Domestic and foreign institutional investors of Fortis Healthcare (Fortis) have expressed concern that the Delhi High Court’s order seeking a forensic audit of transactions involving its former promoters, Malvinder and Shivinder Mohan Singh, could create a reputational overhang and weigh on investor confidence.The Aug 31 high court order came in a case arising from Japanese firm Daiichi Sankyo’s efforts to enforce its arbitral award against the erstwhile Fortis promoters. Last week, Fortis filed a special leave petition (SLP) in the Supreme Court challenging the order.Together, domestic and foreign institutional investors hold over half — 57% shareholding, while the retail share is over 11% in the company.“The question for the market is whether a transaction that has cleared the entire approval architecture — board, shareholders, CCI, SEBI, the Takeover Code, ever becomes settled’’, Shriram Subramanian MD and founder of InGovern, a proxy advisory firm, told TOI.In 2018, Malaysia’s IHH Healthcare acquired a controlling 31.1% stake in Fortis for approximately Rs 4,000 crore.“Questioning a transaction long cleared by all regulators and seeking its forensic audit after nearly a decade, will open a can of worms’’, he added.IHH is a credible strategic investor, and Fortis, after years of promoter-related turmoil and uncertainty, is now on a more stable footing, investors feel, and prolonged legal proceedings could create uncertainty.While the court has made clear that the forensic audit is a fact-finding exercise and does not, by itself, impose liability, investors said the process could still have wider implications for the company.“Capital is mobile and investors have alternatives; prolonged uncertainty can therefore have consequences for the company and its shareholders’’, InGovern said in a note, shared with TOI.
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The acquisition was approved by the board, cleared by the CCI, and completed under the SEBI Takeover Regulations through an open offer SEBI itself permitted. Neither IHH nor Fortis was a party to the arbitration, the award or the execution proceedings.Investors are also concerned about the possibility of the company being drawn into the matter at a later stage, including through the doctrine of “reverse veil piercing”.The company has also challenged this in its special leave petition arguing that reverse piercing, under which a company’s assets could potentially be subjected to the personal debts or obligations of its (erstwhile) controlling shareholder, has not been recognised by Indian courts.
