discounted rate. Meaning thereby that they never objected to the damages
claimed by the petitioner on the ground that the same amount to
consequential damages. The respondents have however denied that they have
OMP (EFA) (COMM) 6/2016 Page 81 of 115
not raised this argument before the Arbitral Tribunal about the damages
being awarded being the consequential damages. Reliance is placed on para
1081 of the Award of the Arbitral Tribunal to plead that this plea has been
raised by the respondent.
79. Para 1081 of the Award merely notes that the Tribunal is conscious
that the arbitration agreement provides that punitive, exemplary, multiple
and consequential damages cannot be awarded. The Arbitral Tribunal also
noted that it is fully satisfied that the quantum awarded is the fairest amount
which can reasonably be awarded on the evidence available to it given the
limitations of the methods proposed by the experts.
80. Coming now to the main issue raised by the respondents i.e. as to
whether the damages awarded by the Arbitral Tribunal are consequential
damages. The objectors/respondents pleaded that the loss, at best, that could
have been awarded to the petitioner would be the value of the shares that the
petitioner paid under SPSSA less the actual market value of the shares on the
date of acquisition. It is pleaded that the appropriate method for calculation
would have been to determine how the market would have apprised the
shares with the knowledge of SAR. However, it is stressed that no such
endeavour was made by the Arbitral Tribunal. It is urged that the method
that was adopted by the Arbitral Tribunal was to award the difference
between the original price of the shares and the sale price of the shares as
sold to Sun Pharma after discounting the said sale price by applying rate
equivalent to the Weighted Average Cost of Capital. It is urged that this was
clearly a case of awarding consequential damages. Reliance is placed on
„McGREGOR ON DAMAGES‟ (19th Edition) to contend that consequential
OMP (EFA) (COMM) 6/2016 Page 82 of 115
losses are the losses which are more than normal losses. Reliance was placed
on following passage:
"The normal loss is that loss which every claimant in a like
situation will suffer; the consequential loss is that loss which is
related to the circumstances of the particular claimant. In
contract the normal loss can generally be stated as the market
value of the property, money or services that the claimant
should have received under the contract, less either the market
value of what he does receive or the market value of what he
would have transferred but for the breach. Consequential losses
are anything beyond this normal measure and are recoverable if
not too remote."
81. Reliance is also placed on the judgment in the case of Smith New
Court Securities Ltd. v. Scrimgrean Vicky (supra) to plead that an Award
based on hypothetical profit is a case of consequential loss.
82. Mr.Gopal Subramanium, learned senior counsel for the petitioner has
however argued that the phrase "consequential damages" in Clause 13.14.1
of SPSSA has to take its flavour from other phrases in the said clause,
namely, punitive, exemplary, multiple. Hence, "consequential" as used in
Clause 13.14.1 would necessarily mean damages akin to punitive, exemplary
or multiple damages. Reliance is placed on the doctrine of "noscitur a sociis"
to contend that meaning of a word must be determined from its context. To
support this submission, reliance is placed on the judgments in the case of
Compania Naviera Aeolus SA vs. Union of India, (1964) AC 868 and
Watchorn vs. Langford (1813) 3 Campbell 422 and Letang vs. Cooper,
1965(1) QB 232. It was reiterated and stressed that the said clause intends to
exclude punitive damages not direct or restitutionary damages which would
OMP (EFA) (COMM) 6/2016 Page 83 of 115
put the petitioner in the same position as it would have occupied had the
respondents' fraudulent representations not existed.
83. The distinction sought to be raised here between normal damages and
consequential damages does not follow from Section 19 of the Contract Act.
As noted by the Division Bench of the Bombay High Court in Sorabshah
Pestonji & Others vs. The Secretary of State for India (supra), it is
unnecessary to go to authorities on English Law as it all comes back to
Section 19 of the Contract Act. The Supreme Court in Superintendence
Company of India (P.) Ltd. vs.Sh.Krishan Murgai(supra) has held that it is
not permissible to import the principles of English Law de hors the statutory
provisions unless the statute is such that cannot be understood without the
aid of English Law.
84. Keeping in view the above caveat, I may deal with the submissions of
the respondents on the issue of „consequential losses‟.
85. The respondents have relied upon McGREGOR ON DAMAGES
(19TH EDITION) to contend that consequential losses are the losses which
are more than the normal losses as already stated above. The learned Author
has further explained the distinction between normal damages and
consequential damages as prevalent in UK as follows:
"As for the field of tort, it is clear that there is an acceptance of
the same meaning as between normal measure and consequential
loss in torts causing damage to property and in the tort of deceit
also.
By contrast, in the context of contractual exclusions of liability
for consequential loss or damage, the courts have consistently
seen the distinction between normal loss and consequential loss
OMP (EFA) (COMM) 6/2016 Page 84 of 115
differently, as that between losses falling within the first and the
second rules in Hadley v. Baxendale respectively. There is today
a vast array of authorities, mainly in the Court of Appeal, which
hold an exclusion clause to be inapplicable because the damage
or loss does not fall within the second rule in Hadley v.
Baxendale. The present law therefore being entirely clear on this,
it seems no longer necessary to set out the cases in any detail and
simply naming them in the footnotes should suffice. The
authorities start with two Court of Appeal cases of some time
ago, are followed by a series of four cases at the turn of the
century, and continue up to the present. In addition, there are a
number of first instance decisions covering the same period. All
these cases support giving to the term consequential loss the
meaning which confines it to loss or damage within the second
rule in Hadley v. Baxendale."
Hence, the learned author concludes that as far as UK is concerned, all
cases support giving to the term „consequential damages‟ the meaning which
is confined to the loss and damage within the second rule stated in Hedley v.
Baxendale.
86. In Hadley v. Baxendale, 156 English Report 145, the court had held as
follows:
"Now we think the proper rule in such a case as the present is
this:- Where two parties have made a contract which one of them
has broken, the damages which the other party ought to receive
in respect of such breach of contract should be such as may fairly
and reasonably be considered either arising naturally, i.e.,
according to the usual course of things, from such breach of
contract itself, or such as may reasonably be supposed to have
been in the contemplation of both parties, at the time they made
the contract, as the probable result of the breach of it. Now, if the
special circumstances under which the contract was actually
made were communicated by the plaintiffs to the defendants, and
thus known to both parties, the damages resulting from the
breach of such a contract, which they would reasonably
OMP (EFA) (COMM) 6/2016 Page 85 of 115
contemplate, would be the amount of injury which would
ordinarily follow from a breach of contract under these special
circumstances so known and communicated. But, on the other
hand, if these special circumstances were wholly unknown to the
party breaking the contract, he, at the most, could only be
supposed to have had in his contemplation the amount of injury
which would arise generally, and in the great multitude of cases
not affected by any special circumstances, from such a breach of
contract. For, had the special circumstances been known, the
parties might have specially provided for the breach of contract
by special terms as to the damages in that case; and of this
advantage it would be very unjust to deprive them."
