Fortis Healthcare has approached the Supreme Court challenging a Delhi High Court order for a forensic inquiry. The case relates to Daiichi Sankyo’s arbitral award against Fortis’s ex-promoters, the Singh brothers. Fortis argues it is not liable.
Fortis Challenges High Court’s Forensic Inquiry Order
Fortis Healthcare Limited has approached the Supreme Court challenging the Delhi High Court’s August 31 order in the enforcement proceedings relating to Daiichi Sankyo’s arbitral award against former Fortis promoters Malvinder Mohan Singh and Shivinder Mohan Singh and their related entities.
In its Special Leave Petition (SLP), Fortis has alleged that the High Court’s directions amount to subjecting a listed company, which was neither a party to the underlying arbitration nor a judgment debtor or garnishee, to an open-ended forensic inquiry. Fortis has argued that the High Court effectively treated the company as an extension or alter ego of its erstwhile promoters before determining whether there was any legal or factual basis to do so. It has contended that the order therefore places the cart before the horse by first questioning the company’s separate legal personality and then directing an audit to look for material that could support such a conclusion.
The SLP arises from Daiichi Sankyo’s efforts to enforce a 2016 foreign arbitral award of over Rs 2,500 crore, arising from allegations of fraudulent misrepresentations by the Singh Brothers in connection with the sale of Ranbaxy Laboratories to Daiichi. Fortis has stressed that it was not a party to the arbitration or the award and had no role in the underlying dispute. According to the petition, the parties to the arbitration included the Singh Brothers, their relatives and specified family-controlled entities, while Fortis and its subsequent investor IHH Healthcare Berhad were not parties to those proceedings.
Key Arguments in the Petition
A key ground in the SLP is that the High Court allegedly recorded adverse observations against Fortis without identifying any specific act or omission by the company, its directors, officers or employees showing that it aided or participated in the alleged dissipation of shares.
Share Transfer and Statutory Obligations
Fortis has argued that its listed-company structure did not give it the legal or operational ability to prevent the transfer of dematerialised shares held by its shareholders. It has relied on the Depositories Act and SEBI regulatory framework to contend that such shares are freely transferable and that a listed issuer does not have the mechanism to independently stop such transfers. The company has further said that information about the share transactions was disclosed to it after the transfers had taken place and was subsequently disseminated through stock-exchange disclosures in compliance with its statutory obligations. It has maintained that knowledge of a transaction after the event could not, by itself, make Fortis responsible for preventing it.
Promoters’ Personal Undertakings
Fortis has also contended that the Singh Brothers’ undertakings before the courts were given in their personal capacity and that Fortis was not a party to those proceedings. It therefore disputes any attempt to attribute the promoters’ knowledge or undertakings to the company. Fortis has argued that the Supreme Court had directed that any forensic audit concerning the alleged dissipation of the Singh Brothers’ Fortis shares should be undertaken in relation to banks and financial institutions, and not against Fortis itself. As regards the separate transaction involving Fortis and RHT Health Trust, the SLP states that the Supreme Court had left the question of a forensic audit to the discretion of the executing court. Fortis contends that the Delhi High Court did not provide sufficient reasons for exercising that discretion and merely observed that the transactions required detailed examination.
Post-Promoter Era and IHH Investment
According to the SLP, IHH Healthcare invested Rs 4,000 crore in Fortis through a fresh subscription of shares in November 2018. Fortis says this was not a purchase of shares from the Singh Brothers or their family entities. The petition further states that the Singh Brothers and their proxy entities had exited Fortis more than nine months before the IHH investment and that their indirect shareholding had fallen below one per cent by that time. Fortis argues that these circumstances were significant because the new investment was made through a fresh issue after the exit of the erstwhile promoters and after statutory approvals. It contends that there could therefore be no automatic attribution of the former promoters’ alleged conduct to IHH or the restructured Fortis.
Challenge to ‘Reverse Piercing’ and Shareholder Impact
The SLP also challenges the High Court’s reliance on the concept of “reverse piercing”, under which the assets of a company may potentially be subjected to the personal liabilities of its shareholders or controllers. Fortis argues that the doctrine has not been recognised by Indian courts and says that applying it to a listed company with lakhs of public shareholders would have significant consequences for persons who were not involved in the underlying dispute. The company has relied on established principles of separate corporate personality to contend that the assets of a company cannot simply be treated as the assets of its shareholders. (ANI)
Fortis has told the Supreme Court that the consequences of the impugned order would extend beyond the former promoters and affect approximately 2.5 lakh public shareholders, who collectively hold around 69 per cent of the company. It has also highlighted IHH’s Rs 4,000-crore investment, stating that the investment helped revive the company after the financial difficulties associated with the erstwhile promoters. The SLP contends that making the revived listed company answerable for the personal liabilities of former promoters could have wider implications for investors considering investments in distressed or financially troubled companies.
Tracing Dissipated Assets
Fortis has further argued that it did not receive any assets, money or proceeds from the alleged dissipation of shares and that there is no traceable asset of the judgment debtors in its possession. According to the petition, the relevant records concerning share transfers and sale proceeds are primarily with banks, financial institutions and depositories. Fortis says it had proposed a mechanism before the High Court for tracing the assets through the depositories, but alleges that the proposal was rejected by Daiichi and was not addressed in the impugned order. (ANI)
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