HC's Daiichi order gives hope to cos with favourable foreign arbitration awards

The enforcement of foreign arbitral awards in India has been a little difficult due to challenges like all convention countries not being notified by the government and thus unable to get their awards enforced in India and other such hindrances. However, the recent development with the pronouncement of Delhi High Court in the case of Daichii Sankyo Co vs Malvinder Singh and Others has made a landmark transformation in the arbitration regime making it more flexible and friendly for enforcement of foreign arbitral awards.

Case Summary

Singh Brothers sold their stake in Ranbaxy to Daiichi Sankyo through a Subscription Agreement (SPSSA) dated June 11, 2008, whereby Daiichi agreed to purchase from Singh brothers their total stake in Ranbaxy Laboratories Limited for a transaction valued at Rs 19,800 crore (approximately $4.6 billion) which took place just months before the US Food and Drug Administration banned imports at two of the generic drug maker's Indian plants. That same year the US Department of Justice launched a probe, eventually resulting in a guilty plea by Ranbaxy and Daiichi Sankyo had to pay $500 million against settlement for selling adulterated drugs. The Singhs were not named in the Ranbaxy probe.

In November 2013, Daiichi took the dispute over the alleged "concealment and misrepresentation" of information to the Singapore Arbitration Tribunal. The charges were of non-compliance with drug manufacturing quality norms and related falsification of data in filings made to the US Food and Drug Administration at least six years earlier. The Arbitration Tribunal passed an award of Rs 2,562 crore along with an additionally claimed Rs 1,000 crore in interest and lawyers' fees incurred in connection with the proceedings. The arbitral award is under challenge by Singh brothers in Singapore Court of Appeals.

In May 2016, Daiichi moved the Delhi high court to enforce the arbitration award. After a year-long legal battle between Daiichi and the brothers over enforcement of the arbitral award, the verdict was reserved by Justice Nath in September 2017.

• The Respondent challenged the enforcement of the award on the following grounds:
• It falls within the grounds given in Section 48 and thus should not be enforced;
• Damages awarded are contrary to Section 19 of the Contract Act and thus cannot be enforced;
• The arbitral tribunal granted consequential damages beyond their jurisdiction;
• The claim of the petitioner was barred by limitation thus cannot be enforced;
• Award of interest on the awarded damages amounts to award of multiple damages thus making the award not enforceable.

Justice Nath, examined the objections raised against the enforcement and dealt with each one of them in detail and upheld the award. While holding the award to be enforceable, Justice Nath concluded that the award was not enforceable against five minors, including Singh's children, as "Article 15, 39(e) and (f) and 45 of the Constitution of India empower the state to make special provisions for protection of children.

Enforcement of Foreign Award: A backgrounder

Foreign award are enforced in accordance with Part II of Arbitration and Conciliation Act, 1996. Section 44 of the Act lays down the definition of Foreign Award. The conditions for the enforcement, as laid down in the Act reflect Article V of the New York Convention.

However Explanation to Section 48(2)(b) distinguishes it by adding the public policy condition which has then been further cemented and narrowed by the Supreme Court in the matter of Renusagar Power Co. vs. General Electric Corp.

For enforcement of an award delivered in a foreign seated arbitration, the High Court having original jurisdiction to entertain questions forming the subject-matter will have jurisdiction to decide the application for enforcement as per Section 47 r/w Section 49 of the Act. Moreover, as per Executive Engineer v Atlanta Limited, the award holder is required to file the application in the court in whose jurisdiction the assets of the award debtor are located.

Once the executing court is satisfied that an award is recognizable/enforceable, the award is deemed to be a decree of that court as per the provisions of section 49 of the Act. It may then be enforced under the relevant provisions of the CPC relating to execution of a decree.

Interestingly, there is no scope for an appeal against an order of the court for the enforcement of a foreign award. If the court is satisfied that the foreign award is enforceable, the award itself would be deemed to be a decree of the court. The procedural formality for the court to pronounce judgment and a decree to follow on that basis is omitted. Further, the possibility of the decree being in excess of, or not in accordance with the award is also removed. It is for this reason that section 50(1)(b) of the Act provides for an appeal only against an order refusing to enforce a foreign award under section 48.

It is settled law 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 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 is not applicable where objection is raised to the enforcement of the foreign award under Section 48(2)(b).

Moreover, Section 48 of the 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 don't lead necessarily to excuse an award from enforcement on the ground of public policy.

Conclusion

This judgment has definitely given hope to all the foreign seated arbitrations in making India more conducive to foreign awards and ensuring that the Indian laws are acceptable and supportive in enforcing the foreign awards in India. The Delhi High Court in the case of Daiichi Sankyo vs. Malvinder Mohan Singh has refused to intervene in the foreign arbitral award passed in the favour of Daiichi Sankyo and it observed that under Section 48(2)(b) of the Act, the enforcement could be refused only if the award was contrary to the (i) fundamental policy of India (ii) interest of India and (iii) justice or morality. Further, the Delhi High Court affirmed that an award could not be said to be against the fundamental policy of Indian law in case there was violation of provisions of a statute but only if there was a breach of a substantial principle on which is Indian law is based upon.

The author is founding partner of Singh & Associates.