The Abu Dhabi Global Market (ADGM) Court has held NMC Health founder Dr Bavaguthu Raghuram Shetty and former senior executive Prasanth Manghat liable for fraudulent and wrongful trading in the healthcare group's collapse.
The court has set US$5.397 billion as the starting point for assessing the contributions they must make to the company's assets, but will determine the amount payable by each after hearing further submissions.
Justice Sir Andrew Smith held,
“…the starting point for assessing the contributions that I order that Dr Shetty and Mr Manghat pay should be US$ 5,397 million, but I shall finally determine the amounts that I order against each of them after hearing any further relevant submissions that I permit.”
The court held that the businesses of NMC Healthcare Limited and 34 other companies in the NMC Group were carried on fraudulently during the relevant period. It found hat Shetty and Manghat were both parties to the fraudulent business, had acted knowingly and were dishonest.
The case arose from a large scale fraud allegedly perpetrated within the NMC Group between April 2, 2012 and April 9, 2020. The fraud involved the misappropriation of the group's assets and misrepresentation of its financial position through overstating its net assets and turnover in its financial statements. The parent company, NMC Health plc, was placed under administration by the English High Court in April 2020, while NMC Healthcare, NMC Holding and 34 other group companies were subsequently placed under administration by the ADGM Court in September 2020.
The proceedings comprised two actions. In the first, NMC Healthcare, NMC Holding and their joint administrators brought civil claims under UAE law and insolvency claims under the ADGM Insolvency Regulations, 2022, against Shetty and Manghat. The insolvency claims alleged fraudulent and wrongful trading under the Insolvency Regulations. In the second action, Abu Dhabi Commercial Bank (ADCB) sued Manghat, alleging that he knowingly participated in the fraud and made false assurances about the group's financial position.
The JA Claimants alleged that BR Shetty misappropriated funds from the NMC Group through two categories of transactions: direct and indirect payments. Direct payments involved transfers from NMC Group companies and New Medical Centre, an unincorporated entity, to Shetty's personal bank accounts, including accounts maintained with Bank of Baroda. These transactions, which had no legitimate business purpose, amounted to a net sum of approximately AED 2.6 billion.
Indirect payments involved funds transferred from the NMC Group to external companies, including Nexgen, GGCM and FFT, which were subsequently routed to Shetty's private accounts with Bank of Baroda. These payments allegedly amounted to at least AED 426.4 million.
The administrators further alleged that Manghat improperly received at least AED 9.3 million from the NMC Group between April 2012 and March 2020. They also identified additional payments totalling AED 4 million made to him on November 7 and 13, 2019.
The Court observed that the NMC Group's consolidated financial statements failed to disclose all its borrowings during the relevant period. The undisclosed debt included fresh loans and credit facilities, as well as interest and other charges on borrowings from previous years. It attributed the concealment to the Group's inadequate accounting system, which enabled those involved in the fraud to hide the actual extent of its liabilities. The Court also found the use of sham supplier transactions to obtain short-term financing without disclosing the true debt position of the group.
The Court found that Shetty knowingly received misappropriated NMC funds, directly and through intermediaries, used them to acquire personal assets and investments, and allowed his signature to be used for the transfers. It also held that he concealed the Group's true financial position through misleading financial statements and helped hide its borrowings from auditor EY in March 2019.
As regards Manghat, the Court held that he knowingly facilitated the diversion of NMC funds for the benefit of Shetty, the Bin Buttis and himself. It found that he participated in a scheme to extract the Group's assets while projecting it as a financially sound business.
On the insolvency claims, the Court held:
“ the JA Claimants have proved the conditions for declaring that Dr Shetty and Mr Manghat are liable to make contributions to the assets of NMCH both under section 251 of IR 2022 on the grounds of fraudulent trading and under section 252 of IR 2022 on the grounds of wrongful trading.
In the separate proceedings brought by ADCB, the Court ruled in favour of the bank against Manghat. It held that ADCB was entitled to damages and loss of profits. The outstanding liabilities were assessed at US$ 1.022 billion, while the loss of profit was assessed at US$ 168.98 million.
The Court also ruled in favour of JA Claimants on their civil claims against Shetty and Manghat, holding that they were entitled to damages.
It clarified that US$5,397 million would be the starting point for determining the contributions payable by Shetty and Manghat. It stated that it would determine the final amounts against each of them after hearing further relevant submissions.
The Court has scheduled a further hearing to consider consequential matters, including statutory interest and costs and claims by Dr.Shetty and Bank of Baroda against other defendants.
For JA Claimants: Bankim Thanki K.C, Henry King KC, Robin Loof, Alexandra Whelan, Damien Bruneau, Jerome Squires, Ali Al Aidarous and Ali Al Hashimi
For ADCB: Rajesh Pillai KC, Scott Ralston, Rebecca Zaman, Lucas Jones, Ali Al Aidarous and Ali Al Hashimi
For Dr. Shetty: Kajetan Wandowicz
For Manghat: Patrick Hennessey
For Bank of Baroda: Harish Salve KC, Victoria Windle KC, Sarah Tresman, Celia Rooney, Timothy Lau, Maria Kennedy, Mark Baldock, Dr. Habib Al Mulla, Hany Maher, Dr. Karen Seif, Ahmed Al Zaabi and Professor Chibli Mallat