Fortis deal: Shareholders may raise ‘conflict of interest’ charge against board members

Institutional shareholders may raise potential ‘conflict of interest’ against some board members of Fortis Healthcare (FHL) for their long association with Malvinder and Shivender Singh, the erstwhile promoters of the company.

The Singh brothers, who were the founding members of FHL board, were forced to quit in February following the Delhi High Court order upholding ₹3,500-crore arbitral award in favour of Daiichi Sankyo.

The Japanese drug major Daiichi Sankyo had levelled fraud charges against Singh brothers and the board and top management of Ranbaxy. Some of the existing FHL board members were also on the board of Ranbaxy when the fraud occurred, a study done by institutional shareholders show. Allegations against Ranbaxy and its board was that they had concealed information about proceedings against them by the American food and drug department.

In fact, Harpal Singh, Chairman Emeritus of FHL, who voted in favour of Munjal-Burman bid last week, is the father-in-law of Malvinder Singh and was also the Chairman of Ranbaxy. Another FHL board member, Brian Tempest, was the CEO of Ranbaxy prior to Malvinder Singh and is one of the alleged offender in Daiichi Sankyo’s arbitration.

As per Daiichi Sankyo’s case filed in Singapore tribunal against Ranbaxy, its then chairman Tejinder Singh had said that Ranbaxy should “just bury the data” that was linked to how the company had falsified data on 200 drugs to obtain quick regulatory approval from authorities in over 40 countries. All this and more stands recorded in the Singapore court proceedings against Ranbaxy. Tejinder Singh is also currently a member of FHL board. An e-mail sent to Fortis, seeking clarification on the possible conflict of interest, remained unanswered.

Private equity (PE) funds East Bridge Capital and Jupiter Asset Management have sought the removal of five board members of FHL, including the three mentioned above and Deepak Kapoor and Sabina Vaisoha.. The shareholders have called for an extra-ordinary general meeting (EGM) on May 22.

Proxy advisory firm IiAS is of the view that Fortis board’s announcement that they have accepted the Munjal-Burman offer may just be the beginning of a new round of battle with shareholders and bidders.

"All the board members of FHL could be perfectly legitimate even if they were associated with erstwhile promoters in some or other manner but given the incidents and events the company has undergone their presence was making shareholders uncomfortable," said Amit Tandon, Founder & MD, Institutional Investor Advisory Services (IIAS).

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