Corporate Governance Issues at Fortis Healthcare-Religare Enterprises Group

The corporate fraud committed by brothers Malvinder Mohan Singh and Shivinder Mohan Singh created lots of uncertainty for Fortis Healthcare Ltd. and Religare Enterprises Ltd., although both promoters have quit the firms and relinquished control. The governance issues in Fortis-Religare group, earlier known as Ranbaxy group, started way back in 2008 when the promoters had sold their flagship company Ranbaxy Laboratories Ltd. to Daiichi Sankyo of Japan. Since then, the Singh brothers had expanded the business of both the other listed companies, Fortis Healthcare Ltd. and Religare Enterprises Ltd. Later it was found that Ranbaxy Labs was sold hiding information about the probes it was facing with the US FDA. Daiichi ended up paying a hefty fine to FDA for Ranbaxy and later selling it to Sun Pharmaceuticals. Daiichi also sued Singh Brothers and was awarded $350 mn damages in 2016. In 2017-18, the Singh brothers faced allegations that they had diverted funds from Fortis and Religare also, to the family-controlled holding companies. In parallel, their shareholding in Fortis and Religare had come down due to the loans they had taken. In February 2018, the Singh brothers exited both the companies and new managements were installed. The external shareholders of both Fortis Healthcare and Religare Enterprises faced wealth destruction due to fraudulent transactions. Given the fraud cases faced by the Singh brothers, both Fortis Healthcare and Religare Enterprises faced uncertain futures.

On January 11, 2020, the Indian Enforcement Directorate filed a charge sheet against Malvinder Mohan Singh and Shivinder Mohan Singh, well-known businessmen, on a money laundering case during their tenure at Religare Enterprises Ltd. The management of Religare Enterprises issued a formal statement welcoming the development (Ohri, 2020a and 2020b). Still, both the investors and management of the company were aware of the uncertainty surrounding the firm's future due to the cases involving the Singh brothers.

Similar was the uncertainty surrounding Fortis Healthcare Ltd. as well, the erstwhile sister firm of Religare Enterprises. Almost two months earlier, on November 17, 2019, Fortis Healthcare drew flak from the Indian Supreme Court for paying 46.66 bn to buy back hospital assets from Religare Health Trust (RHT) of Singapore. The court observed that it was a violation of its previous order in the Singh brothers case. The court warning was a sign of uncertainty over the plans that IHH, the new promoter, lined out for Fortis Healthcare. The roots of the uncertainty faced by Religare Enterprises and Fortis Healthcare were the same. The firms were once part of the same business group controlled by Malvinder Mohan Singh and Shivinder Mohan Singh. The Singh brothers, as they were known, were the promoters of the Fortis-Religare group, which was earlier known as the Ranbaxy group, one of India's well-known family-owned business groups.

The group faced serious corporate governance issues in 2017, as the promoters were allegedly involved in financial frauds, resulting in their ouster in February 2018. It caused severe erosion of shareholder value as well as turmoil at the top management. The new professional management took over in both companies. Nevertheless, uncertainty loomed large for both companies as they struggled to smoothen out the impact of the financial fraud committed by the Singh brothers, thereby creating lots of uncertainty about their future.

Origin of Fortis-Religare Group

Fortis-Religare group was earlier known as Ranbaxy Group, whose flagship company was Ranbaxy Laboratories Ltd. It was India's largest pharmaceutical company in the 1990s and 2000s, with significant revenue from exports. Ranbaxy Laboratories traces its origin to an Indian Punjab-based pharma distribution company founded in the late 1930s. It was taken over by Bhai Mohan Singh in 1952 and ventured into the manufacturing of generic medicines. It grew phenomenally under the leadership of Parvinder Singh, the eldest son of Bhai Mohan Singh, despite a boardroom fight between the father and the son in the early 1990s.

