Daiichi Sankyo Case: Supreme Court Asks Banks & Financial Institutions To Disclose Documents Related To Fortis Healthcare- IHH Healthcare Deal

A three-Judge Bench of Justices UU Lalit, Indira Banerjee and KM Joseph has directed the banks to place on record the documents related to loans advanced or financial accommodations extended in respect of which the shares of FHL were pledged with them, along with the nature of securities offered with such loan arrangements.

The Banks and Financial institutions have been asked to provide the details of the encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them in September, 2016.

Further, the Court has asked for details of shares of FHL standing in the name of FHHPL, which were put by them under encumbrance after 11th August 2017, when an order of status quo was passed by the top court.

The Banks and Financial institutions have also been directed to provide the following documents relevant with regard to shareholding of Fortis Healthcare Holding Private Ltd in Fortis Healthcare Limited :

· Details of shares of FHL standing in the name of FHHPL, that have been sold by banks from January, 2017.

· Disclosure regarding whether such encumbrance created after 11th August 2018 was in pursuance of any fresh arrangement or agreement along with the details of such agreement/arrangement

· Disclosure regarding whether under such agreement or arrangement any other security was given by the pledgers.

· Value of the encumbered shares as they stood in September, 2016, on 11.08.2017 and on subsequent dates.

Facts: Supreme Court had through its order dated 11th August 2017 directed that status quo be maintained with regard to the shareholding of Fortis Healthcare Holding Private Ltd in Fortis Healthcare Limited in respect of 'both the encumbered and unencumbered shares.

This was followed by applications being filed by various banks and financial institutions seeking modification in the top Court's previous order. These banks, including Axis Bank and Yes Bank submitted that since certain shares of FHL held by FHHPL were already pledged with these banks, a direction should be issued stating that the orders dated the order of status quo would not apply to such encumbered shares.

Therefore on 15th Feb 2018, Supreme Court had clarified that the status quo granted would not apply to the shares of FHL held by FHHPL which had been encumbered before the interim orders of Supreme Court 11th August and 31st August 2017 were passed.

The Supreme Court in 2019 initiated contempt proceedings against Fortis for violation of its status quo order regarding the transfer of controlling stake in FHL. A three-judge bench of Chief Justice Ranjan Gogoi, Justice Deepak Gupta and Justice Sanjiv Khanna had asked Fortis to disclose the list of officials who controlled the company in January 2018-2019. The Singh Brothesr, Malvinder and Shivinder Singh, former promoters of Fortis were held guilty for contempt as they transferred and converted the assets of value only to defeat rights of Daiichi Sankyo, which was in contempt of Supreme Court's order restraining them from divesting their shares in FHL

The apex court said the transfer was in very "dubious and clandestine manner, without full facts being brought on record. The Court found that decision of IHH Healthcare fo infuse 4600 crores into FHL was a violation of its previous orders, and was done in a dubious and clandestine manner.

Supreme Court while issuing its order in the contempt petition had found that there was a significant decline in the total number of shares held by FHHPL, both encumbered and unencumbered, which fell down in December 2018, but was never brought to the notice of the Court and was concealed with the knowledge that these facts, if brought to the notice, would have substantial bearing on the orders that would be passed to protect the interest of the petitioner. It was therefore observed by the Court that the number of unencumbered shares held by FHHPL steadily declined and that 'the contemners knowingly and willingly lost control of Fortis Healthcare Limited (FHL).

Arguments Before the Supreme Court: The Counsels appearing for some of the banks and financial institutions had submitted before the top Court submitted that the issue was already gone into by this Court and that there were no pleadings to which any response could be filed by the concerned banks.

Senior Advocate Rakesh Dwivedi submitted that the present case was not just a case of creating encumbrance or pledge but, there were instances of sale of shares and the purpose was definitely to reduce the extent of control of FHHPL. When the applications for modification clarification were filed by the banks and financial institutions, SC had issued an order clarifying that the status quo granted would not apply to the shares of FHL held by FHHPL which had been encumbered before the interim orders. However, None of the banks had informed the Court what the consequences of that order would be, and that in a matter of a year- and-half, the shareholding of FHHPL stood reduced to negligible level.

Senior Advocate Arvind Datar in this regard submitted that none of the banks or financial institutions had indicated why the unencumbered shares were sought to be put under 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 was obtained would also be clear.

The Court observed that both the Senior Counsel submitted that with various orders passed by the High Court and the Supreme Court, the concerned individuals and corporate entities could not sell the shares held by FHHPL directly and, therefore, a device was employed and the arrangement was so structured that the shares were proceeded against by the banks and financial institutions. It was submitted that the banks had intervened in the matters pending before this Court, that they were definitely aware of the Award granted in favour of M/s. Daiichi Sankyo Company Limited; and that the role of banks and financial institutions would, therefore, require closer scrutiny.

CITATION: LL 2021 SC 99