Fortis probe finds lapses in loan, plans to recover Rs 500 crore from Singh brothers
The Singh brothers had resigned as directors from the board of Fortis Healthcare in February this year, following the Delhi High Court order upholding the Rs 3,500 crore arbitral award in favour of Daiichi Sankyo.business Updated: Jun 27, 2018 18:27 IST
Fortis Healthcare on Wednesday said it has initiated legal action to recover about Rs 500 crore of funds allegedly taken out of the company by its founders Malvinder and Shivinder Singh after an external investigation found “systemic lapses and override of controls” in the loan given.
The loans were given to its founders without board approval and enough collaterals, it added.
The firm, which is embroiled in a takeover battle, also annulled September 2016 appointment of former executive chairman Malvinder Singh as ‘Lead: Strategic Initiatives’ and will seek to recover payments made to him in that role as well as any company asset in his possession.
The Singh brothers had resigned as directors from the board of Fortis Healthcare in February this year, following the Delhi High Court order upholding the Rs 3,500 crore arbitral award in favour of Daiichi Sankyo.
Malvinder Singh, who was appointed Lead Strategic Initiatives for five years with effect from October 1, 2016, at a remuneration of Rs 12 crore per annum, had received Rs 6 crore during 2016-17 and a proportionate sum for 2017-18.
Fortis, which had initiated an independent investigation through an external legal firm in February this year, following allegations of siphoning of cash by the founding family, said the probe report has been submitted to the Sebi and Serious Fraud Investigation Office (SFIO) of the government.
Fortis said it has made provisions totalling around Rs 580 crore in the fourth quarter of 2017-18 fiscal pertaining to the loans whose “recoverability is doubtful”.
Under the founders, Fortis had loaned about Rs 500 crore to certain corporate bodies, which subsequently became part of the Singhs’ corporate group.
These inter-corporate deposits (ICDs) “were not given under the normal treasury operations” and were not specifically authorised by the board of the company, as per the summary of the probe report that Fortis disclosed in a regulatory filing.
“All ICDs from December 2011 were repaid until March 31, 2016. However, from the first quarter of the financial year 2016-17, it has been observed that a roll-over mechanism was devised whereby, ICDs were repaid by cheque by the borrower companies at the end of each quarter and fresh ICDs were released at the start of succeeding quarter under separately executed ICD agreements.
“In respect of the roll-overs of ICDs placed on July 1, 2017, with the borrower companies, Fortis Healthcare Ltd utilized the funds received from the company for the purposes of effecting roll-over,” it said.
For these ICDs, “the investigation report revealed that there were certain systemic lapses and override of controls, including shortcomings in executing documents and creating a security charge,” it said. “The charge was later on created in February 2018”.
While the investigation report did not conclude on utilization of funds by the borrower companies, there are findings in the report to suggest that ICDs were utilised by the borrowers for granting/ repayment of loans to certain additional entities, including those whose current and/ or past promoters/ directors are known to/connected with the promoters of Fortis.
“The company has initiated legal action for recovery of these outstanding ICDs and other advances,” Fortis said.
“The company having considered all necessary facts and taken into account legal advice that it has received, has decided to treat as ‘non est’ the Letter of Appointment dated September 27, 2016, as amended (LoA) issued to the erstwhile Executive Chairman in relation to his role as ‘Lead: Strategic Initiatives’ in Strategy Function.
“The company is in the process of taking suitable legal measures to recover the payments made to him under the LoA as also to recover all company assets in his possession,” it added.
‘Non est’ is a legal phrase which is intended to mean ‘does not exist’.
According to company’s annual report for 2016-17, “Malvinder Mohan Singh, Executive Chairman did not draw any remuneration in his capacity of Executive Director during the FY 2016-17” but was “paid a remuneration of Rs 6 crore” for his role as Lead Strategic Initiatives.
In 2015-16, he was paid a remuneration of Rs 1.59 crore and got Rs 5.32 crore in the previous fiscal.
Commenting on the findings of the investigation, Fortis Healthcare Chairman Ravi Rajagopal said, “As a result of the Investigation Report issued by Luthra & Luthra, the company will appoint an external agency of repute to establish the highest level of governance and internal controls.
“In addition, our key priority is to ensure that the current bidding process is fair and transparent and maximises value for shareholders.”
The board of directors of the company discussed the investigation report during their two-day meeting, which ended early this morning.
The development comes at a time when the cash-strapped healthcare chain is in the process of finding a new investor for which four parties -- Manipal-TPG, Munjals-Burmans combine, IHH Healthcare and KKR-backed Radiant Life Care -- are in the fray.
There was no direct relationship between borrower companies and Fortis Healthcare or its subsidiaries during December 2011 to December 14, 2017, but the report noted that the “promoters were evaluating certain transactions concerning certain assets owned by them for the settlement of ICDs, thereby indirectly implying some sort of affiliation with the borrower companies.”
First Published: Jun 27, 2018 18:26 IST