As soon as a news story came out on February 9, 2018, the Securities and Exchange Board of India (Sebi) was called to the scene of Fortis Healthcare.
The report said that Malvinder Singh and Shivinder Singh, who used to run the financial-services company Religare and the Fortis Hospitals chain, took at least INR500 million out of the books of Fortis Healthcare, which is what they used to own.
One of the things mentioned was that Deloitte Haskins & Sells, which is the company’s statutory auditor, has not been willing to sign off on the company’s Q2 results for 2017-2018 until the funds were returned.
Sebi had to act quickly, or he would have been late. Regulators in charge of the markets called a meeting three days after Bloomberg published its report. When it was over, there was a preliminary investigation into the matter. We’ll talk about that meeting in a while.
Sebi fined the Singh brothers INR5 crore each on April 19, 2022, when they broke the rules again. In addition to the money, the government has also banned the two from the securities market for three years, and they can’t be critical managers in any of the companies on the market.
There is no doubt about it: The Singh brothers have already been taken into custody by the Economic Offences Wing (EoW) for stealing money from the Religare Finvest company. This new charge by Sebi that Healthcare gave over INR400 million to companies controlled by them is just the cherry on top of the ice cream cake. From the books of account, where did the money come from, and how did things go?
The maze of money
Sebi’s punishment was not just for the Singh brothers alone.
Bhavdeep and Gagandeep Singh, the former CEO and CFO of Fortis Healthcare have also been punished by the regulator as part of its confirmation order.
They are not related to Malvinder and Shivinder Singh, and the Singh duo owns Malav Holdings, Shivi Holdings, RHC Holding, Fortis Healthcare, and its subsidiary Fortis Hospitals. The total penalty for all of them is INR24 crore.
After Sebi met with the company’s auditors in 2018, the story began to come together.
The auditors told Sebi that Fortis Healthcare, through its subsidiary, has been giving inter-corporate deposits (ICDs) worth INR473 crore to three private businesses: Best Healthcare, Fern Healthcare, and Modland Wears. Fortis Healthcare does not own these businesses.
They were given out at the start of each quarter and returned by these businesses at the end of each quarter. This is how it worked: Thus, these deposits did not show up on the balance sheet because the amount owed at the end of each quarter was always the same. The auditor also told Sebi that this has been happening since 2013 or 2014.
During the September 2017 quarter-end, three borrowers did not return the money, and auditors told management about it, but they didn’t get any answer.
The auditors then looked into three borrowers through their company filings with the registrar of companies (RoC). These companies didn’t have enough money to pay back the money they had borrowed from Fortis Healthcare, so they didn’t pay back the money.
Company filings also showed that these two companies had the same number of directors. Still, these transactions were never classified as related-party transactions, even though these companies had the same number of directors.
The auditors also said that during talks with the management of Fortis Healthcare, they learned that the three borrower companies had become related parties to the company and promoters as of December 15, 2017.
When Sebi saw this, it was enough for him to start a preliminary investigation into the matter.
Sebi noticed that Fortis Healthcare, through Fortis Health Management Limited, loaned money to these three groups in December 2011. ICDs were used to make the loans. Fortis Health Management later changed its name to Fortis Hospitals, a 100% subsidiary of Fortis Healthcare. This happened on September 1, 2013.
Sebi also found that the three companies that borrowed money from Fortis Healthcare in December 2011 gave the money to other companies owned by their owners. Sebi hired a forensic auditor, MSA Probe Consulting, in May 2018 to look into how the money was spent at the end. The final report was submitted in August 2018.
The report said that money from Fortis Healthcare went through Fortis Hospitals to three unrelated borrower entities, including Best Healthcare, Fern Healthcare, and Modland Wears. Then, the money went to two promoter-related entities, RHC Holding and Religare Finvest. The report said that, at least in theory, the Singh brothers are the primary beneficiaries of this money distribution.
Based on the forensic audit findings, Sebi came up with its interim order on October 17, 2018. It told Fortis Healthcare to get back INR403 crore, plus interest, from the Singh brothers and other entities controlled by them. Sebi also told the two to stay away from Fortis Healthcare in any way.
The Singh brothers had already stepped down from the board of directors for Fortis Healthcare in February 2018. The cumulative shareholding of the company’s promoters had dropped below 1% by then.
Further, in June 2019, they were no longer promoted by the company. Furthermore, the Singh brothers are no longer part of the Fortis group, and IHH Healthcare Berhad now runs the company through Northern TK Venture Pte Ltd.
The way they do things
In May 2011, RHC Holding, which was then the owner of Fortis Healthcare, wanted to buy a piece of land in Gurugram that was owned by a real-estate developer called M3M India.
Fortis Healthcare first bought the land parcel through its subsidiary, Escorts Heart Institute and Research Center, in the name of a company called Lowe Infra and Wellness Private Limited. Another company owned this company.
The money for this land deal came from Fortis Healthcare issuing commercial papers to Axis Bank, HDFC Bank, Bank of India, HDFC Ergo, and Nabard. Between June and July of 2011, they gave Escorts Heart Institute and Research Center a loan worth INR576 crore.
When Escorts Heart Institute and Research Center got the loan, they gave it to Lowe Infra and Wellness as a loan. They then used the money to buy land from M3M India. Fortis Healthcare paid back the money it raised through the commercial paper from December 2011 to March 2012.
On December 13, 2011, the Escorts Heart Institute and Research Center board made a surprise decision: They were going to return the money they had given to Lowe Infra and Wellness and cancel the land deal.
As you can see, this is where RHC Holding came into the picture.
