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Supreme Court Allows of Fortis Deals in Daiichi-Singh Brothers Row
The on Friday declined to interfere with a order directing a comprehensive of ’s transactions, a move aimed at tracing the alleged of shares held by former promoters Malvinder Mohan Singh and Shivinder Mohan Singh. The audit forms part of ’s ongoing efforts to enforce a ₹2,562 crore secured in against the Singh brothers and other .
A bench comprising Chief Justice Surya Kant and Justices Joymalya Bagchi and V. Mohana, however, clarified that the observations made by the High Court against Fortis were only tentative and would not bind the forensic auditor. “It goes without saying that the shall be conducted independently without being influenced by those observations made by the High Court,” the Court said.
The ruling effectively ends Fortis’s attempt to shield itself from the forensic exercise, while preserving its right to contest any adverse findings that may emerge from the audit.
Background: From Ranbaxy to Fortis
The dispute traces back to ’s acquisition of a controlling stake in from the Singh brothers in . After allegations of fraud and misrepresentation surfaced, Daiichi initiated arbitration proceedings and obtained a favourable award in . The award directed the Singh brothers and other to pay damages.
As Daiichi sought to enforce the award, attention turned to the Singh brothers’ substantial shareholding in Fortis Healthcare, which they controlled through . At its peak, the brothers held over 70% of Fortis. But during the pendency of , their holding declined sharply—from around 71% in -17 to less than 1% by . This dramatic reduction prompted Daiichi to allege that the shares had been dissipated to frustrate the award.
In , Malaysia-based invested approximately ₹4,000 crore in Fortis through a fresh subscription, a move that Fortis maintained was made after the Singh brothers had exited and when the company was being managed by an independent board.
The High Court’s Order
Examining Daiichi’s allegations of asset , the directed a to trace the movement of shares and funds involving Fortis, its former promoters, downstream entities, and 17 banks and financial institutions. The court also made certain observations regarding Fortis’s alleged role in the transactions, which the company argued were prejudicial.
Fortis challenged the order before the Supreme Court, contending that it was neither a party to the arbitration nor a judgment debtor, and could not be saddled with the personal liabilities of its former promoters. Senior Advocate , appearing for Fortis, submitted that the company had about 2.5 lakh public shareholders and no power under the to prevent shareholders from transferring . “A listed company like the petitioner has no power or ability to restrict the movement of its ,” he argued. “The only mechanism to prevent transfer of a demat share is a freeze order communicated to the depository by a court or regulator.”
Senior Advocate reinforced the argument, stating that the left Fortis with no authority to regulate or prevent transfers. He further submitted that the High Court’s observations were only tentative and could not be construed as findings of wrongdoing against Fortis.
Daiichi’s Counter: in Plain Sight
Opposing Fortis’s plea, Senior Advocate , representing , argued that the was necessary to reconstruct the movement of assets that had allegedly been dissipated despite assurances given to the courts. “The admitted facts are, after giving assurances to the Court, the Singh brothers dissipated the shares, with the connivance of the banks, because those shares, which were not even encumbered, were made encumbered by ,” Rohatgi submitted.
He further alleged that the shares were sold, the proceeds went into bank accounts, and the banks discharged their debts without any funds flowing back to Fortis. “Not a single naya paisa has come to Fortis,” he said, arguing that the could not be used to defeat an inquiry into whether the overall transactions resulted in of assets available for enforcement of the award.
Supreme Court’s Reasoning and Observations
During the hearing, the bench questioned Fortis’s claim of ignorance, noting that the Singh brothers held an overwhelming shareholding that was transferred in tranches, ultimately resulting in a change of management control. “They were holding overwhelming shareholding, you know these are being transferred in tranches. Then there is a new promoter coming in. If we are diluting their control over the company, is it not necessary, Dr. Singh?” the Court asked.
The Court also pressed Singhvi on the distinction between knowledge of transfers and legal liability. “How does this knowledge that my shareholder sold shares, convert into a liability? How does a legal transformation take place?” the bench queried.
Nevertheless, the Supreme Court ultimately refused to interfere with the , while insulating Fortis from the High Court’s . The Court clarified that the auditor must examine the transactions independently and not treat the High Court’s comments—particularly those in paragraphs 201, 202, 219, 220, 223, 225, and 241—as findings against Fortis.
Legal Implications: A Cautionary Tale for Listed Companies
The decision underscores the increasing willingness of Indian courts to order forensic audits in , even against entities that are not parties to the original arbitration. While Fortis successfully avoided being bound by the High Court’s preliminary observations, the audit itself will probe transactions involving the company and its former promoters.
For corporate counsel and compliance officers, the case highlights the risks that listed companies face when their major shareholders engage in share transfers during litigation. The absence of a legal mechanism to prevent demat transfers does not shield a company from being drawn into if its shares become the subject of alleged .
The ruling also reaffirms the court’s power to trace assets across corporate structures, where necessary. The will likely examine the role of Fortis’s officers and directors during the relevant period, as well as the involvement of banks and financial institutions in the pledge and sale of shares.
Conclusion
The Supreme Court’s refusal to halt the marks a significant step in ’s long-running enforcement battle. The independent auditor’s findings could have far-reaching consequences, not only for the Singh brothers and Fortis, but also for the banks and entities that participated in the transactions. As the court separately schedules hearings concerning the banks and financial institutions, the legal community will watch closely for further developments in this complex web of corporate and arbitration law.