87. In the facts of the present case, the Arbitral Tribunal has not awarded
any damages pertaining to any special circumstances which under the
contract were communicated and were known to both the parties. Hence,
based on the explanation of consequential damages as given by the learned
author McGREGOR, relied upon by the respondents it cannot be said that
the Arbitral Tribunal has awarded the consequential damages as pleaded by
the respondents.
88. Even otherwise, in my opinion, the phrase 'consequential damages'
would have to be read co-jointly with the other phrases used in the clause,
namely, punitive, exemplary and multiple. It could not have been intended to
exclude damages to put the petitioner in the same position.
89. I may look at the aforesaid judgments relied upon by the learned
senior counsel for the petitioner to plead that the phrase „consequential
damages‟ will take its meaning from the context it has been used. Reliance
was also placed on the doctrine of "Noscitur a Sociis".
"Noscitur a Sociis" is a Latin phrase which means that meaning of a
word may be known from accompanying words.
OMP (EFA) (COMM) 6/2016 Page 86 of 115
90. In Compania Naviera Aeolus SA vs. Union of India (supra), the
court was dealing with a bill of lading which was covering a cargo of bulk
wheat shipped for delivery at Bombay. The bill of lading and the charter
party also incorporated a strike clause which provided that if the cargo could
not be loaded or discharged by reason of a number of causes, including a
strike of any class of workmen essential to the loading or discharging "the
time for loading or discharging, as the case may be, shall not count during
the continuance of such causes. "It also provided that a strike of the shippers‟
and/or receivers‟ "men shall not prevent demurrage accruing if by the use of
reasonable diligence they could have obtained other suitable labour."
It further provided in a third part of the clause: "In case of any delay
by reason of the before mentioned causes, no claim for damages or
demurrage, shall be made by the charterers, receivers of the cargo, or owners
of the steamer."
A strike broke out at the discharging port after the expiry of the lay
days. It continued for eight days, and during that time the cargo could not be
discharged as no other suitable labour was available. On a claim by the
respondents, the holders of the bill of lading and receivers of the cargo, for a
declaration that they were not liable to pay the ship owners additional
demurrage in respect of the strike period by virtue of the third part of the
clause, Lord Gest noted as follows:-
".... The doctrine noscitur a sociis is exemplified in the dictum
of Lord Halsbury L.C. in Thames and Mersey Marine Insurance
Co. v. Hamilton, Fraser & Co. 35: "words, however general,
may be limited with respect to the subject matter in relation to
which they are used." Parts 1, 2 and 4 of the "Centrocon" strike
clause are concerned with the situation arising during the lay
days, and I conclude from the fact that part 3 is to be found in
OMP (EFA) (COMM) 6/2016 Page 87 of 115
the middle of the clause that part 3 is also limited in its
application to lay days. I therefore read this part as referring to
a strike during the lay days and not to a strike which
commenced after the expiry of the lay days."
91. Similarly, in Inglewood Investment Co.Ltd. v. Forestry
Commissioners, (1988) 1 W.L.R.959 the case related to an indenture
granting a lease to the respondents on certain lands. The issue there was a
construction of reservation of sporting rights which contained in the
indenture. The question that arose is as to whether deer are covered in the
phrase, "all games woodcocks snipe and other wild fowl Hares rabbits and
fish."
92. The court held has as follows:
"In my view, in the end, having tried to bear in mind what in
1921 a man might be thinking when he sat down to draft this
appointment and to make this reservation, I have to go back to
the precise words of it and try to understand those words in the
light of such general history as I can gather and the natural
meaning of the words. The phrase, I repeat, was "all game
woodcocks spine and other wild fowl Hares rabbits and fish."
To my mind, there was a plain implication in the first eight
words of noscitur a sociis, that the phrase "other wild fowl,"
attached as it is to the end of the phrase "game woodcocks
spine," gives a feeling that in that collocation of words the
draftsman was speaking about feathered creatures. The way he
goes on by referring next to "Hares rabbits," being things
which are mammals as apart from "game woodcocks snipe and
other wild fowl," gives to my mind a flavour that the whole of
the first phrase of that reservation has to do with birds."
93. Keeping in view the above legal position and the doctrine of Noscitur
a sociis, in my opinion, the word "consequential" would have to take its
colour from other phrases used in the clause, namely "punitive, exemplary
OMP (EFA) (COMM) 6/2016 Page 88 of 115
and multiple". A simple reading of the clause shows that is what was
intended.
In any case the clause could not have intended to oust/exclude award
of damages as stated in Section 19 of the Contract Act. I have already
concluded above that it is not possible to say in these proceedings that
damages have been awarded beyond Section 19 of the Contract Act.
Hence, the plea of the respondents that the damages awarded are
consequential damages and was beyond the jurisdiction of the Arbitral
tribunal does not have any basis. This would also follow from a reading of
the said clause. The damages awarded cannot be said to be beyond the
jurisdiction of the Arbitral Tribunal.
Whether the Award cannot be enforced as the Claim of the Petitioner is
barred by limitation:
94. The next issue pertains to the issue of limitation raised by the
respondents. The petitioner‟s case was that it became aware of the
concealment of SAR only on 19.11.2009. Hence, the invocation of
Arbitration on 14.11.2012 was within limitation.
However, Mr.Harsh Salve, learned senior counsel appearing for the
respondents has urged that the claim of the petitioner was barred under The
Limitation Act, 1963. Serial No. 113 of Part X of the Schedule to the
Limitation Act provides that where no period of limitation is provided
elsewhere, the period of limitation is three years. Section 17 of the
Limitation Act provides that where a suit is based on fraud by the defendant,
the period of limitation shall not begin until the plaintiff has discovered
fraud, etc. or with reasonable diligence could have discovered it. Hence, it is
OMP (EFA) (COMM) 6/2016 Page 89 of 115
pleaded that the period of limitation would commence when the petitioner
became aware of SAR or could have with reasonable diligence discovered
SAR. It is urged that apart from various other events that would have alerted
the petitioner, the respondent stresses that during a meeting held with
Guiliani Partners a Consulting Firm of Ranbaxy and Ranbaxy which was
also attended by Dr.Une (CEO of the petitioner) on 11.03.2009 a question
was raised as to why DOJ had carried out the raid at Princeton. In response,
Mr.Samtani from Giuliani Partners categorically stated that the Government
had a document called SAR prepared by Dr. Kumar. It is urged that as the
petitioner was then in majority of the Board of Ranbaxy, it became aware of
SAR on 11.03.2009 and with reasonable diligence, could have discovered
the alleged fraud or concealment of SAR. Hence, the invocation of
Arbitration done in November 2012 is barred by limitation. It is urged that
the Award wrongly rejects the limitation argument holding that when SAR
was mentioned in the meeting on 11.03.2009, the officers of the petitioner
had not seen SAR and they did not understand its true significance and
import. It is urged that such a finding is perverse and shocking. It is further
pleaded that an issue of limitation under Indian Law is a jurisdictional issue.
