Legal firm Luthra & Luthra, in its investigation report, has pointed out certain systemic lapses and override of controls within Fortis Healthcare with respect to inter-corporate deposits (ICDs) that allowed promoter to take-out money from the company.
Luthra & Luthra was appointed by the Fortis board in February to carry out an independent investigation to find out if there were any lapses of the company’s control procedures and governance after allegations that the erstwhile promoters took out around Rs 494.14 crore through ICDs. The ICDs were placed through three companies related to erstwhile promoters.
These ICDs were given for a period of 90 days and remained outstanding together with interest accrued thereon till March 31, 2018 of Rs 445.03 crore. The company had provisioned the entire amount in Q4 FY18 financials.
“In respect of ICDs granted, the investigation report revealed that there were certain systemic lapses and override of controls including shortcomings in executing documents and creating a security charge while the company was under financial stress,” Fortis said in a statement to stock exchanges.
The security charge was later on created in February 2018, though the ICDs were granted in July 2017.
This is the first time the company is disclosing details of the Luthra & Luthra report, which was submitted earlier this month.
“The investigation report, on the basis of documents, emails reviewed and interviews conducted, revealed that the ICDs were not given under the normal treasury operations of the company including under the treasury policy and the mandate of the Treasury Committee; and were not specifically authorized by the Board of Fortis," it said.
The Luthra & Luthra report also alleged that management personnel and other persons involved were forced into undertaking the ICD transactions under repeated assurances of due repayment and it could not be said that the management was in collusion with the promoters to give ICDs to the borrower companies.
“Relevant documents/information and interviews also indicate that the management’s objections were overruled,” the company said.
Fortis said the former executive chairman of the company, Malvinder Singh, in his written responses, has denied any wrongdoing, including override of controls in connection with grant of the ICDs.
Routing of funds
The report also found out fund diversion by erstwhile promoters through subsidiary Escorts Heart Institute and Research Centre Limited (EHIRCL).
EHIRCL acquired 71 percent equity interest in Fortis Healthstaff Limited at an aggregate consideration of Rs 3.46 lakh. Subsequently, EHIRCL advanced a loan to Fortis Healthstaff, which was used to repay the outstanding unsecured loan amount of Rs 7.95 crore to a promoter group company.
In effect, the erstwhile promoters routed money through Fortis units to repay a small portion of the outstanding ICDs.
“Certain documents suggest the loan repayment by Fortis Healthstaff and some other payments to the promoter group company may have been ultimately routed through various intermediary companies and used for repayment of ICDs /vendor advance to FHsL / Company,” the company said.
Fortis said it had initiated legal action to recover the outstanding ICDs, including interest due. The company also said it will appoint an external agency of repute to undertake a scrutiny of the internal controls and compliance framework in order to strengthen processes and build a robust governance framework.“With respect to matters identified in the investigation report, the company towards this end, will also evaluate internal organizational structure and reporting lines, the delegation of powers of the board or any committee thereof, the roles of authorized representatives and terms of reference of executive committees and their functional role,” Fortis said.