Top India Court Orders Forensic Audit of Fortis Share Sale

  • In Business
  • 2022-09-22 17:19:04Z
  • By Bloomberg

(Bloomberg) -- India's Supreme Court ordered a forensic audit of the share sale in Fortis Healthcare Ltd. in 2018 and refused to allow the open offer from Malaysia's IHH Healthcare Bhd to proceed, triggering a rout in Fortis's stock.

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A ruling by three judge-panel, headed by Chief Justice U.U. Lalit on Thursday sought a probe into sale of shares in Fortis by lenders and transfer of money to RHT Health Trust on a petition filed by Daiichi Sankyo Co. The Japanese drug maker had acquired a pharmaceutical firm in 2008 from Malvinder Singh and Shivinder Singh, who are also ex-owners of Fortis Healthcare.

A lower court can decide on whether the open offer for Fortis can be allowed based on the evidence it gets, the judges said. "Everything goes back to the executing court," Justice Lalit said. A detailed copy of the ruling is awaited.

The court on Thursday also sentenced the Singh brothers to six months in jail on charges of contempt of court. Daiichi is seeking execution of $500 million award in Delhi High Court against the Singh brothers, who are already in jail on separate fraud and money laundering charges.

Fortis' shares plunged as much as 20% immediately after the ruling on Thursday, the most since February 2018, in Mumbai. The company's shares partially recovered to end 14.7% lower for the day.

The verdict further delays the takeover of the embattled Indian hospital chain company by Malaysia's IHH that has already been pending for over three years. IHH acquired about a third of Fortis in 2018 to became its largest shareholder. The open offer for 26% more shares could have helped IHH fortify position in the company. After the first leg of the deal in August 2018, Fortis has embarked on a revamp with a cost cutting campaign implemented by Chief Executive Officer Ashutosh Raghuvanshi.

Cross Fire

The IHH-Fortis deal is stuck in the cross fire between Daiichi and Singh brothers who used to own Fortis. Daiichi had in 2016 won an arbitration award worth over $500 million against the Singhs in the dispute around the sale of brothers' generic drug making firm, Ranbaxy Laboratories Ltd., to Daiichi.

In 2018, when Indian lenders sold Singh brothers' pledged shares in Fortis, the Japanese drug maker objected and said the brothers had on oath assured their stake in Fortis will cover the award amount.

Fortis and the India's capital market regulator had petitioned the court to lift the halt, arguing Daiichi's recovery efforts are not affected by the open offer.

All the funds from IHH went to help Fortis recover from financial difficulties and no funds went to the Singh brothers, IHH's spokesman said in an emailed statement. "Whatever shares that were owned by Singh brothers that were pledged to the banks are for the banks to explain to the court and not for IHH," the company added.

The court on Thursday said all cases, including insolvency petitions against companies owned by Singh brothers, will be allowed to proceed.

(adds comment from IHH, updates with share price movement. An earlier version had a factual error.)

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