Supreme Court Asks For Explanation From Lenders For Sale of Fortis shares

Supreme Court Asks For Explanation From Lenders For Sale of Fortis shares

The Supreme Court of India (SC) asked 17 lenders to Malvinder Singh and Shivinder Singh (Singh Brothers) who were the former promoters of Fortis Healthcare, to explain their role in the transfer of the company's shares to Malaysian healthcare major IHH Healthcare Berhad despite directions from the SC and the Delhi High Court (HC) barring any such transfer.

A bench of the SC led by Justice UU Lalit stated that it was deemed necessary, in the interest of clarity, to allow lenders with an opportunity to present their position. It was further stated by the Top Court that such an opportunity would also help in deciding the nature of the sentence that is to be imposed on the Singh brothers for contempt of court.

Justice Lalit slammed Malvinder "Around 3 crore shares have gone away from the kitty after various assurances were given to the HC in June 2017. Around 30.65 crore encumbered and unencumbered shares were intact before assurances were given in June 2017."

The Court further told Malvinder that "You never told the HC to take control of the situation if banks were selling securities. You should have informed the court about this while giving assurances. This means shares were in your control only. There is also a finding of guilt in your favour."

The Top Court further told Malvinder that it would give him 10 days to either deposit the entire money in Court or bring back the shares. It added "Resultant transaction must be annulled and original situation should be restored. Either share has to be given back or you put in the money equivalent to this amount in the Court."

Justice Lalit told Malvinder while asking him to furnish the documents showing he had informed the lending banks and financial institutions from time to time about various directions issued by the courts with regards to assets/shares of the promoters.

In July 2018, IHH had bought a 31% controlling stake in Fortis Healthcare for Rs. 4,000 crore through the bidding route. Around 17 banks and financial institutions, including Yes Bank, Axis Bank, Kotak Mahindra Investment, and Indiabulls, need to explain why they sold the shares pledged with them despite the SC and HC orders restraining the brothers from alienating or creating third-party interests in their assets.

The Court issued the directions when Malvinder's counsel Kailash Vasudev alleged that Fortis Healthcare shares owned by him and his brother Shivinder were not transferred by the brothers to IHH Berhad but was by the banks.

It was alleged by the Japanese drugmaker Daiichi Sankyo that is seeking enforcement of the Rs. 3,500-crore Singapore arbitration award against the Singh brothers that the duo had disposed of their controlling stakes secretly in Fortis Group to IHH Healthcare. The brothers gave several written assurances to the HC that they would not alienate their unencumbered shares.

The Singh brothers had also submitted written assurances before the HC mentioning that they would not dilute their shareholdings in the hospital chain.

Their shareholding in the company declined from above 70% to below 1% after Daiichi Sankyo took them to Court for enforcement of the award.

In 2019 the Apex Court held the Singh brothers guilty of contempt for violating its earlier orders that had restrained them from divesting their shares in Fortis Healthcare. However, it gave them one more chance to purge themselves of the contempt if each of them deposited Rs 1,170.95 crore.

The Singh brothers are in Tihar jail in a case filed by Religare FinVest, an arm of Religare Enterprises for allegedly causing wrongful losses worth Rs. 2,397 crore.