Daiichi arbitration: Fortis stake sale to IHH Healthcare comes under cloud

The sale of controlling 31% stake by Fortis Healthcare to Malaysian major IHH Healthcare has come under cloud with the Supreme Court on Thursday directing 17 lenders to the former, which includes Yes Bank, Axis Bank, HDFC Ltd, Citicorp Finance, RBL Bank and Credit Suisse, to furnish by February 24 the details of loans that were advanced to the hospital chain and the securities that were offered by former promoters Malvinder and Shivinder Singh in connection with such loan arrangements.

Thursday’s order of the SC comes after it had asked the lenders on February 11 to explain their role in the transfer of Fortis Healthcare’s shares to IHH Healthcare Berhad despite the Delhi High Court’s and its directions barring any such transfer.

IHH had in July 2018 bought a 31% controlling stake in Fortis Healthcare for Rs 4,000 crore through the bidding route. Later on December 15, 2018, the SC had directed that status quo be maintained which had stalled the open offer which IHH was to make which would have seen its stake further going up.

On Thursday, the apex court asked the banks and FIs to also furnish details of securities held by them in Fortis Healthcare (FHL) and its holding company, Fortis Healthcare Holdings (FHHL), besides details of the shares they sold.

The lenders are also supposed to give the details of the encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them in September 2016 and on August 11, 2017. The apex court also directed banks to “to give details of shares of FHL standing in the name of FHHPL, which were put by them under encumbrance after August 11, 2017; to give details of shares of FHL standing in the name of FHHPL, sold by banks/FIs from January 2017”.

The SC also asked the banks to disclose whether such encumbrance created after August 11, 2017, was in pursuance of any fresh arrangement or agreement and, if so, the details of such agreement/arrangement and whether under such agreement/arrangement any other security was given by the pledgors; and also to give the value of the encumbered shares as they stood in September 2016, on August 11, 2017, and on subsequent dates.

The court gave banks till time till February 22 to produce the records and posted the matter for further hearing on February 24.

While Singh brothers told the Bench that it was the banks/FIs that sold the shares despite having information about the restraint orders, Japanese drugmaker Daiichi Sankyo, which is seeking enforcement of its arbitral award of Rs 3,500 crore against the brothers, has alleged collusion between them and their lenders as a result of which FHL shares were transferred to IHH despite the promoter duo having given assurance to the HC that the shareholding would not be diluted.

Terming the Thursday’s order as a “positive development” that will help Daiichi in executing its arbitration award, Kanika Singhal, partner, P&A Law Offices, the law firm handling the case for Daiichi, told FE, “the order will result in an investigation into the dealings between Singh brothers and the lenders pertaining to FHL shares… if the dealings and encumbrances are reversed, the shares which were promised to Daiichi can be liquidated to execute the award. More than 3 crore shares of Fortis, which were wrongly encumbered by 17 banks, are under enquiry”.

The Supreme Court had in 2019 held 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 the brothers are in Tihar jail in a case filed by Religare FinVest – an arm of Religare Enterprises, for allegedly causing wrongful loss worth Rs 2,397 crore.