Fortis- IHH Healthcare Deal: Supreme Court directs Banks & Financial Institutions To Disclose Documents

Fortis- IHH Healthcare Deal: Supreme Court directs Banks & Financial Institutions To Disclose Documents

The Supreme Court of India (SC) in the case of Daiichi Sankyo Company Limited (Petitioner) v. Oscar Investments Limited (Respondent), directed the banks and financial institutions to place on record the documents to determine their role in the alienation of Fortis Healthcare's shares through its deal with IHH healthcare, on or before 22 February 2021.

The SC bench comprising Justices UU Lalit, Indira Banerjee, and KM Joseph, passed an order on 18 February 2021, wherein it asked seventeen banks and financial institutions, which had lent money to Fortis Healthcare Limited (FHL) promoters, Malvinder Singh and Shivinder Singh (Singh Brothers), to give details of shares of FHL standing in the name of Fortis Healthcare Holding Private Limited (FHHPL) which were sold by them starting from January, 2017.

The said deal took place despite an order of the Top Court that directed the status quo regarding the shareholding of FHHPL in FHL.

The Apex Court further directed, "Place on record the details of encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them on 11 August 2017; give details of shares of FHL standing in the name of FHHPL, which were put by them under encumbrance after 11 August 2017."

The Top Court issued the aforesaid directions while it was hearing a contempt petition against Singh brothers for violation of its order dated 11 August 2017 wherein the Court directed status quo. On 31 August 2017, the Court further clarified that its order dated 11 August 2017 was meant for both encumbered and unencumbered shares.

Immediately thereafter, applications were filed by various banks and financial institutions before the SC wherein it sought modification and clarifications submitting inter alia that certain shares of FHL held by FHHPL were already pledged with said banks/financial institutions.

It was further sought before the Court that a direction must be given that the orders dated 11 August and 31 August 2017 would not be applicable to such encumbered shares.

On 15 February 2018, the Top Court clarified that the status quo order passed by the Court would not apply to shares of FHL held by FHHPL which had been encumbered before the interim orders of 11 August and 31 August 2017 of this Court.

In 2019 the Apex Court initiated contempt proceedings against Fortis for violation of its status quo order regarding the transfer of controlling stake in FHL. A three-judge bench of Chief Justice Ranjan Gogoi, Justice Deepak Gupta and Justice Sanjiv Khanna had asked Fortis to disclose the list of officials who controlled the company in January 2018-2019.

It was submitted by the Singh Brothers before the Apex Court that although they have not sold or further encumbered any shares after March 2017, however various banks and financial institutions have exercised the right of pledge and pledged the shares without any consent from them.

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 appellants submitted before the SC that the banks had intervened in the matters pending before this Court and they were aware of the order granted in favour of the appellants. That the role of banks and financial institutions would, require closer scrutiny.

It was further submitted that at the stage when the applications for modification were preferred by the banks and financial institutions, based on which the order dated 25 February 2018 was passed by this Court, none of the banks had told this Court what the consequences of said order would be; and that in a matter of 1.5 years, the shareholding of FHHPL stood reduced to the negligible level.

The Top Court asked for the following details from the banks-

"In the premises, for the present, we direct all the noticee banks and financial institutions :-

(a) to place on record the basic documents pertaining to loans advanced or financial accommodations extended in respect of which the shares of FHL were pledged with them;

(b) to place on record the nature of securities offered in connection with such loan arrangements;

(c) to place on record the details of the encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them in September 2016;

(d) to place on record the details of encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them on 11.08.2017;

(e) to give details of shares of FHL standing in the name of FHHPL, which were put by them under encumbrance after 11.08.2017;

(f) to give details of shares of FHL standing in the name of FHHPL, sold by banks/financial institutions from January 2017;

(g) to disclose whether such encumbrance created after 11.08.2017 was in pursuance of any fresh arrangement or agreement and, if so, the details of such agreement/arrangement;

(h) to disclose whether under such agreement/arrangement any other security was given by the pledgers; and

(i) to give the value of the encumbered shares as they stood in September 2016, on 11.08.2017 and on subsequent dates."

The SC posted the matter on 24 February 2021 for further hearing.