Reliance is placed on Noharlal Verma vs. District Co-Operative Central
Bank Ltd. Jagdalpur (supra) and Kamlesh Babu and Ors. vs. Lajpat Rai
Sharma & Ors.(supra) to plead that limitation is a jurisdictional issue.
95. I may look at the award to see how the Arbitral Tribunal has dealt with
the contentions of the respondents. The Arbitral Tribunal concludes that the
burden of proof under Section 17 of the Limitation Act would lie on the
petitioner. The Arbitral Tribunal also concludes that the appropriate test is
that limitation period starts when the petitioner could have with reasonable
OMP (EFA) (COMM) 6/2016 Page 90 of 115
diligence discovered facts which gave it sufficient confidence to justify
mounting a claim against the respondents.
The Arbitral Tribunal noted the submission of the respondents that the
petitioner was aware of potential risk of future regulatory liability in the US.
The Award notes that it was urged by the respondents that over a period of
10 months, new developments arose in frequent intervals which would
individually, if not cumulatively, have alerted the petitioner that the level of
risk of regulatory liability was not low or immaterial. The Arbitral Tribunal
noted the following subsequent events which as per the respondents could
have alerted the petitioner.
a. In July 2008, the DOJ filed a public Motion to Enforce Subpoenas which
made serious allegations against Ranbaxy and which, Daiichi's own witness
recognised, could "destroy a company
b. On 30 October 2008, Daiichi conducted an internal case study in which it
concluded that there was a "high risk" facing Ranbaxy in the US
c. In December 2008, Daiichi assumed majority control of the Ranbaxy
Board and thereafter Daiichi was given unhindered access to Ranbaxy's
documents and information;
d. In February 2009, the FDA invoked its Application Integrity Policy (AlP)
against Ranbaxy. Daiichi's own witnesses recognised that that was a very
serious step by the FDA, and the evidence shows that Daiichi's
representatives knew, when the FDA took that step, that there would be
"serious consequences" for Ranbaxy;
e. In March 2009, Daiichi sought legal advice from its Indian lawyers about
a potential fraud claim against Mr. Malvinder, and was advised to engage an
expert to investigate and interview ex-Ranbaxy employees; and
f. In April 2009, Dr. Une attended a meeting with FDA at which the FDA
representative declared that they "suspect(ed) every bit of information
OMP (EFA) (COMM) 6/2016 Page 91 of 115
submitted in every single submission" by Ranbaxy, and Dr.Une admitted
that he knew by the end of that meeting that there was a "real risk" that
Ranbaxy's ability to supply products to the US and the rest of the world
would be in jeopardy."
96. The Arbitral Tribunal rejects each of the above events as being a
trigger for the petitioner to discover or with reasonable diligence to discover
SAR.
The Arbitral Tribunal notes that the burden was on the
claimant/petitioner to establish that once it obtained majority control of the
Board it was unable before 19.11.2009 with reasonable diligence to obtain
information about SAR to appreciate fraud had been committed by the
respondent. The Arbitral Tribunal notes that there are two aspects which the
petitioner needs to establish. Firstly, that he took steps to find out about FDA
and DOJ investigations with reasonable diligence and secondly, the reason
that it was not able to discover the relevant information earlier because of
factors which are exceptional, namely, that the existence of SAR was
actively concealed from the petitioner. The Arbitral Tribunal concludes that
the petitioner instituted many lines of inquiry when it took control of the
Ranbaxy Board. Going through all the evidence available on record, the
Award concludes that the petitioner considered by April 2009 that
Mr.Malvinder‟s Management of Ranbaxy was ineffective and he had not
successfully transited from owners to professional CEO. He needed to be
replaced and the replacement was done. The Arbitral Tribunal notes that
between July 2008 to 19.11.2009, the petitioner had various opportunities to
have learnt about SAR from Ranbaxy and/or from its advisory. It was in
touch with various persons including (a) Ranbaxy in-house counsel
OMP (EFA) (COMM) 6/2016 Page 92 of 115
Mr.Deshmukh until March 2009 and thereafter, Mr. Samtani, both of whom
had knowledge of SAR' (b) the petitioner was in direct contact with senior
officers of Ranbaxy and staff who knew about SAR including CEO
Mr.Malvinder and Mr.Sobti as well as other officers like Mr.Kaul, Ms.Pant,
Mr.Sood, Mr.Puri and Dr.Chandrashekhar; (c) the petitioner had a meeting
with Giuliani Partners where SAR was mentioned; (d) Mr.Hamel Venabel
had intimate knowledge of SAR and its significance. The Arbitral Tribunal
concludes on facts that none of these persons deliberately gave necessary
information to the petitioners and deliberately withheld the information
about SAR.
97. The Arbitral Tribunal finally recorded a finding of fact that since the
time the petitioner exercised control on the Ranbaxy or Board up to
19.11.2009, the petitioner acted with reasonable diligence. It also noted that
the petitioner had established that it could not have discovered SAR without
taking exceptional measures which it could not reasonably have expected to
take. The petitioner has acted in a way that a company in its position would
act if it had adequate but not unlimited staff and resources and motivated but
not excessive sense of urgency. The plea of the respondents that the minutes
of meeting dated 11.03.2009 definitely triggered the period of limitation has
been rejected on facts. It has been concluded by the Arbitral Tribunal that
there is no evidence to suggest that by 11.03.2009, the petitioner had
sufficient basis to mount a fraud plea against the respondents. The Arbitral
Tribunal concludes in paragraphs 752 and 753 of the Award as follows:-
"752. Not even Mr. Sood, however, suggests that the actual
content of the SAR or the fact that it was in the possession of
the regulators was conveyed to the Claimant at this meeting.
The Tribunal agrees with the Claimant that mere knowledge of
OMP (EFA) (COMM) 6/2016 Page 93 of 115
a whistle blowing document called the SAR, if it is mentioned
only in the context of being "historical" or something which had
already been addressed or something unimportant, cannot, of
itself. equate to knowledge of a fraud in connection with its
suppression during the acquisition process. The Tribunal does
not accept the Respondents' suggestion that the mention of a
whistleblower, against the background of all the other events,
should have rung alarm bells and set in motion a fraud
investigation against Mr. Malvinder. This is particularly so if
those who mentioned the SAR did not regard it as having any
contemporaneous relevance. The Respondents are right that the
reference must be assessed in the full context The Respondents'
context, however, is incomplete. The most important context to
consider is that of the meeting itself in which the SAR is
mentioned. As previously noted, on 11 March 2009, Giuliani
Partners briefing was to Daiichi and they plainly pitched their
presentation in the terms set out in their power point
presentation. The SAR was insufficiently important in the eyes
of Giuilani Partners to warrant a mention in either their minutes
or power point. The Tribunal has already found that any
mention by Mr Hess is likely only to have been in passing.
