The Delhi High Court has ordered a six-month forensic audit into the alleged dissipation of assets of former Fortis promoters Malvinder Mohan Singh and Shivinder Mohan Singh during enforcement proceedings initiated by Japanese drug major Daiichi Sankyo. Justice Subramonium Prasad appointed S Ramanand Aiyar & Co, Chartered Accountants, to reconstruct the movement of Fortis Healthcare Limited (FHL) shares, funds and related transactions from 24 May 2016, when assurances were first given to the court that Daiichi's interests would be protected. The audit will examine transactions involving the Singh brothers, banks, IHH and RHT amid Daiichi's efforts to enforce its arbitral award. As per Rediff Moneynews, the court said the purpose was to identify and reconstruct the entire chain of events to enable the court to identify the persons and companies involved in the dissipation of shares.
The order stems from a ₹3,500 crore arbitral award in favour of Daiichi Sankyo, with interest. According to reports from Business Standard, Daiichi has claimed that the amount outstanding has since risen to around ₹5,300 crore. The award was passed in Singapore on 29 April 2016 and carried pre-award interest of 4.44 per cent and post-award interest of 5.33 per cent. The award has survived challenges before the Delhi High Court and Supreme Court, with the court noting that almost a decade has passed since execution proceedings began while assets originally available to satisfy the award had progressively diminished. The order follows a September 2022 SC judgment which asked the Delhi HC to consider appointing auditors to examine transactions involving banks and financial institutions, as well as transactions between FHL and RHT Health Trust. In its 213-page judgment, the court allowed Daiichi's application seeking appointment of a forensic auditor to unearth the transactions between Fortis Healthcare Ltd (FHL), Singh brothers and others leading to dissipation of assets which would have otherwise been sufficient to pay the decree amount.
A key focus of the audit will be the dramatic reduction in the Singh family's shareholding in FHL through Fortis Healthcare Holdings Private Limited (FHHPL). As reported by Business Standard, FHHPL held about 71.7 per cent in FHL when the award was passed, but by September 2016, its holding had fallen to around 52 per cent, with 5.29 crore unencumbered shares. The unencumbered holding subsequently fell sharply, with the court noting that FHHPL eventually held less than 1 per cent of FHL. Daiichi has contended that 3.25 crore unencumbered FHL shares, corresponding to nearly all of the 3.26 crore shares identified by the Supreme Court as missing, were disposed of after assurances had been given to the court. The Singh brothers have maintained that several transactions followed the invocation of pledges by lenders or contractual top-up requirements as the value of pledged shares fell. Banks and financial institutions have similarly argued that they dealt with shares that were already encumbered under loan and pledge arrangements. The court directed the forensic auditor to examine and reconstruct the complete evolution of the shareholding of FHHPL in FHL after May 24, 2016, including the reduction in its shareholding over time, the movement of encumbered and unencumbered shares, creation of fresh pledges and all consequential transactions affecting the shareholding pattern.
The court has specifically brought the IHH Healthcare Berhad-Northern TK Venture (NTK) transaction within the scope of the forensic audit. In July 2018, NTK acquired a 31.1 per cent stake in Fortis Healthcare through subscription to fresh shares, with the transaction involving consideration of about ₹4,000 crore. The auditor will examine the structure and implementation of the IHH-NTK transaction, including approvals, regulatory filings, the movement of shares and the flow and utilisation of the consideration. The court has directed examination of the subsequent transaction involving RHT Health Trust, Singapore, under which FHL paid about ₹4,666 crore to acquire proprietary interests in assets held by RHT. As per Business Standard, the court has directed the auditor to examine the connection between these transactions and trace the movement of funds, including the purpose and beneficiaries of subsequent transactions. Daiichi has alleged that the ₹4,666 crore transferred to RHT was not available for satisfying the arbitral award and has sought scrutiny of the transactions between FHL, IHH, and RHT.
In a separate application, Daiichi has sought the appointment of forensic auditors to examine the conduct of 17 banks and financial institutions, including HDFC Ltd, Yes Bank, Axis Bank, Citicorp Finance, Aditya Birla Sun Life Insurance Co and Kotak Mahindra Investments. The petition alleged that these lenders had invoked pledges on shares of FHL owned by Fortis Healthcare Holding in violation of Supreme Court and High Court orders, as well as undertakings given by the Singh brothers to the courts. It also alleged that the lenders had extended loans to loss-making entities without conducting due diligence. Daiichi has argued that extensive forensic audits under the supervision of retired high court judges are necessary to ensure sufficient inflow of money to satisfy the arbitration award against the Singh brothers. In September 2022, the Supreme Court had directed the Delhi High Court to consider appointing forensic auditors to examine whether transactions entered into by banks and financial institutions were bona fide.
The audit will examine transactions involving entities associated with the Singh group, including Religare Capital Markets, Religare Capital Markets International (Mauritius), Religare Enterprises, Religare Finvest and Religare Comtrade. As reported by Business Standard, the High Court said reverse corporate veil piercing could become relevant if evidence shows that corporate entities were used to dissipate assets or obscure their movement, though such an exercise would require cogent, fact-specific material establishing misuse of the corporate structure. The auditor will examine pledges, share transfers and sales, sale proceeds, downstream loans, bank and demat records, board minutes, shareholder resolutions, statutory registers, emails, legal opinions and regulatory filings. The court has directed examination of FHL, its directors and officers, company secretary, compliance officer, registrar and transfer agent, depositories, and other intermediaries. The first requisition list is to be issued within four weeks, and records are to be furnished within two weeks of requisition, with non-compliance inviting contempt proceedings. The audit is to be completed within six months, with Daiichi bearing the initial cost. The Singh brothers had disclosed their assets to the court in sealed covers in December 2016 and March 2017 during the pendency of Daiichi's plea seeking enforcement of the 2016 arbitral award. On February 16, 2018, the Supreme Court had dismissed Singh brothers' appeal against the high court verdict upholding the international arbitral award.
