[Daiichi v. Singh Brothers] Supreme Court seeks details from banks/ financial institutions on shares of Fortis sold/ encumbered from 2017

The Supreme Court on Thursday ordered seventeen banks and financial institutions, which had lent money to Fortis Healthcare Limited (FHL) promoters, Malvinder Singh and Shivinder Singh, to give details of shares of FHL standing in the name of Fortis Healthcare Holding Private Limited (FHHPL) which were sold by them starting from January, 2017 despite an order by the Supreme Court directing status quo as regards shareholding of FHHPL in FHL (Daiichi Sankyo Company Limited v. Oscar Investments Limited).

A Bench of Justices UU Lalit, Indira Banerjee and KM Joseph further directed the banks to place on record the basic documents pertaining to loans advanced or financial accommodations extended in respect of which the shares of FHL were pledged with them.

The Court was hearing a contempt petition against Singh brothers for violation of its order of August 11, 2017 not to tinker with the shareholding of FHL.

After its August 11, 2017 order, the top court had on August 31, 2017 clarified that its August 11 order was meant for both encumbered and unencumbered shares.

Soon thereafter, various banks and financial institutions had filed applications before the apex court seeking modification/clarification submitting inter alia that certain shares of FHL held by FHHPL were already pledged with said banks/financial institutions and that it be directed that the orders dated August 11, 2017 and August 31, 2017 would not apply to such encumbered shares.

Consequently, by an order dated February 15, 2018, the earlier orders dated August 11, 2017 and August 31, 2017 were clarified by the Supreme Court to mean that the status quo granted would not apply to shares of FHL held by FHHPL which had been encumbered before the interim orders of August 11 and August 31.

The contempt petition was initiated in 2019 after the Supreme Court found that there was significant decline in the number of shares held by FHHPL from September, 2016 to December, 2018.

Malvinder and Shivinder had taken a stand before the Supreme Court that though neither of them sold or further encumbered any shares after March, 2017, various banks/financial institutions themselves exercised the right of pledge/top-up of pledged shares without any reference to or action from either of them.

The Court had then issued notices to the banks/ financial institutions.

The Japanese drug maker, Daiichi, which is attempting to enforce an arbitral award passed in its favour by Singapore tribunal against Singh brothers, alleged that it 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.

It was further submitted that at the stage when the applications for modification/clarification were preferred by the banks and financial institutions, on the basis of which the order dated February 25, 2018 was passed by this Court, none of the banks had told this Court what the consequences of said order would be; and that in a matter of a 1.5 years, the shareholding of FHHPL stood reduced to negligible level.

Some of the banks/ financial institutions submitted that there were no pleadings to which any response could be filed by them and there should be greater clarity as regards the proceedings.

In view of the same, the Court sought the following details from the banks.

"In the premises, for the present, we direct all the noticee banks and financial institutions :-

(a) to place on record the basic documents pertaining to loans advanced or financial accommodations extended in respect of which the shares of FHL were pledged with them;

(b) to place on record the nature of securities offered in connection with such loan arrangements;

(c) to place on record the details of the encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them in September, 2016;

(d) to place on record the details of encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them on 11.08.2017;

(e) to give details of shares of FHL standing in the name of FHHPL, which were put by them under encumbrance after 11.08.2017;

(f) to give details of shares of FHL standing in the name of FHHPL, sold by banks/financial institutions from January, 2017;

(g) to disclose whether such encumbrance created after 11.08.2017 was in pursuance of any fresh arrangement or agreement and, if so, the details of such agreement/arrangement;

(h) to disclose whether under such agreement/arrangement any other security was given by the pledgors; and

(i) to give the value of the encumbered shares as they stood in September, 2016, on 11.08.2017 and on subsequent dates.

These details have to be furnished on or before February 22.

The case will be heard next on February 24."

Senior Advocates Mukul Rohatgi, Rakesh Dwivedi and Arvind P Datar briefed by advocates Anand Pathak, Amit K Mishra, Mohit Singh, Samridhi Hota, Kanika Singhal, Saloni Agarwal, Turab Ali Kazmi, and Shivam Pandey of P&A Law Offices represented Daiichi.

Senior Advocate Shyam Divan appeared for the banks.

[Read Order]