Delhi High Court Orders Forensic Audit of Fortis, Singh Brothers and 17 Banks Over Alleged Dissipation of Assets Despite Court Assurances

Daiichi Sankyo obtained a Singapore-seated arbitral award dated 29 April 2016 directing the Judgment Debtors to pay approximately ₹2,562 crores, with pre-award interest at 4.44% and post-award interest at 5.33%.

The award was upheld by the Delhi High Court and the Supreme Court, and execution proceedings commenced in 2016.

The Judgment Debtors, principally Malvinder Mohan Singh and Shivinder Mohan Singh, had given repeated assurances to the Court that their unencumbered assets, including shares held through Fortis Healthcare Holding Pvt. Ltd. (“FHHPL”) in Fortis Healthcare Ltd. (“FHL”), would be preserved for satisfaction of the award.

FHHPL’s holding in FHL declined substantially: its unencumbered shares fell from 5,29,31,574 in September 2016 to 26,31,777 in September 2017 and 6,01,607 in December 2018.

The Supreme Court had earlier held the Judgment Debtors guilty of contempt and directed consideration of a forensic audit into the role of banks, financial institutions, FHL, and related entities in the dissipation of shares and movement of funds.

Daiichi thereafter sought forensic audits of the Judgment Debtors, FHL, and the concerned banks and financial institutions through EX.APPL.(OS) 3763/2022, EX.APPL.(OS) 3764/2022 and EX.APPL.(OS) 1615/2025.

Whether a forensic audit should be ordered to reconstruct the movement of FHL shares, determine the status of encumbered and unencumbered shares, and identify the persons and entities involved in their alleged dissipation.

Whether the role of FHL, its directors, officers, Compliance Officer, depositories, and intermediaries required forensic examination notwithstanding that FHL was not a Judgment Debtor or original party to the execution proceedings.

Whether the transactions involving pledges, top-up securities, invocation and sale of shares, and the IHH–NTK acquisition of controlling interest in FHL required examination to determine whether they were bona fide commercial transactions or mechanisms to frustrate execution of the award.

Whether the doctrine of lifting or reverse piercing of the corporate veil could potentially apply where the corporate structure was allegedly used to defeat the Decree Holder’s rights and frustrate judicial orders.

The Court applied the execution principles under Sections 51(e), 144 and 151 of the Code of Civil Procedure, 1908, including the duty of an executing court to ensure that a decree-holder obtains the fruits of the decree.

It relied on Order XXXIX Rule 2A CPC and the law of contempt to recognise that wilful breach of an undertaking or knowing assistance in frustrating a court order may attract legal consequences, including against third parties who knowingly aid the breach.

Under Sita Ram v. Balbir, Seaward v. Paterson and Z Ltd. v. A-Z, a non-party may be proceeded against for contempt where, with knowledge of the order, it knowingly assists in obstructing or frustrating its implementation.

The Court applied the doctrine of lifting the corporate veil, relying on LIC v. Escorts Ltd., State of U.P. v. Renusagar Power Co., DDA v. Skipper Construction Co. (P) Ltd., and ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, where corporate personality may be disregarded to prevent fraud, improper conduct, evasion of legal obligations, or misuse of corporate structures.

It also considered the SEBI Insider Trading, SAST and LODR frameworks, including the concepts of “promoter,” “control,” “connected person,” “designated person,” disclosure obligations, and compliance oversight.

The Supreme Court’s directions in Daiichi Sankyo Co. Ltd. v. Oscar Investments Ltd., (2023) 7 SCC 641, specifically authorised consideration of foreign forensic auditors to examine the role of banks and transactions between FHL and RHT.

The Court found a prima facie basis for investigation because the Judgment Debtors had repeatedly represented that substantial unencumbered assets were available to satisfy the award, while the FHHPL shareholding in FHL progressively diminished during the subsistence of those assurances and the Supreme Court’s status quo orders.

The rival explanations were materially inconsistent: the Judgment Debtors asserted that the reductions resulted from lender-driven enforcement and contractual top-up arrangements, whereas the banks maintained that they dealt only with shares already encumbered; Daiichi alleged that unencumbered shares had been transferred or encumbered in violation of court orders.

The Court held that it could not satisfactorily resolve these transaction-specific factual disputes merely from pleadings or public disclosures.

A forensic audit was therefore necessary to reconstruct the chronology, examine pledge and top-up documentation, trace share and fund movements, identify approvals and decision-makers, and determine whether judicial orders or undertakings had been circumvented.

The fact that FHL was a separate juristic entity and was not an original party did not bar an investigative direction, since the audit did not itself impose liability; it merely supplied the factual foundation for any later orders or proceedings.

The Court further held that the corporate structure, the common control exercised by the Judgment Debtors, their positions as directors of FHL, and the alleged use of interconnected entities justified examining whether the corporate veil or reverse corporate veil principles might ultimately apply.

The Court expressly distinguished investigation from adjudication and left the liability of FHL, the banks, officers and other entities open for determination after the audit report.

S. Ramanand Aiyar & Co., Chartered Accountants, was appointed as the Forensic Auditor.

The audit was directed to examine the evolution of FHHPL’s shareholding in FHL, all pledges, top-ups, releases, invocations, transfers and sales; the roles of FHL, its officers, directors, Compliance Officer, depositories, intermediaries and banks; the IHH–NTK transaction; the flow and utilisation of consideration; and the purpose and beneficiaries of loans secured by FHL shares.

The concerned entities were required to cooperate and furnish documents within the prescribed timelines, with requisitions to be issued within four weeks and responses to be provided within two weeks.

The audit was to be completed within six months, with its fees initially borne by Daiichi.

Failure to comply with the Auditor’s requisitions was declared liable to attract contempt proceedings.

No final civil or monetary liability was imposed on FHL, the banks, or any other third party at this stage; those questions were reserved for consideration after the audit report.