Delhi High Court orders forensic audit of Fortis, IHH and RHT transactions in Daiichi-Singh case

Court Orders Forensic Audit

The Delhi High Court has directed the appointment of a forensic auditor to examine transactions involving Fortis Healthcare (FHL), Malaysia's IHH Healthcare Berhad and Singapore's RHT Health Trust, in a case linked to a $4.6-billion arbitration award won by Japanese pharma major Daiichi Sankyo against Malvinder and Shivinder Singh.

The order came in execution proceedings arising from a Singapore arbitration award dated April 29, 2016, which directed the judgment debtors to pay around ₹2,562 crore, along with interest. Daiichi has claimed that the amount due has now risen to approximately ₹5,300 crore.

Justice Subromonium Prasad appointed S Ramanand Aiyar & Co, Chartered Accountants, as the forensic auditor and directed it to reconstruct the chain of transactions involving Fortis shares, the judgment debtors, banks and financial institutions that had financed transactions against the shares. The auditor has been given six months to complete the exercise.

The court took note of the sharp decline in Fortis Healthcare's shareholding held through Fortis Healthcare Holding Pvt Ltd, which was controlled by the judgment debtors, and also considered the principle of reverse piercing of the corporate veil.

Fortis's Response

Fortis Healthcare Limited said the judgment does not impose any monetary liability on the company. In a statement, Fortis said it had taken note of the judgment and clarified that it was "neither a party to the original dispute nor a judgment debtor in the execution proceedings." It said the court's direction to appoint a forensic auditor was primarily aimed at conducting a factual enquiry and reconstructing the circumstances surrounding the dissipation of Fortis shares by its erstwhile promoters, Malvinder Mohan Singh and Shivinder Mohan Singh.

Fortis emphasized that the forensic audit order "does not in any way, by itself, result in fastening of liability on Fortis." The company said it was reviewing the judgment in detail in consultation with its legal counsel and would determine the appropriate course of action in accordance with applicable law.

"Fortis remains committed to the highest standards of corporate governance, transparency and regulatory compliance and continues to remain focused on its operations and the interest of all its stakeholders," the company said.

Background of the Dispute

Daiichi had sought the appointment of a forensic auditor to investigate the transactions and any nexus between RHT, the former FHL promoters and others, following directions issued by the Supreme Court on September 22, 2022. The Japanese drugmaker is seeking an audit of the dilution of FHL's shareholding, alleged violations of undertakings and assurances given by the former promoters, and transactions between FHL and IHH. It has also alleged a clandestine transfer of Rs 4,666 crore to RHT Singapore.

IHH had acquired a 31% stake in Fortis Healthcare for Rs 4,000 crore in July 2018 through a bidding process. Daiichi had also sought a forensic audit of transactions between the Singh brothers and companies belonging to the Religare Group, including Religare Capital Market, Religare Capital Market International (Mauritius), Religare Enterprises, Religare Finvest and Religare Comtrade.

In a separate application, Daiichi had asked the High Court to appoint forensic auditors to examine the conduct of 17 banks and financial institutions, including HDFC Ltd, Yes Bank, Axis Bank, Citicorp Finance, Aditya Birla Sun Life Insurance Co and Kotak Mahindra Investments. The petition alleged that these lenders had invoked pledges on shares of FHL owned by Fortis Healthcare Holding Pvt Ltd.

In September 2022, the Supreme Court had directed the Delhi High Court to consider appointing forensic auditors to examine whether transactions entered into by banks and financial institutions were bona fide.

Daiichi had acquired Ranbaxy Laboratories from the Singh brothers in 2008 and subsequently won a Singapore arbitration award against them. The forensic audit is an investigative exercise aimed at determining whether persons or entities attempted to reduce the reach of the award, and does not by itself fasten liability on any person or entity.