The agreement between Escorts Heart Institute and Research Center and Lowe Infra and Wellness ended, and RHC Holding took over the land from Lowe Infra and Wellness.
RHC Holding should have given Fortis Healthcare the money it loaned Lowe Infra and Wellness to buy land from M3M India since the money Lowe Infra and Wellness used to purchase land from M3M India came from Fortis Healthcare.
However, a forensic audit found that this did not happen because RHC Holding did not pay for the land it bought, even though it said it did. Instead, it went through a series of rotational transactions to hide the truth.
RHC Holding only changed INR200 million three times on December 28, 2011, through the companies that had borrowed the money. This gave the impression that INR600 million had been paid back to Fortis Healthcare, the loan amount of INR576 million plus the interest rate. However, the company didn’t get any money like that.
There was a lot of money in RHC Holding, so they sold it to Fortis Healthcare and then came back.
RHC Holding paid Lowe Infra and Wellness INR200 million on December 28, 2011. That’s when the money started to move. It goes to Fortis Healthcare through Escorts Heart Institute and Research Center on the same day. It’s going to pay back some of the money used to buy the land.
There was a start to the cycle.
The same day, Modland Wears got a loan from Fortis Healthcare worth INR200 million as an ICD through Fortis Hospital. Modland Wears then transferred the money to RHC Holding through several people and businesses. In this way, the money sent out of RHC Holdings ended up coming back after a long journey.
The same thing happened with the other two companies that borrowed money: Best Healthcare and Fern Healthcare. They both did the same thing and on the same day.
On paper, it looked like RHC Holding paid Lowe Infra and Wellness INR600 million in three installments, which was then delivered to Fortis Healthcare without any money moving.
The forensic audit report also said that RHC Holding finally paid Fortis Healthcare INR600 million with a rate of 14% per year for four years.
This was done by July 31, 2015. In the end, RHC Holding paid for the land, and it took them three or four years to do that. This means that the ICDs that Fortis Healthcare gave to Best Healthcare, Fern Healthcare, and Modland Wears through Fortis Hospitals were used by RHC Holding for that time.
In the report, a forensic auditor said that it appears that the reason for routing the loans through unrelated entities was to avoid Clause 32 of the listing agreement, which states that the companies have to say how much money was owed at the end of the year and how much money was owed to the parent company or its subsidiaries.
In the short term, Fortis Hospitals gives out loans to people.
In addition, Fortis Hospitals also loaned money to three other organizations for a short time.
Fortis Hospital gave a short-term loan of INR100 crore to Best Healthcare on December 26, 2012, and RHC Holding took it the same day.
Five days later, on December 31, 2012, RHC Holding directly paid Best Healthcare INR83.60 crore. The rest was spent through Saubhagya Buildcon and ANR Securities, two privately-owned companies not owned by Best Healthcare. Best Healthcare then gave the money back to Fortis Hospitals the same day that it was given to them.
Because Fortis Hospitals loaned money to Best Healthcare, an unrelated company, RHC Holding, the company’s owner, was the real winner.
Between 2011 and 2012 and 2017 and 2018, many Fortis Hospitals and the three groups provided ICDs to each other. As of May 31, 2018, Fortis Healthcare had INR403 crore worth of ICDs that had not been paid in full.
It shows that Fortis Hospitals had a balance of INR98 crore on their books in March 2018. On May 20, 2016, Fortis Hospitals gave Best Healthcare an ICD, and there is still a balance on the ICD.
On the same day, Best Healthcare sent the money to another company called Torus Buildcon Private Limited. Ranchem Private Limited then passed it on to Ranchem Private Limited, which used it to pay off its Indiabulls Liquid Mutual Fund debt.
In the same way, INR175 crore of ICDs from Fern Healthcare reached RHC Holding through a series of transactions, and RHC Holding used the money to pay off its debt from HDFC Bank.
Also, in April 2016, Fortis Hospital gave Modland Wears two ICDs worth INR100 million each to help them pay for their clothes. To pay off some loans from Fortis Hospitals, the money was transferred to Fern Healthcare (INR25 crore) and Best Healthcare (INR75 crore). It was also used to pay off some loans from Fortis Hospitals that had been passed on to Religare Finvest.
Torus Buildcon and Addon Realty also helped Religare Finvest get the second ICD amount, worth INR100 crore, from the second ICD to Religare Finvest.
There is no doubt that Fortis Hospitals loaned money to the three companies to make money available for the promoter-owned businesses.
Best Healthcare, Fern Healthcare, Modland Wears, and other businesses controlled by the Singh brothers were used as conduits for money to be sent to RHC Holding and Religare Finvest. The Singh brothers were the ultimate beneficiaries of the funds.
SBI says that while they were in charge of Fortis Healthcare, they didn’t follow Clause 32 of the agreement or related-party disclosures under the Sebi (listing obligations and disclosure requirements) Regulations, 2015. This left the books of Fortis Healthcare short at least INR400 million.
The Sebi order also says that the Singh brothers lied about the financial condition of Fortis Healthcare and didn’t put critical information in the books of accounts.
E-mails sent to Fortis Healthcare didn’t get any response from the company.
However, the company has said in a stock market filing that Sebi has told the company to try to get back the money that has been taken.
Under the new management, Fortis Healthcare is already trying to get the money it owes from RHC Holdings, Malvinder Singh, and Shivvinder Singh and the interest they owe. This is according to the company filing.
It says the company’s audit committee has been told to keep an eye on the progress of the steps the company is taking to cut costs and report back to the board of directors at regular intervals.
edited and proofread by nikita sharma