Daiichi Arbitration Case Bares Trail Of Deception At Ranbaxy

Incriminating details in an arbitration order against the former Ranbaxy top brass led by the Singh brothers has put the spotlight back on allegations of misrepresentation of critical information concerning the US Department of Justice (DoJ) and FDA investigations against the Indian company at the time of its takeover by Daiichi Sankyo. The Singh brothers, who have challenged the award, though, have cried foul, questioning the timing of the apparent leak of the "confidential" award ahead of a court hearing.

An arbitration court in Singapore earlier this year asked the Singh brothers of Ranbaxy Laboratories Ltd., Malvinder and Shivinder, and certain group firms to cough up damages of around $385m in the case brought by Daiichi Sankyo Co. Ltd., but details in the order point to an embarrassing trail of alleged deception at the Indian firm. (Also see "Golden Week For Daiichi: Damages Due From Ranbaxy Brothers" - Scrip, 8 May, 2016.)

The order, details of which were reported in the local media, suggests that Ranbaxy's top brass may have been well aware of certain compliance deviations way back in 2004.

The Indian Express newspaper reported that a Self Assessment Report (SAR) prepared by Ranbaxy's then R&D head and presented at a 2004 meeting which had the firm's top brass in attendance listed over 200 drugs for which the company was alleged to have used fabricated data to get regulatory approvals in several countries.

The SAR's contents were pivotal in the launch of investigations against Ranbaxy by the US authorities, but the Indian firm's top brass apparently withheld the report leaving the Japanese company in the dark. (Also see "Blowing The Whistle On Ranbaxy" - Pink Sheet, 20 May, 2013.)

"But for the misrepresentations (by Malvinder Singh and others), the transaction would not have been entered into all by Daiichi…had Daiichi been aware of the SAR it would not have paid any price for (Ranbaxy) shares," The Indian Express quoted the order as saying. It also noted that with the SAR in the hands of US authorities, Ranbaxy shares were "pregnant with disaster" at the time of the deal with Daiichi.

An industry source well in the know of the past goings on at Ranbaxy, told Scrip that prima facie, going by the report, it appears that the CEO and the board of the Ranbaxy "were complicit in misleading Daiichi Sankyo".

Others, such as an expert with a foreign drug firm, suggested that there was little doubt that at least some directors of the board were made aware of the malpractices, but they chose to be "economical with the truth" for reasons best known to them.

The expert, though, doesn't expect the Indian drugs regulator to take a fresh look at the Ranbaxy issue in the wake of the order details, nor does he believe it is required, given that the arbitration was between the promoters of the two companies on the misinformation and fraud committed.

"Ranbaxy's business has changed beyond recognition through brand sell-offs and restructuring the organization after Sun Pharmaceutical Industries Ltd. took it over. Its factories have been or are under revamp and customers have reconciled to the changes. From a business front-end, I think it is water under the bridge. What is left is for the promoters to settle out their differences in court." (Also see "Sun Rationalization Underway; To Shed Irish Facility" - Scrip, 11 Sep, 2015.)

Singh Brothers' Reaction

The Singh brothers, though, have questioned the timing of the "malicious" story, which they claim aims to "tarnish the image of reputed individuals" and prejudice court proceedings.

"The majority award [in the Singapore arbitration] is contrary to Indian law and the former Chief Justice of India AM Ahmadi, who was the Indian law expert, has rejected any fraudulent or wrong doing by the respondent sellers of Ranbaxy shares and consequently rejected any ground for awarding damages," a statement from RHC Holding Pvt Ltd, an investment company held by the Singh brothers, said.

The award has been challenged by the Singhs both in Singapore and its enforcement in India.

RHC Holding also maintained that both the Singapore court and the Delhi High Court have directed that the award and its proceedings be kept in "sealed cover as they are confidential".

"Clearly, it is not only illegal but [also] by quoting from the award, there appears to be an attempt to interfere in the judicial process, which is contempt of court. Except for Daiichi Sankyo, no one else gains from this disclosure," the Aug. 11 statement from RHC Holding added. It also questioned the timing of the piece given that the hearing under the enforcement proceedings in India is scheduled for Aug. 22.

Daiichi Sankyo could not immediately be reached for a comment on the issue.

Daiichi had earlier moved the Delhi High Court and was said to have sought to secure the Singh brothers' assets towards honoring the arbitration award. It also sought that the award and certain other documents be kept in "sealed cover envelope or the relevant soft copy file must be encrypted with password", details in the court documents suggested.

The Singh brothers earlier said the award set damages of around INR25.62bn ($385m), quantified interest, costs and expenses of the arbitration till the date of award and interest on the above until date of payment, against all the respondents jointly and severally. A Daiichi statement referred to a full award of 56.2bn Japanese yen ($525m) which includes attorneys' fees and arbitration costs.

Case History

Daiichi Sankyo had in 2013 initiated arbitration proceedings in Singapore against the former shareholders of Ranbaxy Laboratories, over alleged misrepresentation of critical information concerning the US DoJ and FDA investigations against Ranbaxy at the time of the 2008 takeover by the Japanese company.

Daiichi was then said to have sought compensation for losses arising from the settlement that Ranbaxy reached with the US regulators. In May 2013, Ranbaxy had agreed to pay $500m towards settlement of the investigation by the DOJ concerning data integrity and manufacturing processes at its Paonta Sahib and Dewas sites in India. (Also see "Ranbaxy whistleblower pockets $50M+ in $500M settlement " - Scrip, 14 May, 2013.)

The Singh brothers had, however, at the time denied any wrong doing, dismissing Daiichi’s allegations as "false and baseless". They claimed that Daiichi Sankyo purchased the Singh family's interests in Ranbaxy after a "long negotiation process", as is typical of deals of that scale and after conducting "full due diligence" on the affairs of Ranbaxy.

In 2014, Daiichi Sankyo handed over the reins of Ranbaxy to India's distressed asset turnaround specialist and Sun Pharma founder, Dilip Shanghvi. Post the acquisition of Ranbaxy by Sun, Daiichi become the second largest shareholder in Sun Pharma with a holding of around 9%. (Also see "India's turnaround specialist Sun snaps Ranbaxy in $4bn deal" - Scrip, 7 Apr, 2014.) Last year Daiichi cashed out of Sun Pharma. (Also see "Daiichi set for $3.6bn cash out of Sun" - Scrip, 20 Apr, 2015.)