SC asks 17 lenders To Place Loan Records Of Singh brothers, Fortis Healthcare

A bench of Justice Uday Umesh Lalit, Justice Indira Banerjee, and Justice KM Joseph in the recent order has asked the banks and financial institutions "to place on record the basic documents pertaining to loans advanced or financial accommodations extended in respect of which the shares of FHL were pledged with them."

Medical Dialogues had extensively reported about the dispute between the Singh brothers and the Japanese drugmaker Daiichi Sankyo. The dispute fumed after the Singh Brothers (Malvinder Mohan Singh and Shivinder Mohan Singh) were accused of suppressing critical information while selling their pharma firm Ranbaxy Laboratories to Daiichi. However, the non-disclosure of facts came to the front after the manufacturing plant faced severe regulatory issues with the US Food and Drug Administration (USFDA). Thereafter, a lawsuit was moved by Daiichi with the Singapore arbitration tribunal that directed the Singh brothers to pay Rs 2,562 crore to settle the dispute.

Read also: HC Directs Radha Soami Chief, Others To Pay Rs 6000 Crore To Singh Brothers For Settling Ranbaxy-Daichii Dispute

The present case in the Supreme Court goes back to August 11, 2017, when the Apex Court had directed to maintain the status quo with regard to the shareholding of Fortis Healthcare Holding Private Limited (FHHPL) in Fortis Healthcare Limited (FHL). In the next order dated 31.08.2017, the Apex Court had clarified its previous order and had mentioned that the earlier the order had been in respect of both the encumbered and unencumbered shares of Fortis Healthcare Limited held by Fortis Healthcare Holding Private Limited'.

Soon afterward, various banks/financial institutions had filed applications in the Apex Court seeking modification/clarification submitting inter alia that certain shares of FHL held by FHHPL were already pledged with said banks/financial institutions and that it be directed that the orders dated 11.08.2017 and 31.08.2017 would not apply to such encumbered shares.

Following this, the Supreme Court had clarified the matter in an order dated 15.02.2018. The order had mentioned that the status quo granted would not apply to shares of FHL held by FHHPL which had been encumbered before the interim orders dated 11.08.2017 and 31.08.2017 were passed.

Read also: Daiichi-Ranbaxy Row: HC Allows The Sale Of Singh Brothers' Firms To Repay The Rs 3,500 Crore Arbitration Award

However, a contempt petition was initiated in the Supreme Court in 2019 when the court had discovered that there had been a significant decline in the number of shares held by FHHPL from September 2016 to December 2018.

The order dated 15.11.2019 passed by the Apex Court in Contempt Petition of 2018 had observed that the number of unencumbered shares held by FHHPL had steadily declined and that 'the contemnors knowingly and willingly lost control of Fortis Healthcare Limited (FHL)'.

Kailash Vasdev, learned Senior Advocate, appearing for one of the Singh Brothers had invited the attention of the Apex Court to the affidavit filed in compliance with the order dated 14.05.2018.

The affidavit filed on the behalf of the Singh Brothers had clearly shown that none of them had sold or further encumbered any shares after 06.03.2017. However, various banks/financial institutions themselves exercised the right of pledge/top-up of pledged shares without any reference to or action from either of the Singh Brothers.

Observing the circumstances, the Supreme Court had issued notices to various banks/financial institutions through the order dated 11.02.2021.

In pursuance, Shyam Diwan, Ramji Srinivasan, Jayant Mehta, Sanjay Gupta, and Sharma- the counsels appearing for some of the banks and financial institutions had submitted inter alia that the issue had already gone into by the Apex Court and there had been no pleadings to which any response could be filed by the concerned banks/financial institutions.

Replying to the submissions, Rakesh Dwivedi, counsel appearing for Daiichi had referred to the affidavit dated 08.02.2017 filed on behalf of all the respondents in the High Court of Delhi which held out that the value of unencumbered shares was more than Rs.4,000/- crores and that the value of the unencumbered security was sufficient in the event the award was to be enforced.

Dwivedi had further submitted that it had not just been a case of creating encumbrance or pledge but, there had been instances of sale of shares and the purpose had been definitely to reduce the extent of control of FHHPL.

He had further submitted that at the stage when the applications for modification/clarification were preferred by the banks and financial institutions, on the basis of which the order dated 25.02.2018 had been passed by the Supreme Court, none of the banks had told the Apex Court what the consequences of said order would be; and that in a matter of a year-and-half, the shareholding of FHHPL stood reduced to a negligible level.

Arvind P. Datar, another counsel appearing for the Japanese drug-maker Daiichi had added before the court that there would normally be a basic arrangement or loan agreement, in terms of which various kinds of securities including charge over properties, corporate and personal guarantees would be offered; and that a pledge of shares would only be by way of additional security. None of the banks/financial institutions had indicated why the unencumbered shares were sought to be put under the encumbrance or the shares were sold when other forms of securities were available.

He further submitted that the arrangements under which the shares were pledged must be disclosed so that the purpose for which the basic accommodation or loan had been obtained could also be clear.

Both the counsels appearing for Daiichi had further submitted before the Apex Court that the banks/financial institutions had intervened in the matters pending before the Apex Court, that they were definitely aware of the Award granted in favor of M/s. Daiichi Sankyo Company Limited; and that the role of banks and financial institutions would, therefore, required closer scrutiny.

The Supreme Court bench of Justices, after hearing all the arguments noted in the recent judgment on Thursday, "In the premises, for the present, we direct all the noticee banks and financial institutions:-

(a) to place on record the basic documents pertaining to loans advanced or financial accommodations extended in respect of which the shares of FHL were pledged with them;

(b) to place on record the nature of securities offered in connection with such loan arrangements;

(c) to place on record the details of the encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them in September 2016;

(d) to place on record the details of encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them on 11.08.2017;

(e) to give details of shares of FHL standing in the name of FHHPL, which were put by them under encumbrance after 11.08.2017;

(f) to give details of shares of FHL standing in the name of FHHPL, sold by banks/financial institutions from January 2017;

(g) to disclose whether such encumbrance created after 11.08.2017 was in pursuance of any fresh arrangement or agreement and, if so, the details of such agreement/arrangement;

(h) to disclose whether under such agreement/arrangement any other security was given by the pledgors; and

(i) to give the value of the encumbered shares as they stood in September 2016, on 11.08.2017 and on subsequent dates."

The court had further directed all the banks/financial institutions to submit their appropriate responses on or before 22.02.2021. The matters would be considered further during the next hearing on 24.02.2021.