Similarly, in the meeting with Mr. Sood, it is not suggested by
the Respondents' own evidence that the SAR was given any
prominence there either.
753. In the circumstances, therefore, the Tribunal is satisfied
that the Claimant has discharged its burden to demonstrate that,
notwithstanding 2 meetings in March 2009 at which the SAR
was mentioned, this was insufficient to fix the Claimant with
the requisite knowledge of the fraud. Specifically, following
those meetings, the Claimant remained unaware that the
Respondents had deliberately concealed from it the existence of
a highly damaging "confession of wrongdoing" that was in the
possession of the US regulators and that had likely triggered the
FDA/DOJ investigations in the first place and would likely
drive their ultimate resolution."
OMP (EFA) (COMM) 6/2016 Page 94 of 115
98. The Arbitral Tribunal has concluded on facts that there was nothing in
the meeting on 11.03.2009 to ring alarm bells or to attract Section 17 of the
Limitation Act. Hence, it holds that the limitation period would commence
only in November 2009 and accordingly, held that the proceedings
commenced within the period of limitation. The above view is a finding of
fact recorded by the Arbitral Tribunal based on evidence placed before it.
The Arbitral Tribunal, as is settled law, is the master of quantity & quality of
evidence. Finding of facts recorded by the Arbitral Tribunal cannot be
challenged.
99. Further, it is settled legal position that limitation is a mixed question
of law and fact. In Panchanan Dhara & Ors. v. Monmatha Nath Maity
(Dead) Through LRs. & Another, (2006) 5 SCC 340, the Supreme Court
held as follows:
"20. Contention of Mr.Mishra as regards the applicability of
the first or the second part of Article 54 of the Limitation
Act will have to be judged having regard to the
aforementioned findings of fact. A plea of limitation is a
mixed question of law and fact. The question as to whether a
suit for specific performance of contract will be barred by
limitation or not would not only depend upon the nature of
the agreement but also on the conduct of the parties and also
as to how they understood the terms and conditions of the
agreement....."
100. The Supreme Court in Ramesh B.Desai & Ors. v. Bipin Vadilal
Mehta & Ors., AIR 2006 SC 3672, held as follows:
"19. A plea of limitation cannot be decided as an abstract
principle of law divorced from facts as in every case the starting
point of limitation has to be ascertained which is entirely a
OMP (EFA) (COMM) 6/2016 Page 95 of 115
question of facts. A plea of limitation is a mixed question of law
and fact......"
101. The plea of the respondent that the claim was time barred and that this
plea has wrongly been rejected cannot be accepted as a ground to hold that
the award is not enforceable. This Court cannot go into the finding of fact
recorded by the Arbitral Tribunal. The findings recorded by the Arbitral
Tribunal cannot be said to be contrary to Fundamental Policy of Indian Law.
This plea is rejected being without merit.
Whether the Award cannot be enforced as Award of Interest on
Awarded Damages Amounts to Award of Multiple Damages.
102. The next plea pertains to interest. The Arbitral Tribunal has awarded
pre-award interest @ 4.44 % per annum on a simple basis commencing from
07.11.2008 till the date of the Award computing the amount at
Rs.8,510,692,333.80/- (i.e. Rs.851 crores).
103. Learned senior counsel for the respondent has argued that this
amounts to award of multiple damages. It is urged that the said award of
interest was beyond the jurisdiction of the Arbitral Tribunal. It is further
urged that the said award is in violation of the public policy of India as the
awarded amount was given without any opportunity to the respondent to
rebut the reasoning contained in majority award.
The essential plea of the respondent is that pre-award interest on
damages constitutes grant of damages on damages which is beyond the
scope of jurisdiction of Article 13.14.1.
104. The matter hardly requires any detailed consideration. Clause 13.14.4
of SPSSA reads as follows:-
OMP (EFA) (COMM) 6/2016 Page 96 of 115
"13.14.4 Each Party shall bear its own arbitration expenses, and
each Disputing Side, shall pay one-half of the ICC's and the
chairperson's fees and expenses, unless the arbitrators
determine that it would be equitable if all or a portion of the
prevailing party's expenses should be borne by the other party.
Unless the Award provides for non-monetary remedies, any
such Award shall be made and shall be promptly payable in
Indian Rupees or other applicable currency net of any tax or
other deduction. The Award shall include interest from the date
of any breach or other violation of this Agreement and the rate
of such interest shall be specified by the arbitral tribunal and
shall be calculated from the date of any such breach or other
violation to the date when the Award is paid in full.
Hence, the SPSSA provides for interest from the date of breach at
such rate as specified by the Arbitral Tribunal.
105. The petitioner have also relied upon Section 20(3) of the International
Arbitration Act stating that award of interest would be a question of
Singapore Law as Singapore was the seat of arbitration. In the present case,
the quantification of the damage is w.e.f. 2008. The interest has been
awarded from the said date as per SPSSA and cannot be held to be contrary
to public policy of India.
106. I may also note that the Supreme Court in the case of Hyder
Consulting (UK) Ltd. vs. Governor, State of Orissa (supra) has also upheld
the award of interest holding as follows:-
"13. Thus, it is apparent that vide Clause (a) of Sub-section
(7) of Section 31 of the Act, Parliament intended that an award
for payment of money may be inclusive of interest, and the
"sum" of the principal amount plus interest may be directed to
be paid by the Arbitral Tribunal for the pre-award period.
Thereupon, the Arbitral Tribunal may direct interest to be paid
on such "sum" for the post-award period vide Clause (b) of
Sub-section (7) of Section 31 of the Act, at which stage the
OMP (EFA) (COMM) 6/2016 Page 97 of 115
amount would be the sum arrived at after the merging of
interest with the principal; the two components having lost their
separate identities.
14. In fact this is a case where the language of Sub-section 7
Clause (a) and (b) is so plain and unambiguous that no question
of construction of a statutory provision arises. The language
itself provides that in the sum for which an award is made,
interest may be included for the pre-award period and that for
the post-award period interest up to the rate of eighteen per cent
per annum may be awarded on such sum directed to be paid by
the Arbitral Award.
107. The Arbitral Tribunal by using the procedure as stated above has
computed damages. This figure necessarily relates back to 2008 when the
transactions took place. Having computed the said figure by awarding
interest on the same for the period prior to award cannot be said to be a case
of multiple damages.
108. I may look at the judgment of the Supreme Court in Renusagar Power
Company Limited vs. General Electric Company (supra) where the Court
held as follows:-
"92. This would show that award of interest on damages or
interest on interest i.e. compound interest is not regarded as
being against public policy in these countries.
