Fortis Funds Diversion Case: SEBI Imposes Penalties of Rs38.75 Crore on 32 Entities
Moneylife Digital Team 20 May 2022
Markets regulator Securities and Exchange Board of India (SEBI) has imposed penalties totalling Rs38.75 crore on 32 entities, including Fortis Healthcare Holdings, in a case related to diversion of funds of Fortis Healthcare Ltd (FHL) and misrepresentations to conceal the fraud.
The matter goes back to 2018 when a media report revealed that the promoters of the listed FHL had allegedly taken massive funds out of the listed company. It had also pointed out that Deloitte Haskins & Sells LLP, the statutory auditor of FHL, had refused to sign on the company's second quarter results until the funds were accounted for.
Subsequently, SEBI had initiated an investigation into the matter to examine possible violation of the provisions of the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices).
The capital market regulator conducted a probe into the matter of grant of inter-corporate deposits (ICDs) to three borrower companies—Best Healthcare Private Limited, Fern Healthcare Private Limited, and Modland Wears Private Limited—during the period from FY11-12 till FY17-18.
In its probe, SEBI found that a systematic scheme of fraud was devised by the erstwhile promoters of FHL to funnel the resources of a listed company behind the facade of investment through ICDs or short term loans to various intermediate entities for the benefit of RHC Holding, an entity which was indirectly owned and directly controlled by the erstwhile promoters.
As per the order dated 18 May2022, funds aggregating  Rs397 crore were diverted from FHL to RHC Holding, through a wholly-owned subsidiary of FHL—Fortis Hospitals Ltd (FHsL). The funds were allegedly routed through a network of entities, the first leg of which involved the grant of short term loans or ICDs by FHL to any of the three entities—Best, Fern or Modland.
During December 2012 to March 2016, Fortis Hospitals gave numerous short-term loans or ICDs to Best, Fern and Modland, which were further transferred to RHC Holding through a complex layer of various entities, the regulator said.
From Q1FY16-17 to Q1FY17-18, the ICDs or loans given to Best, Fern and Modland during April-May 2016, aggregating to Rs473 crore, were shown as being repaid on the last day of each quarter and fresh loans were being shown as given on the first day of next quarter. However, in reality no loans were being repaid, it added.
"The huge amount of money misappropriated from the listed company, i.e., FHL (around Rs 397.12 crore), the serious misrepresentations which have happened year on year in the financial statements of FHL, the elaborate scheme of fraud that was perpetrated to benefit the erstwhile promoters of FHL at the cost of the finances of a listed company, makes the instant case an extreme cause of concern for the integrity of the securities market and cannot be viewed lightly," SEBI said in its 179-page order.
The false portrayal of the financial status of FHL on a year-on-year basis, had the potential to induce the shareholders to continue holding their stake in FHL, when, if the related-party transactions and end-use of the ICDs would have been known by the investors, they would have perhaps exited from their holdings in the company, the watchdog said.
Accordingly, SEBI has levied a fine of Rs5 crore each on Best, Fern and Modland.
Further, the regulator has also imposed a penalty of Rs1 crore each on Fortis Healthcare Holdings, Fortis Global Healthcare, Escorts Heart Institute and Research Centre, RHC Finance, Shimal Healthcare, ANR Securities, Oscar Investments, Ligare Aviation (formerly Religare Aviation), Adept Lifespaces (formerly Adept Creations), Best Cure (new name Devera Developers), Rexcin Finance, Best Medicines (new name -Best Health Management), Artifice Properties, Ranchem, Addon Realty, AD Advertising, Rosestar Marketing, Torus Buildcon, Tiger Developers, Zolton Properties, Saubhagya Buildcon and Lowe Infra and Wellness.
In addition, SEBI has slapped a fine of Rs25 lakh each on Preetinder Singh Joshi, Anurag Kalra, Jasbir Grewal, Tejinder Singh Shergil, Pradeep Raniga, Brian William Tempest and Harpal Singh.
It may be recalled that last month, SEBI had also imposed penalties totalling Rs24 crore on nine entities, including businessmen Malvinder Mohan Singh and Shivinder Mohan Singh, in connection with violations in the Fortis Healthcare matter.
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