Daiichi-Ranbaxy dispute: Delhi High Court orders forensic audit of Fortis share transactions

The Delhi High Court has ordered a comprehensive forensic audit to trace the dissipation of Fortis Healthcare Limited (FHL) shares and other assets that were available to satisfy the arbitral award secured by Japanese pharmaceutical company Daiichi Sankyo against former Ranbaxy promoters Malvinder Mohan Singh and Shivinder Mohan Singh [Daichii Sankyo Vs Malvinder Mohan Singh]..Justice Subramonium Prasad appointed chartered accountancy firm S Ramanand Aiyar & Co as the forensic auditor and directed it to complete the exercise within six months.The Court said the audit would reconstruct the entire chain of transactions and identify the persons, companies, banks and financial institutions involved in the depletion of the shares..The dispute arose from Daiichi’s 2008 acquisition of Ranbaxy from the Singh brothers and allegations that they concealed US regulatory investigations. A Singapore tribunal awarded Daiichi ₹2,562 crore in 2016. While enforcing the award, Fortis shares, available for recovery, sharply declined despite court assurances. The Supreme Court later convicted the brothers of contempt of court and asked the Delhi High Court to consider forensic audits of transactions involving banks, financial institutions, FHL and RHT Health Trust in 2022.This direction led to the initiation of the current litigation. .The Court noted that despite nearly a decade of enforcement proceedings, Daiichi has not received the amount awarded to it by the arbitral tribunal.“It is tragic to note that even after such strong observations by the Indian Courts throughout the years, nothing has changed even today. 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,” the Court said..The Court recorded that the Singh brothers and their entities held 5.29 crore unencumbered FHL shares in September 2016. By December 2018, this had fallen to about 6.01 lakh shares.It found that around 5.23 crore unencumbered shares had been sold despite assurances given to the Court that sufficient assets would remain available to protect Daiichi’s interests.“The Courts cannot be mere silent spectator and throw out their hands in vain and say nothing can be done. This would actually be the death knell for any judicial system in maintaining the rule of law,” the High Court said. .Fortis argued that there was no injunction against transferring the shares held by Fortis Healthcare Holding Private Limited (FHHPL) and that shares of a public company were freely transferable under the Companies Act.The Court rejected the contention at this stage.“Certainly, an assurance or undertaking to a Constitutional Court of this Country must be kept on a higher pedestal than a contract between the parties,” the judge opined..The Court also declined to accept Fortis’ claim that its independent corporate personality precluded an examination of its role. It said a forensic inquiry was required to determine whether the corporate structure had been used to facilitate the systematic dissipation of shares..The Court found that the Singh brothers were the “true controlling minds” behind the judgment-debtor entities. It noted that they controlled both FHHPL and FHL at the relevant time.The judgment said the brothers could not give assurances through their lawyers while simultaneously dissipating the assets forming the subject matter of those assurances through entities under their control.“The Court therefore cannot throw up its hand and refrain itself from unveiling the fraud perpetuated on the Court, for which a forensic audit is necessary,” the judge said..The Court also discussed the principle of reverse corporate veil piercing. It said the doctrine could allow assets held by a company to be treated as available for satisfying a decree if the company had become a repository or vehicle for assets effectively controlled by the judgment debtors.Hence, it concluded that this was a case fit for forensic audit..If the audit finds that a bank or financial institution knowingly facilitated transactions that violated judicial orders, the Court said it could determine its liability and issue directions to neutralise the effect of those transactions.The auditor will examine the creation and invocation of pledges, top-up securities, sales and transfers of FHL shares from May 24, 2016, when the first assurance was given. It will also trace the consideration received from the shares and scrutinise the acquisition of a controlling stake in FHL by IHH Healthcare Berhad through Northern TK Venture.The role of FHL’s directors, officers, key managerial personnel, compliance officers, depositories and other intermediaries will also be examined.Daiichi had initially sought an audit of 17 banks and financial institutions. It later restricted the request to three banks before informing the Court that it was not seeking audit of any bank. However, the Court termed this change of position immaterial and ordered scrutiny of all banks and financial institutions involved in the transactions..Daiichi was represented by Senior Advocate Arvind Nigam and Advocate Giriraj Subramanium. They were briefed by a team from P&A Law offices comprising Anand S. Pathak (Managing Partner), Nabik Syam (Partner), Anindita Barman (Principal Associate), Shyra Hoon (Senior Associate) and Chirag Gupta (Associate)..Senior Advocates Amit Sibal and Ashish Mohan appeared for Malvinder Mohan Singh..Senior Advocate Balbir Singh represented Shivinder Mohan Singh..Senior Advocates Rajiv Nayar and Abhinav Vashisht appeared for Fortis Healthcare..[Read Judgment]