The Securities and Exchange Board of India (Sebi) on Wednesday directed Fortis Healthcare Ltd (FHL) to recover Rs 403 crore along with interest from about 10 entities including the firm’s former promoters, Malvinder Singh and Shivinder Singh within three months.
The capital market regulator has also ordered the Singh brothers to not associate themselves with the affairs of Fortis Healthcare in any manner till further directions.
A Sebi probe has found that the Singh brothers were the ultimate beneficiaries when funds were moved from the listed entity to a subsidiary and subsequently to three borrower entities.
“… though the funds have moved from (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 Shri Shivinder Mohan Singh and Shri Malvinder Mohan Singh,” said the 21-page Sebi order.
The regulator initiated an investigation into Fortis Healthcare after Bloomberg reported that the promoters took out Rs 500 core from the company. Subsequently the auditors of the firm Deloitte Haskins & Sells LLP refused to sign off the accounts of FHL for the second quarter of the financial year 2017-18.
According to the SEBI, Fortis Hospitals gave loans to three entities — Best Healthcare, Fern Healthcare and Modland Wears through inter corporate deposits (ICDs). The ultimate beneficiaries of the three entities were RHC Holding and Religare Finvest. The regulator said that RHC and Religare are part of the same group 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… Shri Shivinder Mohan Singh and Shri Malvinder Mohan Singh has already been established. Thus, all these entities have prima facie acted in a fraudulent manner in the said diversion of funds… to the tune of Rs.403 crore from a listed company… for the ultimate benefit of its parent company,” said the Sebi order.
Further, it prima facie appears that FHL and FHsL, by indulging in misrepresentation of financial position of FHsL and artificial inflation of bank balance of FHsL and non-disclosure of material information in their books of accounts have violated the provisions of Section 12A(a),(b),(c) of the SEBI Act, 1992 and Regulations 3(b), (c) & (d), 4(1) and 4(2)(f)& (r) of PFUTP Regulations, 2003,” the order said.
Sebi said 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 were never eported in the balance sheet as the outstanding amount at the end of the quarter was nil.
“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 Sebi order.