Daiichi-Fortis case: SC clarifies scope of forensic audit of banks

The Supreme Court questioned Daiichi Sankyo's stand on a forensic audit of banks in its dispute with ex-Fortis promoters. The court clarified the audit is limited to transactions with Fortis entities, not a general inquiry into the banks' affairs.

SC Clarifies Scope of Audit

The Supreme Court on Tuesday questioned Daiichi Sankyo’s stand on the need for a forensic audit of banks in its dispute with former Fortis promoters Malvinder Mohan Singh and Shivinder Mohan Singh, while clarifying the limited scope of the audit directions issued by the Delhi High Court.

A bench headed by Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V. Mohana noted that Daiichi was now opposing the position taken by the banks, although it had earlier told the Delhi High Court that it did not seek a forensic audit of the lenders.

Banks Challenge High Court Order

The observations came while the court was hearing pleas filed by banks, including Yes Bank and Axis Bank, challenging the directions contained in the Delhi High Court’s August 31 order. The Supreme Court did not set aside the High Court’s directions concerning the banks. However, it clarified that the forensic audit was primarily directed against Fortis Healthcare Ltd (FHL), its holding company Fortis Healthcare Holding Pvt Ltd (FHHPL) and other judgment debtors.

The bench said the references to 17 banks in the High Court order have to be understood in the context of their transactions and dealings with FHL, FHHPL and the judgment debtors. It clarified that the order cannot be construed as directing a general or roving inquiry into the affairs of the banks.

Senior Advocate Shyam Divan, along with advocates Malak Bhatt, Samridhi and Tashi Saraf, appeared for Yes Bank and Axis Bank. The banks argued that the High Court had directed the forensic exercise without putting them on notice. They submitted that such an audit could have serious civil consequences for regulated banking institutions. The lenders also submitted that they had sold pledged FHL shares only after the Supreme Court’s clarification of February 15, 2018, and continued to remain creditors of the group.

Background of the Dispute

The dispute arises from Daiichi Sankyo’s efforts to enforce an arbitral award against former Fortis promoters Malvinder and Shivinder Singh. The award requires the former promoters to pay around ₹2,562 crore, along with interest, following their dispute with Daiichi over the sale of Ranbaxy shares.

The Delhi High Court’s forensic-audit directions cover transactions involving FHL, FHHPL and the judgment debtors, including pledging, sale and transfer of FHL shares, secured loans, consideration received and movement of funds. The High Court had also referred to records concerning transactions involving 17 banks and financial institutions, including Yes Bank, Axis Bank, HDFC Bank, RBL Bank, DCB Bank, Indiabulls Housing Finance, Citicorp Finance and Kotak Mahindra Investments, among others.

The Supreme Court’s clarification means that records of the lenders may be examined to the extent they relate to the specific transactions covered by the forensic audit. The banks, however, are not themselves the subject of a wider forensic examination.

Fortis Healthcare's Stance

Fortis Healthcare has previously maintained that it was not a party to the arbitration between Daiichi and the Singh brothers and that it was neither a judgment debtor nor a garnishee in respect of Daiichi’s award. The company has also said that an independent forensic audit would establish that it had no role in the transfer of shares by its erstwhile promoters. (ANI)

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