Parvinder Singh also ventured into the healthcare business with Fortis Healthcare in 1996. However, in 1997-98, after he was diagnosed with cancer, Parvinder Singh sold a 50% stake in Fortis Healthcare to another Indian company IL&FS Ltd. and became a silent partner in the venture (Mitra and Pande, 2009).

In 1999, Parvinder Singh, who was in his fifties, passed away due to cancer. At that time, his sons, Malvinder Mohan Singh and Shivinder Mohan Singh, were too young to take over the company. Hence, Ranbaxy Laboratories' management was given to professional managers. Initially, the Singh brothers did not even hold board positions despite owning 33% stake at Ranbaxy Labs, as promoters. Though, in 2000, Malvinder Singh was designated as the director in charge of international operations at Ranbaxy, the top management control was with the executive chairman D S Brar, a professional manager (Goyal, 2004).

Growth of the Businesses Under the Singh Brothers in the Early 2000s

After the death of their father, the Singh brothers chose to focus on other businesses as well. They bought back the entire stake of Fortis Healthcare in 1999 from IL&FS and started expanding the business by adding more hospitals. They also took up executive positions in Fortis Healthcare, with Malvinder Singh becoming the executive chairman. In the early 2000s, the company started growing fast under the leadership of the Singh brothers. It opened hospitals in the cities like Mohali, Amritsar and Noida. It also acquired other hospitals like Jessa Ram Hospital, Escorts Heart Institute, Sunrise Medicare, Trehan's Medicity, Hiranandani Hospital, and Malar Hospitals in the mid-2000s. To fund the expansion, the Singh brothers took Fortis Healthcare public and got it listed in the Indian stock market in 2006-07.

Parallelly, in 2001, the Singh brothers acquired a non-banking finance company called Empire Capital and renamed it as Fortis Securities, whose name later got changed to Religare Securities. They appointed Sunil Godhwani, a family friend, as the CEO of the company (Bhandari, 2013), and later Godhwani was also given a significant stake in the company. The company was renamed as Religare Enterprises and became the holding company of its financial ventures (Bhandari, 2009).

The flagship company of the group, Ranbaxy Labs, also continued to do well under the leadership of D S Brar. Ranbaxy Labs' revenue grew from 15.60 bn in 1999 to 36.14 bn in 2004, while the contribution of international business grew from 47% of revenue to 68% during the same period (Pandeya, 2009). In January 2004, Malvinder Singh joined the board of Ranbaxy Labs after the announcement that D S Brar, the Chairman and Managing Director (CMD) of Ranbaxy, would step down in July 2004 after the end of his first five-year tenure. While Malvinder Singh's elevation was expected, the industry did not expect D S Brar to step down (Goyal, 2004). After D S Brar stepped down, Brian Tempest, who was earlier the President, became the CMD, and Malvinder Singh became the President (Business Standard, 2013). It was only a stop-gap arrangement, and in January 2006, Malvinder Singh took over as the CMD of Ranbaxy, marking the return of the family at the top (Paul, 2001). The younger brother Shivinder Singh had also joined the board of Ranbaxy Labs in 2006. Ranbaxy Labs expanded its global presence aggressively through acquisitions under the leadership of the Singh brothers (Paul 2001). It helped the company to overcome its limitations in innovation and gave much visibility to the company globally (Pradhan, 2008).

In a surprise development, in June 2008, the Singh brothers struck a deal with Daiichi Sankyo, Japan's third-largest drugmaker, to sell their family's 34.82% stake in Ranbaxy Labs (Krishnan, 2008). Daiichi later got a preferential allotment of shares up to 9.5% and acquired another 20% from the open market. Overall, Daiichi acquired a 63.9 % stake in Ranbaxy Labs for $4.2 bn. Initially, Malvinder Singh agreed to continue as the CEO of Ranbaxy Labs for five years, but quit in May 2009. However, within a few months of Ranbaxy sale, it faced inquiries from the US Food and Drug Administration (FDA).

