A day before Chief Justice Ranjan Gogoi retired, he delivered a scathing judgment against former Fortis promoters Malvinder and Shivinder Singh, Fortis Healthcare Limited (FHL), and financial services company Indiabulls, on November 15. He held them in contempt of court for not honoring their promises of repaying Japanese drug maker, Daiichi Sankyo, over Rs 3500 crore.

The judgment has led to an inordinate delay in Malaysian healthcare giant IHH-Berhad’s infusion of up to Rs 3300 crore into the ailing hospital chain, through an open offer, which the SC had stayed in December 2018. The stay, now, continues till February 2020. This means that IHH’s money is stagnating in an escrow account and cannot be used for upgrading the hospital chain’s infrastructure. This means that doctors will have to wait for the machines and the staff they demanded, and patients will look elsewhere for treatment if they do not get the desired results they expect.

Even as the brothers are no longer the promoters of Fortis, ghosts of their wrong doings continue to haunt the hospital chain. All stakeholders in the Fortis-IHH deal were waiting with bated breath for the judgment, to know the fate of the stay on open offer.

The SC was opposed to the deal from the beginning, and had released such an order on December 14, 2018. In January 2019, FHL informed SC that the transaction (of over Rs 4600 crore worth preferential allotment of shares) had already occurred in November 13 last year itself, before the SC order of stay. So SC said that no further infusion of funds through open offer (of additional Rs 3300 crore) will now be allowed.

In a bid to come out clean, Fortis till date has maintained that it had no knowledge about the brothers’ fraudulent intentions, and has been desperate that IHH buys it out. The SC has observed on the contrary, that an amount of Rs 4600 crore, that was brought in by a foreign shareholder (IHH-Berhad)who, now, has a controlling interest in FHL, has been transferred in a dubious and clandestine manner without all the facts being brought on record. “About Rs 4600 crores has been transferred in a very hurried and clandestine manner to a trust registered in Singapore i.e. RHT Health Trust (RHT),” the judgment states.

The bone of contention for SC’s stay, is Singapore-based Religare Health Trust (RHT), which was taken over by IHH and FHL in January 15, earlier this year. How it all leads back to the Singh brothers is that they are the main promoters of RHC Holdings and Oscar Investments and were also the biggest unit holders in RHT when it was initially incorporated in 2015. Until June 20, 2017, the SC observed that the brothers, their family members, Fortis Healthcare Holdings, FHL and RHC virtually owned the RHT trust.

As on March 31, 2017, Malvinder and Shivinder Singh through Oscar Investments and RHC Holding Private Limited held 100 per cent stake in Fortis Healthcare Holding Private Limited, which in turn held a majority stake in Fortis Healthcare Limited.

'Shocking and contemptuous'

SC had pulled up Singh brothers for diluting their stake in FHHL (the holding company of Fortis Healthcare) by December 2018, despite multiple orders by HC prohibiting them from doing so. SC has maintained that this could not have been done without knowledge of those at helm of Fortis, and has therefore stated that even Fortis was in contempt of court.

So while the brothers have been served an ultimatum to pay up Rs 2350 crore in the next eight weeks, Fortis has to disclose to SC, a list of all directors and officials, who were actively involved in the running of the company from January 1, 2018 till January 31, 2019.

“When and how the holdings in RHT trust were transferred by various people is a matter which is required to be gone into,” SC judgment states.

SC has said that it is shocking and contemptuous, so as to how in a well thought off plan, the authorised capital of FHL was increased with the objective and purpose to transfer controlling interest in the company (from brothers to Fortis and eventually to IHH). Consequently, the controlling interest of the Singh brothers came down in FHL, as the company changed hands. Now, the controlling interest held by the majority shareholders has considerable market value.

The judgment reads, “It may be true that IHH Healthcare Berhad (Malaysian Company) through its actually owned subsidiary Northern TK Venture Private Limited is now the majority stake holder but that is due to allotment of preferential shares. In addition to the preferential shares allotted to them, the shares which were owned by Singh brothers through their holdings in FHHPL in FHL have vanished into thin air and the only conclusion which we can draw is that this was a well thought out plan to deprive the petitioner (Daiichi)from the amounts due to it.”

With regards to IndiaBulls, the SC has maintained that even as FHHL had given power of attorney empowering Indiabulls to transfer shares from its demat account to top up the security value, that power of attorney could not be used to violate the orders of this Court. Indiabulls will have to cough up the then share value of 12.25 lakh shares of Fortis which were surreptiously sold off, despite the High Court’s orders asking Singh brothers not to do so.

While Fortis and IHH maintain a stoic face in light of an adverse judgment, the truth of the matter is additional injection of funds into the hospital chain is on hold until 2020, while Fortis scurries to appropriately reply to SC’s contempt notice and IHH seeks legal opinion on how to handle a shaky deal.

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