Fortis Healthcare may appeal HC ruling to SC

Fortis Healthcare is reviewing a detailed Delhi High Court judgment and may approach the Supreme Court. The 213-page ruling orders a forensic audit into the hospital chain's transactions from the period when the Singh brothers were in control to when Malaysia's IHH Healthcare took over.

Justice Subramonium Prasad issued the order. The audit aims to uncover any violations of court orders that might have frustrated the execution of a decree favoring Japanese drug maker Daiichi Sankyo. The court stated it is not powerless to examine the legal consequences if banks or financial institutions knowingly facilitated transactions that circumvented judicial orders.

Scope of the forensic audit

The scope of the mandated audit is vast. It will cover the role of Fortis officers, directors, compliance officers, and its registrar and transfer agents. Every intermediary involved in processing, approving, recording, or giving effect to the relevant transactions will be examined.

The audit includes IHH Healthcare and Northern TK Venture. It will scrutinize statutory filings, corporate approvals, and regulatory compliances. Critically, it also covers internal correspondence, emails, and legal opinions. This means every law firm that advised Fortis or IHH through these transactions is now under scrutiny. Every person who proposed, negotiated, approved, authorized, implemented, certified, or recorded any relevant transaction is subject to examination.

Court's powers and potential remedies

Based on a full reading of the judgment, the court can grant remedies against any person found to have violated its orders. A lawyer told reporters that the court could structure a remedy requiring direct payment to Daiichi Sankyo from any person meeting that test. Under paragraph 269 of the judgment, the court has made clear it can reverse all transactions.

The High Court held that Fortis, now under new management, cannot claim ignorance of the wrongdoings of the earlier management.

Background of the IHH investment

The case stems from Daiichi Sankyo's efforts to enforce an arbitration award against the Singh brothers. IHH Healthcare acquired a 31% stake in Fortis Healthcare in July 2018 for Rs 4,000 crore through a bidding process for fresh shares. It also earmarked Rs 3,000 crore to make an open offer to public shareholders for an additional 26%, as required under local law.

However, the Supreme Court put the sale of Fortis Healthcare to IHH on hold after Daiichi filed a contempt plea against the Singhs. The drug maker alleged the brothers violated an earlier top court order by disposing of and encumbering their shares in Fortis, which affected the scope for enforcing the arbitration award.

Fortis's response and next steps

Daiichi Sankyo was represented by senior advocate Arvind Nigam and advocate Giriraj Subramanium. In response to the ruling, Fortis Healthcare issued a statement. That said, Fortis is reviewing the judgment in detail in consultation with its legal counsels and will evaluate the appropriate course of action in accordance with applicable law, it said.

The company is now weighing a potential appeal to the Supreme Court as it scrutinizes the High Court's extensive order for a forensic audit.