Sebi begins probing Fortis over fund diversion claims
India’s markets regulator has started a preliminary examination of the issues at hospital operator Fortis Healthcare Pvt. Ltd, including alleged instances of fund diversions, two people with direct knowledge of the matter said.
The Securities and Exchange Board of India or Sebi has written to the company seeking explanations on fund transfers to firms related to the promoters and the delay in releasing its fiscal-second quarter earnings, the two people, including a regulatory official, said on condition of anonymity.
A Fortis spokesperson in an email referred to communication to NSE that the company on Monday paid a fine of ₹65,98,890 to stock exchanges for non-submission of its second quarter results, and has sought more time for filing its second and third quarter results. It did not comment on Sebi writing to the company.
In a press conference on Saturday after the meeting of Sebi’s board, chairman Ajay Tyagi had said the regulator was examining the “Fortis issue”.
“We have started a preliminary probe into the alleged governance lapses, violation of listing and disclosure regulations and fund diversion,” said one of the two officials cited above.
Fortis Healthcare came under scrutiny after the transfer of ₹473 crore by its wholly owned subsidiary Fortis Hospitals Ltd to third parties, which were later re-classified as promoter entities.
Due to the change in shareholding and re-classification, the transaction was recognised as a related-party transaction, Fortis had informed the stock exchanges on February 9. Under the Companies Act 2013 and Sebi listing norms, related-party transactions require separate approvals from shareholders and the board.
Considering that these companies were not related parties when the loans were sanctioned, a board nod was not sought. “Sebi has sent queries to the company seeking explanations on the fund movement that whether its is in normal course of business or not. In addition, the company is being quizzed on the delay in declaration of its financial results for the second quarter,” said the second of the two officials cited earlier. He too declined to be named.
Fortis was supposed to consider the second quarter results on November 14 but in an exchange filling the same day, said it will inform the bourses about a fresh date of board meeting.
In a letter to National Stock Exchange of India Ltd (NSE) on Monday, Fortis said due to news reports of alleged fund diversions, the limited scope of its audit has widened. “Our conversations with our auditors indicate that the audit process will not be complete before the stipulated board meeting,” said the company letter to NSE.
The nature of the transactions gives an impression that they were done to bypass regulations, experts said.
“The company has admitted that yes, there is a movement of fund. What the company describes as investment in normal course of business could be siphoning of funds or diversion” said J N Gupta, co-founder and managing director of Stakeholder Empowerment Services, a proxy advisory firm.