The Delhi High Court has ordered a six-month forensic audit into financial transactions involving Fortis Healthcare, its former promoters Malvinder Mohan Singh and Shivinder Mohan Singh, Malaysia’s IHH Healthcare and Singapore-based RHT Health Trust.
The court’s decision is part of the long-running legal battle between Japanese pharmaceutical company Daiichi Sankyo and the Singh brothers. Daiichi is seeking to enforce an arbitration award against the former Ranbaxy promoters, and the latest audit is aimed at tracing assets and transactions that could have been used to meet the award.
Justice Subramonium Prasad appointed chartered accountancy firm S Ramanand Aiyar & Co as the forensic auditor and directed it to complete the exercise within six months. The audit will reconstruct the movement of Fortis shares and funds and examine the sequence of transactions involving the companies and individuals connected with the dispute.
At the centre of the case is a ₹3,500-crore arbitration award in favour of Daiichi Sankyo. The dispute goes back to 2008, when Daiichi acquired Ranbaxy Laboratories from the Singh brothers for $4.6 billion. Daiichi later alleged that important information had been concealed during the transaction, leading to arbitration proceedings in Singapore.
A Singapore tribunal eventually awarded compensation to Daiichi. The Japanese company has since been pursuing enforcement of the award in India and has argued that assets linked to the Singh brothers were reduced or transferred during the enforcement process.
The Delhi High Court’s latest order seeks to establish what happened to those assets.
One major area of investigation will be the sharp decline in the Fortis shareholding held by Fortis Healthcare Holdings Pvt Ltd, the company through which the Singh brothers held their stake in the hospital chain. The auditor will examine the transfer and sale of these shares and trace where the money generated from those transactions went.
The court has also asked the auditor to examine transactions involving RHT Health Trust. Daiichi has alleged that ₹4,666 crore was transferred to the Singapore-based trust, which held hospital assets associated with the former Fortis promoters. The audit will examine the nature of the transfer, the flow of funds and their eventual utilisation.
Another important part of the investigation concerns IHH Healthcare’s acquisition of a controlling stake in Fortis. IHH acquired a 31% stake in Fortis for around ₹4,000 crore in July 2018 through a bidding process.
The court has directed the auditor to examine the entire transaction, including approvals, regulatory filings, the flow of consideration, the role of intermediaries and the subsequent changes in Fortis’ shareholding. It will also identify the people and entities that proposed, negotiated, approved, facilitated or recorded the transactions.
The audit will not stop with Fortis, IHH and RHT. The court has also permitted scrutiny of dealings involving the Singh brothers and companies belonging to the Religare Group, which they had founded.
Daiichi had additionally sought an examination of transactions involving 17 banks and financial institutions. The allegations include the sale of pledged Fortis shares and claims that some lenders acted despite court orders and undertakings given during the legal proceedings.
The Supreme Court had in September 2022 asked the Delhi High Court to consider forensic audits into transactions involving banks, financial institutions, Fortis, RHT and other related entities. The latest order follows that direction and seeks to create a detailed financial trail.
The High Court said a forensic audit would help reconstruct the chronology of transactions, trace the movement of shares and funds and provide a clearer factual record for deciding the competing claims.
The court also indicated that the audit could examine whether there was any involvement by Fortis or violations of SEBI regulations by companies, the Singh brothers or financial institutions. Any violations identified could potentially lead to separate consequences under applicable laws.
Fortis Healthcare has said the court order does not impose any monetary liability on the company. It pointed out that Fortis was neither a party to the original dispute nor a judgment debtor in the enforcement proceedings. The company said it was reviewing the judgment with its legal advisers.
IHH has also said it is not a party to the underlying legal proceedings. However, the court-monitored audit will examine aspects of its acquisition of the Fortis stake because of questions raised by Daiichi regarding the movement of funds and shares.
The case has been running for years, and the latest order reflects the court’s concern over the difficulty of enforcing the arbitration award. The court noted that despite years of proceedings, Daiichi has yet to receive the amount awarded to it.
The forensic audit could now provide a clearer picture of how Fortis shares, funds and other assets moved during the period under scrutiny.