The Securities and Exchange Board of India (SEBI) has ordered Fortis Healthcare to recover ₹403 crore, along with interest, from about 10 entities, including the company’s erstwhile promoters, Malvinder Singh and Shivinder Singh, within three months.
Further, the capital markets regulator has directed the Singh brothers not to associate themselves with the affairs of Fortis Healthcare (FHL) in any manner till further directions.
Regulatory probe
The SEBI order follows a regulatory probe that, among other things, found that the Singh brothers were the ultimate beneficiaries when funds were moved from the listed entity to a subsidiary and thereafter to three borrower entities.
“... though the funds have moved from FHL through FHsL (Fortis Hospitals) to three unrelated borrower entities... and in turn to two promoter-related entities... the ultimate beneficiaries of such fund diversion prima facie are Shivinder Mohan Singh and Malvinder Mohan Singh,” stated the 21-page SEBI order.
The SEBI probe was initiated in February after reports surfaced that the promoters of Fortis Healthcare took out ₹500 crore from the company and that the auditors – Deloitte Haskins & Sells LLP – refused to sign the accounts for the second quarter of the financial year 2017-18. According to the SEBI probe, Fortis Hospitals gave loans to three borrower entities – Best Healthcare, Fern Healthcare and Modland Wears – by way of inter-corporate deposits (ICDs). The ultimate beneficiaries of the three entities were RHC Holding and Religare Finvest with the former being controlled by the Singh brothers.
“The prime facie role of FHL and Fortis Hospitals in the alleged diversion of funds through the conduit entities... for the ultimate benefit of... Shivinder Mohan Singh and Malvinder Mohan Singh has already been established,” said the SEBI order. “Thus, all these entities have prima facie acted in a fraudulent manner in the said diversion of funds... to the tune of ₹403 crore (approximately) from a listed company... for the ultimate benefit of its parent company,” it added.
Interestingly, while Fortis Hospitals entered into multiple structured transactions between June 2016 and June 2017, the loans were given at the beginning of each quarter and returned by the companies by the end of the quarter and thereby were never being reported in the balance sheet as the outstanding amount at the end of the quarter was nil, as per SEBI.
“In reality, the ICDs were not squared off but were fictitiously and fraudulently shown to have been repaid through a structured movement of funds between Fortis Hospitals and the borrower companies at the end of each quarter to give rise to an accounting fiction that the payment due for all the ICDs has been received,” said the order.
