Fortis Healthcare fund diversion case: Sebi slaps Rs 38.7 crore penalties on 32 entities

The matter goes way back to 2018 when a media report came out that the promoters of the listed FHL had allegedly taken massive funds out of the listed company. It had also pointed out that Deloitte Haskins & Sells LLP, the statutory auditor of FHL, had refused to sign on the company's second quarter results until the funds were accounted for.

Subsequently, the regulator had initiated an investigation into the matter to examine possible violation of the provisions of the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices).

It conducted a probe into the matter of grant of Inter-Corporate Deposits (ICDs) to three borrower companies -- Best Healthcare Private Limited, Fern Healthcare Private Limited, and Modland Wears Private Limited -- during the period from FY 2011-2012 till 2017-2018.

In its probe, Sebi found that a systematic scheme of fraud was devised by the erstwhile promoters of FHL to funnel the resources of a listed company behind the facade of investment through ICDs or short term loans to various intermediate entities for the benefit of RHC Holding, an entity which was indirectly owned and directly controlled by the erstwhile promoters.

As per the order dated May 18, funds aggregating to Rs 397 crore were diverted from FHL to RHC Holding, through a wholly-owned subsidiary of FHL -- Fortis Hospitals Ltd (FHsL). The funds were allegedly routed through a network of entities, the first leg of which involved the grant of short term loans or ICDs by FHsL to any of the three entities -- Best, Fern or Modland.

During December 2012 to March 2016, Fortis Hospitals gave numerous short term loans or ICDs to Best, Fern and Modland, which were further transferred to RHC Holding through a complex layer of various entities, the regulator said.

From the first quarter of FY 2016-17 to the first quarter of FY 2017-18, the ICDs or loans given to Best, Fern and Modland during April-May 2016, aggregating to Rs 473 crore, were shown as being repaid on the last day of each quarter and fresh loans were being shown as given on the first day of next quarter. However, in reality no loans were being repaid, it added.

"The huge amount of money misappropriated from the listed company, i.e., FHL (around Rs 397.12 crore), the serious misrepresentations which have happened year on year in the financial statements of FHL, the elaborate scheme of fraud that was perpetrated to benefit the erstwhile promoters of FHL at the cost of the finances of a listed company, makes the instant case an extreme cause of concern for the integrity of the securities market and cannot be viewed lightly," Sebi said in its 179-page order.

The false portrayal of the financial status of FHL on a year on year basis, had the potential to induce the shareholders to continue holding their stake in FHL, when if the related party transactions and end use of the ICDs would have been known by the investors, they would have perhaps exited from their holdings in the company, the watchdog said.

Accordingly, Sebi has levied a fine of Rs 5 crore each on Best, Fern and Modland.

In addition, it imposed a penalty of Rs 1 crore each on Fortis Healthcare Holdings, Fortis Global Healthcare, Escorts Heart Institute and Research Centre, RHC Finance, Shimal Healthcare, ANR Securities, Oscar Investments, Ligare Aviation (formerly Religare Aviation), Adept Lifespaces (formerly Adept Creations), Best Cure (new name Devera Developers), Rexcin Finance, Best Medicines (new name -Best Health Management), Artifice Properties, Ranchem, Addon Realty, AD Advertising, Rosestar Marketing, Torus Buildcon, Tiger Developers, Zolton Properties, Saubhagya Buildcon and Lowe Infra and Wellness.

Further, the regulator has slapped a fine of Rs 25 lakh each on Preetinder Singh Joshi, Anurag Kalra, Jasbir Grewal, Tejinder Singh Shergil, Pradeep Raniga, Brian William Tempest and Harpal Singh.

Last month, the regulator had imposed penalties totalling Rs 24 crore on nine entities, including businessmen Malvinder Mohan Singh and Shivinder Mohan Singh, in connection with violations in the Fortis Healthcare matter.