Daiichi Sankyo Co. Ltd on Friday said brothers Malvinder Mohan Singh and Shivinder Mohan Singh will have to pay it almost Rs.3,500 crore for concealing facts related to Ranbaxy Laboratories Ltd when they sold their stake in the company to the Japanese drug maker in 2008.
That includes interest and costs on top of the Rs.2,562.78 crore a Singapore arbitration court has ordered the brothers to pay.
“Adding up interest rates and arbitration cost too, they will have to pay 56.2 billion Japanese yen, or approximately $525 million (Rs.3,497.54 crore). Certain former shareholders of Ranbaxy Laboratories Ltd concealed and misrepresented certain critical information concerning US Food and Drug Administration and Department of Justice investigations at the time of Daiichi Sankyo’s purchase of shares of Ranbaxy in 2008,” Koji Ogiwara, a senior official at the corporate communication department of Daiichi Sankyo, said in a phone interview.
If the Singh brothers delay making payment, the interest cost will increase.
The brothers sold their 34.82% stake in Ranbaxy to Daiichi for $2.4 billion in 2008. The total deal value was $4.6 billion.
RHC Holdings Pvt. Ltd, one of the respondents in the arbitration proceedings and the holding company through which the Singh brothers made the sale, has said that it’s considering a legal challenge to the order by the Singapore International Arbitration Centre (SIAC).
On the SIAC order, Daiichi Sankyo said in a statement, “The award orders the former shareholders to pay Daiichi Sankyo the following amount. 1) Rs.25,627,847,918.31 as compensatory damages and Rs.8,510,692,333.80 as interest. 2) $14,549,684.60 for attorneys’ fees and expenses and $599,250.00 for arbitration costs which were incurred by Daiichi Sankyo. The total amount of award is approximately 56.2 billion Japanese yen (conversion rate; 1 rupee = 1.6 yen, 1 dollar = 107 yen).”
Daiichi had filed a case against the Singh brothers accusing the Indian promoters of Ranmbaxy of concealment and misrepresentation of facts and seeking compensation for losses that it was forced to pay the US Department of Justice.
In 2013, Ranbaxy agreed to pay $500 million as a penalty to settle a criminal and civil lawsuit, which charged the Indian company with falsifying data at its drug facilities and following shoddy manufacturing practices. It was the largest drug safety settlement by a generic drugmaker in the US.
Daiichi Sankyo will announce the financial impact of the award when the due date for the Singh brothers to make the payment is confirmed, the company said.
In April 2014, Sun Pharmaceutical Industries Ltd agreed to acquire Ranbaxy Laboratories in an all-stock transaction at an enterprise value of $4 billion. In 2015, the Japanese drugmaker exited the Indian company by selling off the 9% stake that it acquired in Sun Pharma for $3.2 billion, as a result of the deal.
“This latest incident will not only improve the investment scenario, but will ensure that the seller should ensure that the company and governance is properly maintained. In case of the wrong declarations, or hiding information and lack of transparency, the seller or promoter himself will be liable and not the company,” said Kewal Handa, chairman of Medybiz and former managing director of Pfizer India.
The verdict will be a warning for Indian promoters who would be more careful in the future in revealing information, whether positive or negative. It is an individual governance issue than a corporate governance issue, Handa said.