Singh brothers demand dues write-off in lieu of Fortis brand
As the new board of crisis-hit health care major Fortis Healthcare (FHL) is engaged in a closed-door marathon meeting to approve the company’s fourth quarter (Q4) and financial year results over two days, the erstwhile promoters of the hospital major are trying to extract value out of the Fortis brand to set off dues they owe the company.
Sources close to the development claimed that while the company’s board is deliberating ways to initiate recovery of funds (estimated to be close to ~5 billion) from the Singh brothers (Malvinder and Shivinder Singh), who are alleged to have diverted funds, the former promoters are trying to encash the value of the Fortis brand to set off dues. “They claim that the Fortis brand belongs to the founding family and promoter group entities, and it should be valued. That valuation could be used to write off their dues to the company,” said a source.
An email sent to the company did not elicit an immediate response.
According to the red herring prospectus filed with the Securities and Exchange Board of India in 2013, FHL has said it does not own the trademarks, including the names and logos, of the Fortis brand.
The rights to the ‘Fortis’ name and logo are owned by RHCHPL, a promoter group company. FHL uses the name and logo under an exclusive licence for the health care delivery business. The licence fee is ~100,000 per year. The licence runs until April 2015, and is automatically renewable for a subsequent 10year period on the same terms and conditions, unless terminated earlier with the consent of both parties six months prior to the end of the initial term.
In March, the Fortis board had appointed legal firm Luthra & Luthra to investigate the allegations that the former promoters had siphoned off funds from the company. The firm was asked to check if there were any breaches in the company’s internal audit procedures. The former promoters are alleged to have taken out funds close to ~4.73 billion from Fortis, diverting it to entities linked to them.
Sources close to the promoters claimed that there was no siphoning of funds. “There have been personal lapses, but there is no question of siphoning of funds. It was a loan and taken with all intentions of paying back. But, the group has changed, so it could not be paid back,” said a source. He added that the Luthra & Luthra investigation might find procedural lapses, as to who was responsible for giving the loan without due process being followed.
He also claimed that the promoters had written to the board twice, once in March and then in April, asking them to liquidate the assets or collaterals and recover the money. Promoters had resigned as directors on the board in February amidst allegations of diversion of funds.
Sources close to the company, however, claimed there were no physical collaterals as such that the former promoters are referring to. “They are claiming stake to the Fortis brand. They want to set off their dues to the company in lieu of the brand valuation,” he reasoned.
Meanwhile, after Luthra & Luthra submitted its report to the board on June 8, the Fortis board did not disclose details of the same with public shareholders. They did, however, share it with the statutory auditors Deloitte.
Deloitte refused to sign the Q4 financial accounts of the company on grounds it needed more information on the Luthra & Luthra report.
On Monday, Fortis postponed declaring its Q4 and 2017-18 results for the third time since May 30.
This has spiked speculation that more skeletons could tumble out of Fortis’ closet.