Capital market regulator Securities and Exchange Board of India (Sebi) on Wednesday directed Malvinder Singh, Shivinder Singh and eight other entities to jointly repay Rs 4.03 billion, along with interest, to Fortis Healthcare in three months.

Further, Sebi has ordered these 10 entities, which includes Religare Finvest and Fortis Hospitals, not to dispose of any of their assets without its prior permission. Also, the Singh brothers, founders of Fortis Healthcare, have been directed not to associate themselves with the affairs of the company in any manner.

The matter pertains to alleged diversion of funds to promoters and misrepresentation of financial statements at Fortis Healthcare.

Sebi took note of a news article, dated February 9, 2019, which stated that promoters of Fortis Healthcare had taken at least Rs 5 billion out of the company. The article also stated that auditors Deloitte Haskins & Sells had refused to sign off on the company’s second-quarter results for FY 2017-18 until the funds were accounted for, or returned.

Subsequently, Sebi met with the auditors to understand the issues raised in the news article.

Based on the discussion with the auditors, Sebi found that Fortis Healthcare, through its subsidiary, was giving inter-corporate deposits (ICDs) to three companies to the tune of Rs 4.73 billion from 2013-14 onwards. These transactions were not classified as related party transactions.

These loans were given in the beginning of each quarter and returned by the companies by the end of the quarter and thereby, never reported in the balance sheet as the outstanding amount at the end of the quarter was nil, says the Sebi order. However, for the quarter ended September 2017, the amount was not returned by the borrowers. On independent examination of filings of these borrowers, it came to light that they did not have enough cash flows to repay the amount to Fortis Healthcare, said Sebi. Also, these three companies had the same set of directors.

Based on the discussions with auditors, Sebi conducted a preliminary examination into the matter.

The investigations found that the ultimate beneficiaries of the fund diversion prima facie were Shivinder and Malvinder Singh.

During 2017-18, Fortis Healthcare made a provision for Rs 4.45 billion "exceptional loss" on account of loans extended to three borrowers. However, Sebi found that prima facie the loss was entirely due to a diversion of funds to promoters and promoter related entities.

In the order, Sebi has said a detailed investigation to find out the role of each entity in the alleged routing of funds will be carried out. The regulator has also said the investigation will be extended to any entity, including banks and auditors, who could have played a role, directly or indirectly in the entire fraud.

“However, pending a detailed investigation into the entire fraud involving diversion of funds from Fortis Healthcare to its promoters and promoter-related entities, an urgent need is felt to pass an ad-interim ex-parte order to protect the interests of shareholders of Fortis Healthcare and to prevent any further deterioration of funds or assets,” said Sebi in an order.