The Delhi High Court has mandated a comprehensive forensic audit to investigate the depletion of shares in Fortis Healthcare Limited (FHL) and other assets. These assets were designated to satisfy the arbitral award obtained by Daiichi Sankyo, a Japanese pharmaceutical firm, against Malvinder Mohan Singh and Shivinder Mohan Singh, the erstwhile promoters of Ranbaxy. Justice Subramonium Prasad, presiding over the matter, appointed the chartered accountancy firm S Ramanand Aiyar & Co to conduct this audit, with a directive to conclude the exercise within six months. The Court specified that the audit's objective is to reconstruct the entire sequence of transactions and identify all individuals, companies, banks, and financial institutions involved in the reduction of these shares.
Background of the Enforcement Proceedings
The genesis of the dispute traces back to Daiichi's acquisition of Ranbaxy from the Singh brothers in 2008. This transaction was subsequently marred by allegations that the brothers had concealed ongoing US regulatory investigations. In 2016, a Singapore tribunal awarded Daiichi ₹2,562 crore. During the subsequent enforcement proceedings in India, the value of Fortis shares, which were available for recovery, experienced a significant decline despite assurances provided to the Court. The Supreme Court, in 2022, found the Singh brothers guilty of contempt of court and instructed the Delhi High Court to consider forensic audits of transactions involving banks, financial institutions, FHL, and RHT Health Trust. This directive paved the way for the current litigation.
Court's Observations on Delay and Asset Dissipation
The Delhi High Court observed that despite nearly a decade of enforcement efforts, Daiichi Sankyo had yet to receive the amount stipulated by the arbitral tribunal. The Court remarked on the "tragic" reality that even with strong judicial observations over the years, the situation remained unchanged, noting that judgment debtors often employ various strategies to circumvent the rights of decree holders. Justice Prasad emphasised that courts cannot remain "silent spectators" or express helplessness, as such inaction would signify the "death knell for any judicial system in maintaining the rule of law."
The Court recorded that in September 2016, the Singh brothers and their associated entities held 5.29 crore unencumbered FHL shares. By December 2018, this figure had drastically reduced to approximately 6.01 lakh shares. The Court determined that around 5.23 crore unencumbered shares had been sold, notwithstanding the assurances given to the Court that sufficient assets would be preserved to safeguard Daiichi's interests.
Rejection of Fortis' Contentions and Corporate Veil Piercing
Fortis Healthcare Limited contended that no injunction existed against the transfer of shares held by Fortis Healthcare Holding Private Limited (FHHPL) and that shares of a public company are freely transferable under the Companies Act. The Court, however, rejected this argument at the current stage of proceedings. Justice Prasad opined that an assurance or undertaking provided to a Constitutional Court of the country must be accorded a "higher pedestal" than a mere contract between parties.
Furthermore, the Court declined to accept Fortis' assertion that its independent corporate personality precluded an examination of its role in the transactions. The Court stated that a forensic inquiry was essential to ascertain whether the corporate structure had been exploited to facilitate the systematic dissipation of shares. The judgment highlighted that the Singh brothers were the "true controlling minds" behind the judgment-debtor entities, exercising control over both FHHPL and FHL during the relevant period. The Court concluded that the brothers could not simultaneously offer assurances through their legal representatives while dissipating the very assets subject to those assurances through entities under their command. Justice Prasad asserted that the Court could not "throw up its hand and refrain itself from unveiling the fraud perpetuated on the Court," thereby necessitating a forensic audit.
Implications for Banks and Financial Institutions
The Court also deliberated on the principle of reverse corporate veil piercing. It explained that this doctrine could permit assets held by a company to be considered available for satisfying a decree if the company had become a repository or vehicle for assets effectively controlled by the judgment debtors. Consequently, the Court concluded that the present case warranted a forensic audit. The Court further indicated that should the audit reveal that a bank or financial institution knowingly facilitated transactions in violation of judicial orders, it would then determine their liability and issue appropriate directions to neutralise the impact of such transactions. The auditor is tasked with examining all relevant records to fulfill this mandate.