Delhi HC appoints forensic auditor to examine Fortis-linked transactions in Daiichi case

Nearly a decade after Japanese pharmaceutical company Daiichi Sankyo won a ₹2,562-crore international arbitration award against former Fortis promoters Malvinder Mohan Singh and Shivinder Mohan Singh, the Delhi High Court, in an order passed on Monday, ordered a forensic audit of transactions involving Fortis Healthcare and related entities.

Daiichi says the amount due under the award has now risen to around ₹5,300 crore, including interest.

The award was passed on 29 April 2016, and enforcement proceedings began the same year. The court noted that “almost a decade has elapsed, and the execution proceedings are still pending.”

Expressing concern over the prolonged battle over the award, the court said: “Generations pass, but decrees are not executed as the Judgment Debtor has several arrows up in his quiver to defeat the rights of a Decree Holder and a Decree Holder is unable to reap the fruits of the decree even after winning two to three legal battles.”

Justice Subramonium Prasad allowed Daiichi’s applications seeking a forensic examination of transactions involving Fortis Healthcare Ltd (FHL), Singapore-based RHT Health Trust, Malaysia’s IHH Healthcare Berhad and other entities linked to the Singh brothers.

The ruling marks a breakthrough in one of India’s longest-running legal battles to enforce an international arbitration award.

The court appointed S Ramanand Aiyar & Co., Chartered Accountants, as the forensic auditor.

The forensic audit is to be completed within six months.

The auditor will issue its initial list of information and documents required for the exercise within four weeks, while the concerned entities will have two weeks from receiving the requisition to provide the requested material.

The court said the audit would help establish how the Singh brothers' assets were eroded, how the court's orders may have been dealt with, and who, if anyone, aided or facilitated the transactions.

“The forensic audit would help in unearthing as to how, and who all have aided and abetted the constant erosion of the assets of the Judgment Debtors,” the court said.

At the same time, the court made clear that the audit is only an investigation and does not itself establish liability. “A direction for forensic audit is purely investigative in nature and is intended to facilitate the discovery and reconstruction of facts,” it said.

The auditor will examine the shareholding of Fortis Healthcare Holding Pvt Ltd (FHHPL) in Fortis Healthcare Ltd (FHL) from 24 May 2016, when an assurance was given to the court. It will trace pledges of Fortis shares, additional shares given as security, transfers, releases of securities, and sales of pledged shares, and examine whether such transactions occurred after relevant court orders.

The audit will cover transactions involving 17 banks and financial institutions. It will examine loans secured against Fortis shares, changes in security, additional security provided when share values fell, invocation and sale of pledged shares, and outstanding liabilities.

A bank-wise statement will record loans, pledged shares, transfers, sales, and court orders applicable at the time.

The auditor will also trace the funds received from the transfer or sale of Fortis shares, including where the funds went and how they were used. It will examine entities linked to the Singh brothers that received loans backed by Fortis shares and the purpose for which those loans were taken and used.

Another part of the audit concerns IHH Healthcare Berhad's 2018 acquisition of a controlling stake in Fortis through Northern TK Venture Pte Ltd. The auditor will examine the approvals, regulatory filings, flow of consideration, role of the parties and intermediaries and subsequent transactions affecting FHHPL's Fortis shareholding.

The audit will also examine Fortis's ₹4,666-crore acquisition of proprietary interests in hospitals and diagnostic centres.

The court has directed the auditor to examine bank statements, demat records, board and shareholder records, statutory filings, emails, internal correspondence, legal opinions and other documents. It will also identify people who proposed, approved, authorised, implemented, facilitated or recorded the transactions.

“The judgment does not impose any monetary liability on Fortis, which was neither a party to the original dispute nor a judgment debtor in the execution proceedings. The Court has directed the appointment of a forensic auditor to primarily conduct a factual enquiry and reconstruction of the facts in relation to the dissipation of shares of Fortis by the erstwhile promoters (Singh Brothers), which does not in any way, by itself, result in fastening of liability on Fortis,” a Fortis Healthcare spokesperson said in a statement.

The case stems from Daiichi Sankyo's 2008 acquisition of Ranbaxy Laboratories from the Singh family. Daiichi later alleged that key information concerning regulatory issues at Ranbaxy had not been disclosed. The dispute went to arbitration in Singapore, resulting in the April 2016 award directing the Singh brothers and other parties to pay ₹2,562 crore plus interest.

The enforcement proceedings subsequently focused on the Singh brothers' Fortis shareholding and transactions involving Fortis, RHT Health Trust, IHH Healthcare and financial institutions. Daiichi alleged that the Fortis shares were progressively pledged and sold, reducing assets available to satisfy the award.

The forensic audit direction comes four years after the Supreme Court’s 2022 order directing the Delhi High Court to consider a forensic examination of transactions involving Fortis, RHT, banks and financial institutions, including whether the transactions were bona fide and undertaken for commercial reasons.

The High Court’s latest order now gives effect to that direction.