Daiichi- Explain Fortis share sale: Supreme Court to lenders

The Supreme Court on Thursday asked 17 lenders to Malvinder Singh and Shivinder Singh, former promoters of Fortis Healthcare, to explain their role in the transfer of the company’s shares to Malaysian healthcare major IHH Healthcare Berhad despite directions from it and the Delhi High Court barring any such transfer.

IHH had in July 2018 bought a 31% controlling stake in Fortis Healthcare for `4,000 crore through the bidding route.

A bench led by Justice UU Lalit said it was deemed necessary, in the interest of clarity, to give lenders an opportunity to present their position.

This would also help decide the nature of the sentence to be imposed on the Singh brothers for contempt of court. Around 17 banks and financial institutions, including Yes Bank, Axis Bank, Kotak Mahindra Investment and Indiabulls, need to explain why they sold the shares pledged with them despite the SC and HC orders restraining the brothers from alienating or creating third-party interests in their assets.

Justice Lalit came down heavily on Malvinder. “Around 3 crore shares have gone away from the kitty after various assurances were given to the HC in June 2017. Around 30.65 crore encumbered and unencumbered shares were intact before assurances were given in June 2017. You never told the HC to take control of the situation if banks were selling securities. You should have informed the court about this while giving assurances. This means shares were in your control only. There is also a finding of guilt in your favour,” the bench told Malvinder.

The judges also told Malvinder it would give him 10 days to either deposit the entire money in court or bring back the shares. “Resultant transaction must be annulled and original situation should be restored. Either shares have to be given back or you put in the money equivalent to this amount in the court,” Justice Lalit told Malvinder while asking him to furnish the documents showing he had informed the lending banks and financial institutions from time to time about various directions issued by the courts with regards to assets/shares of the promoters.

The directions were issued after Malvinder’s senior counsel Kailash Vasudev alleged that Fortis Healthcare shares owned by him and his brother Shivinder were not transferred by the brothers to IHH Berhad but was by the banks.

Japanese drugmaker Daiichi Sankyo, which is seeking enforcement of the Rs 3,500-crore Singapore arbitration award against the Singh brothers, had alleged the duo had disposed of their controlling stakes secretly in Fortis Group to IHH Healthcare despite giving several written assurances to the HC that they would not alienate their unencumbered shares.

The brothers had given five written assurances before the Delhi HC they would not dilute their shareholdings in the hospital chain. However, their shareholding in the company declined from above 70% to below 1% after Daiichi Sankyo took them to court for enforcement of the award.

The SC, had in 2019, held the Singh brothers guilty of contempt for violating its earlier orders that had restrained them from divesting their shares in Fortis Healthcare. However, it gave them one more chance to purge themselves of the contempt if each of them deposited Rs 1,170.95 crore. Both brothers are in Tihar jail in a case filed by Religare FinVest — an arm of Religare Enterprises — for allegedly causing wrongful losses worth Rs 2,397 crore.

First published in the February 12, 2021 edition of the Financial Express.