The Supreme Court on Friday refused to interfere with a Delhi High Court order directing a forensic audit of Fortis Healthcare in connection with the Daiichi Sankyo-Singh brothers dispute [Fortis Vs Daiichi Sankyo].

However, a Bench of Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana clarified that the High Court's observations against Fortis were only tentative and prima facie and would not bind the forensic auditor.

The forensic audit will have to be conducted independently without being influenced by those observations.

“It goes without saying that the forensic audit shall be conducted independently without being influenced by those observations made by the High Court,” the Court added.

The proceedings arose out of Daiichi Sankyo's efforts to enforce a 2016 arbitral award against the Singh brothers and other judgment debtors.

The dispute subsequently expanded to examine what happened to the Singh brothers' substantial shareholding in Fortis while proceedings were pending before courts.

According to the submissions before the Supreme Court, the Singh brothers earlier controlled around 70 percent of Fortis. Their shareholding subsequently fell sharply and, by 2018, had gone below 1 percent.

Malaysia-based IHH Healthcare thereafter invested around ₹4,000 crore in Fortis through a fresh subscription in November 2018. Fortis maintained that the investment was made after the Singh brothers had exited and when the company was being managed by an independent board.

The Delhi High Court subsequently directed a forensic audit while examining the dissipation of shares and other transactions connected with Fortis.

Fortis challenged that order before the Supreme Court, maintaining that it was neither a party to the arbitration nor a judgment debtor and could not be saddled with the personal liabilities of its former promoters.

Senior Advocate Abhishek Manu Singhvi, appearing for Fortis, argued that the company has around 2.5 lakh public shareholders and had no role in the arbitral proceedings.

He stressed that Fortis, as a listed company, had no legal power to stop its shareholders from transferring dematerialised shares.

“In an execution petition by Daiichi, how does this knowledge that my shareholder, rogue shareholder, sold shares, convert into a liability? How does that legal transformation take place?” he asked.

The Supreme Court, however, questioned whether Fortis' management could have been unaware of the status quo orders concerning the Singh brothers' shareholding and whether the role of those managing the company during the relevant period required examination.

Singhvi immediately questioned how Fortis could be considered an enabler when it had not been a party to the arbitration or earlier execution proceedings.

Senior Advocate Darius Khambata similarly argued that the Depositories Act left Fortis with no ability to prevent transfers of dematerialised shares.

Khambata also said the High Court's observations should not be treated as findings of culpability against the company.

The Supreme Court accepted this limited plea and made it clear that the observations would remain tentative and that the auditor would have to independently examine the matter.

Senior Advocate Neeraj Kishan Kaul, also appearing for Fortis, took the Court through the sequence in which the Singh brothers' shareholding in the company was depleted.

Kaul submitted that the Singh brothers' holding had first fallen from around 71 percent to 44 percent during 2016-17. He said that in 2018, after the Supreme Court clarified that pledges created before its status quo order were unaffected, banks invoked those pledges and the Singh brothers' holding fell further to around 1 per cent.

Senior Advocate Mukul Rohatgi, appearing for Daiichi, opposed the challenge.

He told the Court that Daiichi had obtained its award in 2016 against several judgment debtors, including the Singh brothers, and alleged that their substantial holding in Fortis had disappeared despite assurances given during court proceedings.

Rohatgi also questioned the circumstances surrounding IHH's ₹4,000 crore investment and transactions involving RHT Health Trust.

Fortis strongly disputed Daiichi's allegations.

However, the Court refused to interfere with the order directing forensic audit.

The curt also made it clear that the specific observations recorded by the Delhi High Court against Fortis would not come in the way of the forensic audit or operate as findings against the company.

The Bench said those observations were only tentative and prima facie, made for the limited purpose of justifying the audit, and directed that the exercise be carried out independently and uninfluenced by them.

The Supreme Court will separately consider the challenges concerning banks and financial institutions in the coming week.

Shivender Mohan Singh was represented by Advocates Aditya Dewan and Naman Tandon