Background of the Case
The Delhi High Court has initiated a forensic audit to investigate the dissipation of shares and assets of Fortis Healthcare Limited (FHL) that were intended to satisfy an arbitral award in favor of Daiichi Sankyo. This award was against Malvinder Mohan Singh and Shivinder Mohan Singh, former promoters of Ranbaxy. The legal proceedings follow Daiichi’s acquisition of Ranbaxy from the Singh brothers in 2008, during which the brothers allegedly concealed investigations by U.S. regulatory authorities.
Forensic Audit Ordered
Justice Subramonium Prasad appointed the firm S Ramanand Aiyar & Co to conduct a comprehensive forensic audit. The audit is expected to reconstruct all transactions related to the depletion of FHL shares and identify all parties involved, including companies, banks, and financial institutions. The auditor has been given six months to complete this task.
Legal Proceedings and Court Observations
A Singapore tribunal had awarded Daiichi ₹2,562 crore in 2016. Despite this, enforcement has been problematic due to the sharp decline in Fortis shares available for recovery. The Supreme Court had previously found the Singh brothers in contempt and had tasked the Delhi High Court with considering forensic audits of related transactions.
The court remarked on the prolonged enforcement proceedings, stating that Daiichi has yet to receive the awarded amount. Justice Prasad stressed the importance of maintaining the rule of law, asserting that the courts must not be passive observers in such situations.
Arguments and Court’s Decision
Fortis contended that shares of a public company are freely transferable under the Companies Act, and no injunction was placed against transferring the shares held by Fortis Healthcare Holding Private Limited (FHHPL). However, the court rejected this argument, emphasizing that assurances or undertakings to the constitutional court hold greater importance than contractual agreements between parties.
Furthermore, the court dismissed Fortis’ claim of independent corporate personality as a shield against scrutiny, asserting the need for a forensic inquiry to determine if the corporate structure was misused to dissipate shares systematically.
Role of Singh Brothers and Future Implications
The judgment noted the Singh brothers as the “true controlling minds” behind the entities involved. The audit will delve into whether they used their control to dissipate assets despite court assurances. The court highlighted the principle of reverse corporate veil piercing, suggesting that assets held by a company could be used to satisfy a decree if controlled by judgment debtors.
Scope of the Forensic Audit
The audit will scrutinize the creation and invocation of pledges, sales, and transfers of FHL shares from May 24, 2016, onward. It will also assess the acquisition of a controlling stake in FHL by IHH Healthcare Berhad through Northern TK Venture. The audit will cover the roles of FHL’s directors, officers, key managerial personnel, and other intermediaries. Although Daiichi initially sought an audit of 17 banks, it later limited this to three. However, the court has ordered a wider review involving all banks and financial institutions in question.
Daiichi was represented by Senior Advocate Arvind Nigam, with Senior Advocates Amit Sibal and Ashish Mohan appearing for Malvinder Mohan Singh. Shivinder Mohan Singh was represented by Senior Advocate Balbir Singh, while Fortis Healthcare was represented by Senior Advocates Rajiv Nayar and Abhinav Vashisht.
