Delhi High Court Orders Forensic Audit To Trace Alleged Fortis Share Dissipation In Daiichi Arbitration Case

On 31 August, the Delhi High Court ordered a comprehensive forensic audit into the alleged dissipation of assets involving Fortis Healthcare Limited (FHL), its former promoters Malvinder Mohan Singh and Shivinder Mohan Singh, their downstream entities, and 17 banks and financial institutions.

Justice Subramonium Prasad directed S Ramanand Aiyar & Co. to reconstruct the chain of transactions involving Fortis shares, identify the persons and entities involved, and examine whether Court orders were evaded to frustrate enforcement of a foreign arbitral award in favour of Daiichi Sankyo Company Limited. The Bench observed:

“The conduct of the forensic audit is not an exercise in futility. The forensic audit will pin point the exact manner by which this Court was deceived, the dramatis personae who aided and abetted in evasion of Court Orders by misleading the Court, so that the Court can take steps by fixing liability on the perpetrators of dissipation of shares to ensure that the majesty of law is upheld.”

The proceedings arise from a foreign arbitral award dated 29 April 2016 directing the Singh brothers and other judgment debtors to pay Daiichi Rs. 2,562 crore, along with pre-award interest at 4.44% and post-award interest at 5.33%.

Daiichi approached the Delhi High Court in May 2016 under Sections 47 and 49 of the Arbitration and Conciliation Act, 1996, which deal with enforcement of foreign awards, seeking enforcement of the award.

It alleged that despite repeated assurances that sufficient assets would remain available to satisfy the award, those assets were subsequently depleted. It also told the Court that its claim had increased to over Rs. 5,200 crore, while only around Rs. 250 crore had been recovered.

The assets in question included FHL shares held through Fortis Healthcare Holding Private Limited (FHHPL), which was directly or indirectly controlled by the Singh brothers and held over 70% of FHL. Malvinder Singh served as FHL's Managing Director and Chairman, while Shivinder Singh was its Director and Vice-Chairman until February 2018.

The Singh brothers first assured the Court on 24 May 2016 that the relevant assets would remain available. However, FHHPL's unencumbered FHL shares fell from 5,29,31,574 in September 2016 to 6,01,607 in December 2018. The Court noted that around 5.23 crore shares were sold despite the assurances.

Daiichi sought a forensic audit after the Supreme Court, in its judgment dated 22 September 2022, directed the executing Court to consider examining transactions involving banks, financial institutions and Fortis.

It alleged that FHL, while controlled by the Singh brothers, was involved in the dissipation of the shares. FHL relied on its separate corporate identity and the free transferability of its shares, while the financial institutions contended that they had dealt only with pledged shares.

The High Court rejected FHL's stand, observing that the Singh brothers controlled FHHPL and FHL when they gave the assurances to the Court. It held that a subsequent change in management could not separate the company's earlier conduct from its present identity.

It further held that an undertaking given to a Constitutional Court could prevail over a private contractual arrangement and restrict the otherwise free transfer of shares. It said the audit was necessary to determine whether the transactions were genuine commercial dealings or collectively resulted in the dissipation of assets available for enforcement of the award.

Daiichi had initially sought an audit of transactions involving all 17 banks and financial institutions, later restricted its request to three institutions and ultimately did not press for an audit against any of them.

Nevertheless, the High Court ordered scrutiny of all 17 institutions, holding that Daiichi's change in position did not affect the need for an audit. directed completion of the audit within six months, with Daiichi bearing the fees. It also directed that failure to comply with the auditor's requisitions would be treated as contempt.

The audit will trace FHL share transactions from 24 May 2016, including pledges, sales, movement of sale proceeds, secured loans and the role of FHL's officers, directors and lenders. It will also examine IHH Healthcare Berhad's acquisition of a controlling stake in FHL through Northern TK Venture Pte. Ltd.

For Daiichi Sankyo Company Limited: Senior Advocate Arvind Nigam with Advocates Giriraj Subramanium, Nabik Syam, Anindita Barman, Shyra Hoon, Tanmay Arora and Chirag Gupta.

For Malvinder Mohan Singh: Senior Advocates Amit Sibal and Ashish Mohan with Advocates Varun Garg, Gaurav Modwil and Shreyansh Jain. Malvinder Mohan Singh also appeared in person.

For Fortis Healthcare Limited: Senior Advocates Rajiv Nayar and Abhinav Vashisht with Advocates Sanjeev Kumar Sharma, Vaibhav Kakkar, Sahil Arora, Sanya Sud, Vaishali Goyal, Raahul Sharma, Manjira Dasgupta, Akshita Sachdeva, Kaveesh Nair, Arnav Chopra, Shreyas Maheshwari and Gauhar Mirza.

For Shivinder Mohan Singh and another judgment debtor: Senior Advocate Balbir Singh with Advocates Aditya Dewan, Naman Tondon, Shivali Shah and Ramneet Kaur.

For Indiabulls Housing Finance: Senior Advocates Dayan Krishnan, Sunjoy Ghose, Vivek Kohli and Jayant Mehta with Advocates Rishi Agrawala, Tarini Khurana and Om Shelat.

For Yes Bank: Senior Advocate Ritin Rai with Advocates Prateek Yadav, Jyotsna Punshi and Nayanika Singhal.

For RBL Bank: Advocates Ateev Mathur and Amol Sharma.

For DCB Bank: Advocate Abhishek Singh.