93. We may now examine the law governing award of interest
in India. Shri Venugopal has placed reliance on the provisions
of Section 3(3)(c) of the Interest Act, 1978. Section 3
empowers a court to allow interest and sub-section (3) of the
said section provides exceptions to the main provision. In
clause (c) of sub-section (3) it is laid down that nothing in this
section shall empower the court to award interest upon
interest. Shri Venugopal has also placed reliance on the
decision of the Judicial Committee of the Privy Council in
OMP (EFA) (COMM) 6/2016 Page 98 of 115
Bengal Nagpur Rly. Co. Ltd. v. Ruttanji Ramji [AIR 1938 PC
67 : 65 IA 66 : (1938) 1 MLJ 640] and the decisions of this
Court in Union of India v. West Punjab Factories Ltd. [(1966)
1 SCR 580 : AIR 1966 SC 395] ; Union of India v. Watkins
Mayor & Co. [AIR 1966 SC 275] ; Union of India v. A.L.
Rallia Ram [(1964) 3 SCR 164 : AIR 1963 SC 1685] and
Thawardas Pherumal v. Union of India [AIR 1955 SC 468 :
(1955) 2 SCR 48] . The decision of the Judicial Committee of
the Privy Council in Bengal Nagpur Rly. Co. v. Ruttanji Ramji
[AIR 1938 PC 67 : 65 IA 66 : (1938) 1 MLJ 640] is based on
London Chatham & Dover Rly. Co. case [1893 AC 429 :
(1891-94) All ER Rep Ext 1610] and following the said
decision, it has been laid down that "interest for the period
prior to the date of the suit may be awarded, if there is an
agreement for the payment of interest at a fixed rate, or it is
payable by the usage of trade having the force of law, or in the
provision of any substantive law entitling the plaintiff to
recover interest". The said decision of the Privy Council has
been followed by this Court in Thawardas Pherumal v. Union
of India [AIR 1955 SC 468 : (1955) 2 SCR 48] , Union of
India v. Rallia Ram [(1964) 3 SCR 164 : AIR 1963 SC 1685] ,
Union of India v. Watkins Mayor & Co. [AIR 1966 SC 275]
and Union of India v. West Punjab Factories [(1966) 1 SCR
580 : AIR 1966 SC 395] and it has been held that in the
absence of any agreement, express or implied, or any provision
of law, it is not possible to award interest by way of damages.
This would show that there is no absolute bar on the award of
interest by way of damages and it would be permissible to do
so if there is usage or contract, express or implied, or any
provision of law to justify the award of such interest. Merely
because in Section 3(3)(c) of the Interest Act, 1978, the court
is precluded from awarding interest on interest does not mean
that it is not permissible to award such interest under a contract
or usage or under the statute. It is common knowledge that
provision is made for the payment of compound interest in
contracts for loans advanced by banks and financial
institutions and the said contracts are enforced by courts.
Hence, it cannot be said that award of interest on interest, i.e.,
OMP (EFA) (COMM) 6/2016 Page 99 of 115
compound interest, is against the public policy of India. We
are, therefore, unable to accept the contention that award of
interest on interest, i.e., compound interest is contrary to public
policy of India and the award in respect of compensatory
damages awarded under item Nos. 2, 4 and 6 cannot be
enforced under Section 7(1)(b)(ii) of the Act. d) Damages on
Damages
There is clearly no merit in the said plea of the respondents
Whether the award of damages against the minor respondents, namely,
respondents no.5 and 9 to 12 is illegal, non est and void and cannot be
enforced being in conflict with Public Policy of India.
109. It has been pleaded by Mr.Sandeep Sethi, learned senior counsel
appearing for the minor respondents that the aforesaid respondents being
minors, the petitioner had to take steps to appoint a guardian ad litem to
defend the interests of the respondents. Reliance was placed on Section
9(1)(i) of the Arbitration and Conciliation Act and Order 32 of Civil
Procedure Code. It is pleaded that the procedure was mandatory. It has
further been stressed that as per the Award passed by the Arbitral Tribunal
the petitioners were misled by the assertions of Mr.Malvinder Singh
respondent No.1, Mr.Deshmukh and Mr.Kaul who induced the petitioner to
enter into SPSSA. It is urged that a minor cannot act through an agent under
the Contract Act. The transaction having taken place on account of alleged
false representations made by the natural guardian of the minor respondents,
they could not be saddled with any liability. It is also pleaded that the
minors in all received a sum of Rs.14,37,150/- and have been saddled with a
liability of about Rs.3,500 crores.
OMP (EFA) (COMM) 6/2016 Page 100 of 115
110. As far as the plea about non-appointment of the guardian is concerned
the petitioners have pleaded that as the arbitration proceedings were held in
Singapore the International Arbitration Act was the applicable procedure and
the provisions of Order 32 CPC or Section 9 of the Arbitration Act would
have no application.
111. However, I need not go into the above controversy regarding Order 32
CPC or Section 9 of The Arbitration Act. The admitted fact is that in all the
proceedings the minor respondents were specifically represented by
counsels. Vaish and Associates Advocates, Drew & Napier LLC have been
representing the said respondents. The respective fathers i.e. natural
guardians, namely, respondent No.1 and respondent No.6 have been taking
steps to defend the litigation on behalf of the minors.
112. The Supreme Court in a recent judgment titled as Nagaiah and
another vs. Smt.Chowdamma (dead) by LRs, MANU/SC/0014/2018 has
interpreted Order 32 CPC as follows:-
"8.....However, even in respect of minor Defendants, various
High Courts are consistent in taking the view that the decree
cannot be set aside even where certain formalities for the
appointment of a guardian ad litem to represent the Defendant
have not been observed. The High Courts have observed in the
case of minor Defendants, where the permission of the Court
concerned Under Order XXXII Rule 3 of the Code is not
taken, but the decree has been passed, in the absence of
prejudice to the minor Defendant, such decree cannot be set
aside. The main test is that there has to be a prejudice to the
minor Defendant for setting aside the decree. For reference,
see the cases of Brij Kishore Lal v. Satnarain Lal and Ors. AIR
1954 All. 599;, Anandram and Anr. v. Madholal and Ors. AIR
1960 Raj. 189; Rangammal v. Minor Appasami and Ors. AIR
OMP (EFA) (COMM) 6/2016 Page 101 of 115
1973 Mad. 12; Chater Bhuj Goel v. Gurpreet Singh : AIR 1983
Punjab 406 and Shri Mohd. Yusuf and Ors. v. Shri Rafiquddin
Siddiqui : ILR 1974 (1) Delhi 825."
113. Hence, merely because the petitioners took no steps in terms of Order
32 Rule 3 CPC or Section 9 of the Arbitration and Conciliation Act would
not be a ground to conclude that the Award now passed in favour of the
petitioner cannot be enforced. The only exception to this rule is in case
prejudice was caused to the minor respondents.
