Securities Exchange Board of India (SEBI), Mumbai: A Whole Time Member G. Mahalingam passed directions exercising his powers under Section 19 read with Sections 11(1), 11(4) and 11B of the SEBI Act, 1992 in a case of diversion of funds.
The facts of the case were that SEBI initiated examining the case of Fortis Healthcare Limited on the basis of an article published on Bloomberg where promoters of FHL was alleged to have taken at least Rs.5 billion out of the company. After meeting the auditors of the company and conducting the preliminary examination in the matter, SEBI found that FHL through Fortis Health Management Limited had granted loans to 3 Indian Companies in the form of Inter Corporate Deposits. For investigating the same the accounts of the 3 borrower companies and the promoter and promoter connected entities were required to be examined. A Forensic Auditor was appointed for examining the alleged diversion of funds from FHL and its subsidiaries for the benefit of promoter and promoter connected entities. FHsL had issued a number of short-term loans for the benefit of promoters where the loans were repaid by channeling the funds through various companies. It was observed that the ultimate beneficiary of loan given by FHsL to Best (an unrelated entity) was RHC, a promoter entity of FHL and the similar pattern or method was seen with loan to various other unrelated entity which showed the issuance of loans for the sole purpose of benefiting Promoter and its entities.
The alleged diversion of funds through an unrelated entity showed the prima facie role of FHL and FHsL. Thereby, all the entities involved in the aforementioned diversion of funds were found to have acted in a fraudulent manner by misrepresentation of financial position and artificial inflation of bank balance of FHsL and non-disclosure of material information in their books of accounts thereby violating Section 12A(a), (b) and (c) of the SEBI Act, 1992 and Regulations 3(b), (c) and (d) and 4(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
SEBI, in order to protect the interest of the investors and the integrity of Security Market, issued directions that FHL ought to take necessary steps to recover the amount along with the interest within 3 months of this order and the other entities to repay the amount with interest, jointly and severally. [In the matter of Fortis Healthcare Limited,2018 SCC OnLine SEBI 166, order dated 17-10-2018]
