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The governance practices at Fortis Healthcare, India’s second-largest healthcare provider has come under spotlight after the promoter directors Malvinder Singh and Shivinder Singh may have taken out Rs 473 crore.
Fortis said the Rs 473 crore was part of secured short-term investments with companies in normal course of treasury operations.
However, these entities as of the quarter ended December 31, 2017, have become part of the promoter group due to a shareholding change in those entities. Subsequently, the same loans have been recognised as Related Party Transactions in compliance with necessary regulatory requirements.
Fortis said the same loans are adequately secured and added that the promoters have agreed to repay the loan by the end of June this year. The healthcare provider said the audit review process for the results of both Q2 and Q3 are in progress.
The Board is scheduled to meet on February 13 to approve results, the company said.
Sources told Moneycontrol that stock exchanges may soon issue notices to audit committee to find out if there is any digression with respect to related party transactions.
The Companies Act requires board approval for related party transactions, and when they exceed a prescribed size, approval from the shareholders is required. Those who authorise a related party transaction without the proper approvals can be punished under Indian law with up to a year in prison or a fine of as much as Rs 5 lakh.
Several experts Moneycontrol spoke to said Fortis is in an unusual situation.
“To begin with the company said the money is in its books, it was showing it as cash and cash equivalents, and wasn't showing it as a loan,” said Amit Tandon, Managing Director of IiAS, a Mumbai-based institution investor advisory services firm to Moneycontrol.
“If they said it's loan then there is question in terms of was it disclosed as the related party transaction. What I heard is that it wasn't a related party when they gave the loan,” Tandon said.
“Therefore there is kind of suspicion on what has happened,” Tandon added.
Tandon asked Fortis Board to clarify whether this has happened with their approval.
JN Gupta, Managing Director at Stakeholders Empowerment Services and former executive director of Securities Exchange Board of India (SEBI) concurs with Tandon. “It's a governance issue,” Gupta told Moneycontrol.
“The statement of the promoters very clearly indicates that they treated this company as a personal company rather than a (publicly) listed company,” Gupta said.
"The facts which are out in the public domain it seems to be not a violation of Section 185 (of Companies Act, 2013) which is a loan to an entity where the directors are interested or to the directors themselves," said Vishesh C Chandiok, CEO & National Managing Director of Grant Thornton to CNBC-TV18.
"The second part of the transaction is that in the subsequent quarter because of some transaction that happened those entities ended up becoming related parties and therefore that stage would require the approval of the board," Chandiok added.
Bloomberg News on Thursday reported that the company's external auditor Deloitte has refused to sign Q2 FY18 accounts of the company.
Deloitte said it's unable to comment on client-specific matters, as it is "bound by confidentiality obligations".
Chandiok said it's an unusual situation if the audited limited review results doesn't happen within 45 days of the end of the quarter and within 60 days of the end of the year as stipulated as per the law.
"From an auditors perspective — an auditor looks for sufficient, appropriate audit evidence to support the opinion they are showing. And until the time — the auditor can gather that appropriate, sufficient evidence — they can’t issue that opinion."
Fortis board is left with five independent directors after resignation two members including Malvinder Singh, executive chairman and Shivinder Singh non-executive vice chairman
Three independent directors Harpal Singh, Brian W Tempest and PS Joshi have been associated with Ranbaxy - the company that was once owned by Singh brothers.
Two other directors Joji Sekhon Gill was a executive in Dupont and Pradeep Ratilal Raniga is a top financial consultant
Shradha Suri Marwah resigned from the board on November 14, 2017 citing personal reasons.
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