114. I may now look at the basis of the award against the minor
respondents. A perusal of the Award shows that the Tribunal has concluded
that it has been proved beyond reasonable doubt that the respondents through
Mr.Malvinder, Mr.Deshmukh and Mr.Kaul have fraudulently
misrepresented/deliberately withheld/concealed information from the
petitioner. The conclusion in this regard is stated in paragraphs 362 and 363
of the Award as follows:-
"362. The Tribunal finds that the Claimant has fully
discharged its burden in proving beyond reasonable doubt
that the Respondents through Mr Malvinder, Mr. Deshmukh
and Mr. Kaul had fraudulently (and/or recklessly)
misrepresented the genesis, nature and severity of risk to
Ranbaxy arising from the DOJ and FDA investigations by
making express misrepresentations coupled with the
deliberate withholding or concealing of information relating
to the SAR and its connection to the DOJ and FDA
investigations.
363. The Claimant has also established on the preponderance
of probabilities that:
OMP (EFA) (COMM) 6/2016 Page 102 of 115
a. Mr Malvinder and Mr Kaul were aware that their
representations would be relied upon by the Claimant and
would induce it to make its decision to enter into the SPSSA.
b. Mr Deshmukh was aware on the preponderance of
probabilities that benefit would accrue to Ranbaxy and hence
its shareholders (including the Respondents) if the Claimant
were misled by him as to the source, nature and severity of
the US investigations and if the Claimant relied upon his
misrepresentations in making its commercial decisions
regarding Ranbaxy.
c. The Claimant did in fact reasonably rely upon those
misrepresentations in making its decision to enter into the
SPSSA and that, but for those misrepresentations, it would
not have entered into it."
115. Mr.Malvinder Singh/respondent No.1 is the natural guardian of
respondent No.5 Ms.Nimrita Singh. Regarding respondents No.9 to 12 the
aforenoted persons who have played the fraud, namely, Mr.Malvinder,
Mr.Deshmukh and Mr.Kaul are at best in the capacity of an agent for the
said respondent.
116. Fraud is defined in Section 17 of the Contract Act as follows:-
"17. „Fraud‟ defined--„Fraud‟ means and includes, any of the
following acts committed by a party to a contract, or with his
connivance, or by his agent, with intent to deceive another party
thereto or his agent, or to induce him to enter into the contract:
(1) The suggestion, as a fact, of that which is not true, by one
who does not believe it to be true;
(2) The active concealment of a fact by one having knowledge or
belief of the fact;
(3) A promise made without any intention of performing it;
(4) Any other act fitted to deceive;
OMP (EFA) (COMM) 6/2016 Page 103 of 115
(5) Any such act or omission as the law specifically declares to be
fraudulent."
117. Hence, acts committed by a party to a contract in connivance with or
by his agent with intent to deceive another party etc. are the relevant
ingredients for fraud. On agent Section 183 of the Contract Act states as
follows:-
"183. Who may employ agent.--Any person who is of
the age of majority according to the law to which he is
subject, and who is of sound mind, may employ an
agent."
118. Clearly, a minor is incapable of carrying out a fraud through an agent.
As per Section 183 of the Contract Act a minor cannot employ an agent. In
the facts and circumstances, it is manifest that respondents No.9 to 12 could
not employ Mr.Malvinder, Mr.Deshmukh or Mr.Kaul as an agent and could
not have committed a fraud through the said alleged agents.
119. The Privy Council in Mohori Bibee & Anr. vs. Dhurmodas Ghose,
1903 SCC Online PC 4 stated as follows:--
"......It is beyond question that an infant falls within the class
of persons here referred to as incapable of entering into a
contract; and it is clear from the Act that he is not to be liable
even for necessaries, and that no demand in respect thereof is
enforceable against him by law, though a statutory claim is
created against his property. Under secs. 183 and 184 no
person under the age of majority can employ or be an agent.
Again under secs. 247 and 248, although a person under
majority may be admitted to the benefits of a partnership, he
cannot be made personally liable for any of its obligations;
although he may on attaining majority accept those
obligations if he thinks fit to do so. The question whether a
contract is void or voidable presupposes the existence of a
contract within the meaning of the Act, and cannot arise in
the case of an infant. Their Lordships are therefore of opinion
OMP (EFA) (COMM) 6/2016 Page 104 of 115
that in the present case there is not any such voidable contract
as is dealt with in sec. 64."
120. Conclusions in the award that the minor respondents No. 9 to 12 are
guilty of fraud through the said agent is a finding contrary to the statutory
position in India.
121. Coming to respondent No.5, Mr.Malvinder Singh is the father and
natural guardian of respondent No.5. The power of a natural guardian are
stated in Section 8 of The Hindu Minority and Guardianship Act, 1956
which read as follows:-
"8. Powers of natural guardian.--
(1) The natural guardian of a Hindu minor has power, subject to
the provisions of this section, to do all acts which are necessary
or reasonable and proper for the benefit of the minor or for the
realisation, protection or benefit of the minor‟s estate; but the
guardian can in no case bind the minor by a personal covenant.
(2) The natural guardian shall not, without the previous
permission of the court,--
(a) mortgage or charge, or transfer by sale, gift, exchange or
otherwise, any part of the immovable property of the minor; or
(b) lease any part of such property for a term exceeding five
years or for a term extending more than one year beyond the
date on which the minor will attain majority.
(3) Any disposal of immovable property by a natural guardian,
in contravention of sub-section (1) or sub-section (2), is
voidable at the instance of the minor or any person claiming
under him.
OMP (EFA) (COMM) 6/2016 Page 105 of 115
(4) No court shall grant permission to the natural guardian to do
any of the acts mentioned in sub-section (2) except in the case
of necessity or for an evident advantage to the minor."
122. Hence, the natural guardian of a hindu minor has powers to do acts
necessary or reasonable and proper for the benefit of the minor. Mayne‟s
Hindu Law and Usage, 17th Edition 2014 has described the powers of a
natural guardian as follows:-
"Clause(1) deals with the general power of a natural guardian
to do all acts which are necessary or reasonable and proper
for the benefit of the minor or for the realization, protection
or benefit of the minor‟s estate. What is necessary or
reasonable and proper for the benefit of the minor and his
property is a question to be decided according to the facts and
circumstances of each case. For example, maintenance of the
minor, care of his health, education, payment of taxes in
respect of his property, repairing the properties (houses etc.)
to see that they do not become dilapidated or collapse,
maintenance of the dependents where the minor is under a
legal duty to maintain them, meeting the legal expenses to
safeguard the interests of the minor, performance of
ceremonies which the minor has to perform, can be generally
said to be acts necessary and proper.
Under asset of circumstances what a man of ordinary
prudence would do or would not do, may be a guiding factor
to decide whether what was done by the guardin was
reasonable and proper. No hard and fast rule can be laid to
see whether any particular act of the guardian is reasonable
and proper. Whether the transaction can be justified on the
ground that it is for necessity or for benefit has to be
determined with reference to Hindu law. A contract for the
purchase of immovable property which is likely to increase in
price is for the benefit of the minor. The Delhi High Court
left the question open whether a guardian can bind the minor
by a contract for the purchase of shares in a company. If the
OMP (EFA) (COMM) 6/2016 Page 106 of 115
guardian sells the property for the marriage of a minor, it
cannot be said that it is for the necessity or for the benefit of
the minor, as the marriage is in violation of the Child
Marriage Restraint Act which prohibits child marriages."
123. The Supreme Court in Bishundeo Narain and Anr. vs. Seogeni Rai
and Jagernath, AIR 1951 SC 280 has stated as follows:-
"26. It is well established that a minor can sue for partition
and obtain a decree if his next friend can show that that is for
the minor's benefit. It is also beyond dispute that an adult
coparcener can enforce a partition by suit even when there
are minors. Even without a suit, there can be a partition
between members of a joint family when one of the members
is a minor. In the case of such lastly mentioned partitions,
where a minor can never be able to consent to the same in
law, if a minor on attaining majority is able to show that the
division was unfair and unjust, the court will certainly set it
aside. The Rule, however, does not apply to decrees if the
minor is properly represented before the court and the decree
is as binding on him as on the adult parties, unless the minor
can show fraud or negligence on the part of his next friend or
guardian ad litem. This contention also therefore fails."
124. What follows is that a natural guardian can for the benefit of the
minor, protection of the minor‟s estate take steps which are reasonable and
proper regarding the estate of the minor. Sale of shares belonging to the
minor of a company when a good price is being received could ordinarily be
part of the power that a natural guardian can exercise under section 8 of the
Act. However, no guardian would have the power to carry out a fraud for
and on behalf of the minor so as to jeopardize the estate of a minor. There is
nothing in Section 8 which would show that the natural guardian can when
selling shares of the minor carry out a fraud on a third party and expose the
OMP (EFA) (COMM) 6/2016 Page 107 of 115
estate of a minor to grave risk and prejudice and a liability for the fraud
played by him. Any such act done by the natural guardian would be beyond
his powers under Section 8 of the Hindu Minority and Guardianship Act and
cannot bind or fasten any damages or liability on the estate of the minor.
125. A Division Bench of the Andhra Pradesh High Court in Chatrati
Sriramamurti and Another vs. Official Receiver, Krishna and Others, AIR
1957 AP 692 held that gross negligence on the part of the next friend or
guardian of the minor in conducting a suit entitles a minor to challenge a
decree passed against him and to avoid its effect. The court held as follows:-
"5. In spite of the dissent expressed in Krishna Das
Padmanabha Rao v. Vithoba Annappa, ILR 1939 Bom
340 : (AIR 1939 Bom 66) (A), it must now be taken in
view of the decision of the Supreme Court
in Bishundeo v. Sheogeni Rai, 1951 SCJ 413 at p. 418 :
(AIR 1951 SC 280 at pp. 283-284) (B), which affirms the
principle of the decisions of the Madras, Allahabad,
Calcutta, Lahore and Patna High Courts in Ayya
Pillai v. Ayyadurai Goundan, 67 Mad LJ 927 at p. 936 :
(AIR 1935 Mad 81 at p. 85) (C); Muhammad Shadak
Koyi Saheb v. Venkatakamaraju, 1940-2 Mad LJ 433 :
(AIR 1940 Mad 810) (D); Egappa
Chettiar v. Ramanathan Chettiar, ILR 1942 Mad 526 :
(AIR 1942 Mad 384) (E); Chanduru Punnaya v. Rajam
Viranna, ILR 45 Mad 425 : (AIR 1922 Mad 273)
(F); Siraj Fatima v. Mahmud Ali, ILR 54 All 646 : (AIR
1932 All 293) (FB) (G); Maheschandra v. Manindra
Nath, ILR (1941) 1 Cal 477 : (AIR 1941 Cal 401)
(H)); Iftkhar Hussain Khan v. Beant Singh, ILR 1946 Lah
515 : (AIR 1946 Lah 233) (FB) (I)) and Kamakshya
Narain v. Baldeo Sahai, ILR 27 Pat 441 : (AIR 1950 Pat
97) (FB) (J), that gross negligence on the part of a next
friend or guardian-ad-litem of the minor in conducting or
defending a suit to which he is a party, entitles the minor
OMP (EFA) (COMM) 6/2016 Page 108 of 115
to challenge the decree passed against him and avoid its
effects.
6. The negligence must have been such as to result in the
loss of a right which would have been successfully
asserted if the suit had been conducted or resisted with
ordinary care and prudence. It might consist in the
omission to raise an available plea or to adduce available
evidence to subantiate it. If the next friend or guardian-
ad-litem had been guilty of gross dereliction of duty, that
is to say, if he had neglected to do what was plainly his
duty or did or omitted to do something which no man of
common honesty and ordinary prudence would have done
or omitted, then the minor would have a right to sue to set
aside an adverse decision attributable to the guardian's
breach of duty.
7. The negligence of the guardian must be so serious or of
such a character as to justify the inference that the minor's
interests were not at all protected and in substance,
though not in form, the minor went unrepresented at the
trial. The decisions are exhaustively examined in ILR 54
All 646 : (AIR 1932 All 293) (FB) (G) and ILR 27 Pat
441 : (AIR 1950 Pat 97) (FB) (J), and it is unnecessary to
refer to them again. Though the rule is now well
established, previous decisions are not of much guidance
as authority in individual cases, for the question in each
case is, whether on the facts proved, the minor had lost a
valuable right and the conduct of the guardian was so
grossly negligent as to entitle the minor to avoid the
effect of a decree against him."
126. Clearly the acts of fraud said to have been committed by
Mr.Malvinder were beyond the scope of his powers under section 8 of the
Guardian and Wards Act. These acts cannot bind respondent No.5 and no
award could be passed against respondent No.5.
OMP (EFA) (COMM) 6/2016 Page 109 of 115
127. Reference may be had to the judgment of the Supreme Court in Ritesh
Agarwal vs. Securities and Exchange Board of India (supra). That was a
case where one Shri Surinder Kumar Aggarwal whose wife and two minor
sons were shown to have made contributions to the company in the course of
a public issue a sum of Rs.2.25 crores was to be invested by the promoters.
It later transpired that the promoters who were required to subscribe Rs.2.25
crores had invested only a sum of Rs.35 lacs. The Supreme Court held as
follows:-
"29. Ritesh Agarwal and Deepak Agarwal are said to be
minors. As they were minors having regard to the provisions
of the Contract Act, they could not have been proceeded
against strictly in terms of the provisions of the said Act.
Apart from the actions taken by the Board, the persons who
undertook those fraudulent actions may also be held to be
guilty of making a misrepresentation and commission of
fraud not only before the prospective purchasers of the shares
but also before the statutory authority. The same, however,
would itself not mean that a minor would not (sic) be
penalised for entering into a contract which per se was not
enforceable. A contract must be entered into by a person who
can make a promise or make an offer. If he cannot make an
offer or in his favour an offer cannot be made, the contract
would be void, as an agreement which is not enforceable in
law would be void. Section 11 of the Contract Act provides
that the person who is competent to contract must be of the
age of majority. If Ritesh Agarwal and Deepak Agarwal were
minors, as would appear from their birth certificates, they
could not have entered into the contract.
30. We, therefore, are of the opinion that subject to any other
or further order which the Board may pass as against Shri
Surender Kumar Agarwal and Smt Rooprekha Agarwal, the
impugned directions would not be binding on Ritesh Agarwal
and Deepak Agarwal."
OMP (EFA) (COMM) 6/2016 Page 110 of 115
128. Similarly, in Commissioner of Income Tax vs. Master Sunil Kalro
(supra) the Division Bench of the Karnataka High Court held as follows:-
8. "Person" has been defined under section 2(31). A careful
reading of the definition of person would show that a minor
cannot said to be a person for the purpose of section 271(1)(c)
of the Act. Even otherwise in our view a minor has to be
protected on account of the age factor. In fact several other
enactments would also provide sufficient safety to the minor
acts. Therefore, despite the strong arguments of Sri Indra
Kumar, learned senior counsel, we are of the view that a minor
cannot be saddled with any penalty for any omission and
commission committed by others acting on behalf of the minor.
9. In fact, the Kerala High Court in (sic) has ruled that an
individual is different from a person. Though, a minor can be an
assessee but in the light of the wordings of the "person" under
section 271(1)(c), the minor cannot be saddled with penalty.
10. In fact, the Madras High Court in CIT v. R. Srinivasan,
[1997] 228 ITR 214 has ruled that any sum payable by the
guardian on behalf of the minor is recoverable under section
162 of the Act by the guardian including penalty for the default
committed by him. The logic is simple. Any omission or
commission committed by a representative or a guardian cannot
be fastened on the minor in terms of the Act. Therefore, we
deem it proper to hold that no penalty can be levied on the
minor."
129. Clearly, the finding recorded by the Arbitral Tribunal that the minor
respondents have fraudulently misrepresented and/or concealed from the
petitioner the source and severity of Ranbaxy‟s problems is a finding
contrary to the statutory law of India including the provisions of The
OMP (EFA) (COMM) 6/2016 Page 111 of 115
Contract Act and the Guardian and Wards Act. The consequent award of
damages on the said respondents of approximately Rs.3,500/- crores is also
contrary to the statutory law of India. The next question that arises is as to
whether the said portion of the Award awarding damages against the minor
respondents can be said to be contrary to the Fundamental Policy of Indian
Law. The Supreme Court in Renusagar vs. General Electric, (supra) held
as follows:-
"65. This would imply that the defence of public policy which
is permissible under Section 7(1)(b)(ii) should be construed
narrowly. In this context, it would also be of relevance to
mention that under Article I(e) of the Geneva Convention Act
of 1927, it is permissible to raise objection to the enforcement
of arbitral award on the ground that the recognition or
enforcement of the award is contrary to the public policy or to
the principles of the law of the country in which it is sought to
be relied upon. To the same effect is the provision in Section
7(1) of the Protocol & Convention Act of 1837 which requires
that the enforcement of the foreign award must not be contrary
to the public policy or the law of India. Since the expression
"public policy" covers the field not covered by the words "and
the law of India" which follow the said expression,
contravention of law alone will not attract the bar of public
policy and something more than contravention of law is
required."
130. The Supreme Court in the said judgment also came to a conclusion
that the provisions contained in FERA have been enacted to safeguard the
economic interests of India and any violation of the said provisions would be
contrary to the public policy of India and noted as follows:-
"76. Keeping in view the aforesaid objects underlying FERA
and the principles governing enforcement of exchange control
laws followed in other countries, we are of the view that the
OMP (EFA) (COMM) 6/2016 Page 112 of 115
provisions contained in FERA have been enacted to safeguard
the economic interests of India and any violation of the said
provisions would be contrary to the public policy of India as
envisaged in Section 7(1)(b)(ii) of the Act. The submissions
urged by Shri Venugopal to show that there has been a violation
of the provisions of FERA, therefore, need examination."
131. The position regarding minors is quite clear. In India it is the
fundamental policy of Indian Law to protect a minor. Order 32 of CPC
provides elaborate procedure for protection of the interests of the minor who
may sue or who is being sued. In fact Order 32 Rule (7) provides that no
friend or guardian for the suit shall without the leave of the Court enter into
an Agreement or compromise on behalf of a minor with reference to the suit.
Section 30 of the Indian Partnership Act provides that a minor is not
personally liable for any acts of the partners or of the partnership for his
share in the firm.
132. Similarly, under the Hindu Minority and Guardianship Act a natural
guardian can do such acts which are necessary and reasonable and
appropriate for the benefit of the minor or for the realization, protection and
benefit of the minor‟s estate. In the Guardians and Wards Act, 1890 there is
an introduction which reads as follows:-
"From the early Roman days to the present day, the king
and the state is under a duty to care for the class of persons
who are incompetent to take care of themselves because of
their immature intellect and imperfect discretion arising
from their age. Under the Hindu Law as in English Law, the
king is regarded as „parens patriae'. The Hindu sages made
it clear that the king as the ultimate protector of the state,
may give suitable directions for the protection of the estate
of the infants. The protection of infants by the king is now
taken by the Court as representative of the sovereign."
OMP (EFA) (COMM) 6/2016 Page 113 of 115
133. Article 15, 39(e) and (f) and 45 of the Constitution of India empower
the state to make special provisions for protection of children.
134. It is clear that protection of the minor is a fundamental policy of
Indian law. It is a substratal principle on which Indian law is founded.
135. Hence, a minor cannot be guilty of having perpetuated a fraud either
himself or through any agent. If the natural guardian commits the fraud he
cannot bind the minor or the estate of the minor with any penalty or adverse
consequences that would result on account of the fraud played by the natural
guardian. Any such transaction cannot bind the minor.
136. Even otherwise, in my opinion, the Award against the minor is
shockingly disproportionate. The minors acting through their guardian/so-
called agent have received a total sale consideration of only Rs.14 lacs or so.
At best on account of the fraud played by the guardian/agent, the estate of
the minor gained four to five lacs of rupees. For this act they have been
saddled with a liability of Rs.3,500/- crores approximately. If any fraud was
committed by their natural guardian/agent the petitioners were free to
commence proceedings against him. It is also admitted fact that the guardian
who is alleged to have committed fraud is a party to these proceedings and
also has suffered award against himself. Hence, I accept the objections
against the award on behalf of respondents No.5 and 9 to 12.
ORDER
The objections of respondents No.5 and 9 to 12 (minors) are accepted. The award is held to be not enforceable against the said respondents. Acceptance of objections of respondents No.5 and 9 to 12 would not affect OMP (EFA) (COMM) 6/2016 Page 114 of 115 enforcement of the Award against other respondents. The objections of all other respondents are dismissed.
JAYANT NATH (JUDGE) JANUARY 31, 2018 n/rb/v OMP (EFA) (COMM) 6/2016 Page 115 of 115