Ranbaxy Labs Under Daiichi Sankyo

Before the takeover by Daiichi, in the mid-2000s, one whistleblower petitioned the US regulator about the malpractices of Ranbaxy Labs to get approval for its drugs. Dinesh Thakur was the director and global head of research information and portfolio management at Ranbaxy Labs during the 2003-2005 period. He found that Ranbaxy fudged the drug testing data to get approval from the FDA to sell them in the USA market. Thakur tried to internally report his concerns to the board of directors at Ranbaxy. However, the board failed to act on it. Hence Thakur quit the company in 2005 (Mukherjee, 2013) and moved to the USA. He filed a False Claims Act lawsuit with the US Department of Justice. Based on Thakur's complaint, the FDA conducted its investigations. It was reported that in 2006 itself Ranbaxy got warnings from the FDA. However, the company did not officially disclose it to the investors. After the company was taken over by Daiichi, in September 2008, the US FDA issued two warning letters to Ranbaxy Labs and an import alert for generic drugs produced by the company's Dewas and Paonta Sahib plants in India, pointing out the deviations from US' current Good Manufacturing Practice (cGMP) requirements at Ranbaxy's manufacturing facilities in the locations mentioned above (livemint.com, 2008). As a result, the FDA banned the import of 30 drugs manufactured at these two facilities, on the grounds that the test results had been fabricated.

Subsequently, more quality issues were raised, and Daiichi realized that Ranbaxy was facing multiple probes from the US drug regulator FDA. Daiichi spent around $500 mn on upgradations to meet cGMP requirements. Eventually, on May 2013, Ranbaxy Laboratories' US subsidiary Ranbaxy USA Inc., pleaded guilty to seven federal criminal counts, three felony counts related to the manufacture of drugs at two Indian locations that did not meet safety standards and to four counts of making materially false statements (NDTV, 2013). The settlement, which was one of the largest in the history of the FDA, included $150 mn in payments for a criminal fine and forfeiture and $350 mn in civil claims payments. The $500 mn fine crippled the company, which was already making losses. The FDA prosecutions against Ranbaxy Labs continued as the two other plants in India were also subjected to FDA ban in 2013 and 2014 (Krishnan, 2014). Over six years, Daiichi lost around $1 bn in the form of fines and upgradations at Ranbaxy Labs.

Daiichi alleged that the Singh brothers withheld crucial information about the FDA probes when they sold it in 2008. Daiichi sued the Singh brothers at the Singapore arbitration court for concealing and misrepresenting critical information relating to the US FDA and the Department of Justice investigations at the time of selling Ranbaxy, in June 2013 (Dey, 2013).

In April 2014, Daiichi sold Ranbaxy Labs to another Indian pharma major Sun Pharmaceutical Industries Ltd., controlled by Dilip Shanghvi family, for $4 bn, including Ranbaxy's debt of $800 mn. It was an all-stock deal, and hence Daiichi got a significant 8.9% stake in the Sun Pharma. Later in April 2015, Daiichi Sankyo sold the Sun Pharma shares and exited the company. However, it continued to pursue the case against the Singh brothers.

The Singapore tribunal awarded Daiichi damages against the Singh brothers in April 2016 over allegations that they concealed information regarding wrongdoing at Ranbaxy Labs when they sold it to the Japanese firm in 2008. The Singh brothers were asked to pay $543 mn (35 bn) to Daiichi ($385 mn damages, $143 mn interest and $15 mn court expenses) (Jacob and Balakrishnan, 2016). While the Singh brothers appealed against this award in Singapore, the Delhi High court ruled in January 2018 that Daiichi can enforce the award in India (Bhan, 2018).

Growth of Businesses of the Singh Brothers After the Sale of Ranbaxy

The Singh brothers got around 95.76 bn from the Ranbaxy stake sale in 2008. The Singh brothers paid nearly 22-25 bn in taxes and loan repayments. Of the remaining 70-75 bn, 17.5 bn was invested to fund Religare's growth; about 22 bn was invested in growing Fortis (Dubey, 2018b). The investments were made through the main holding company, RHC Holdings Pvt Ltd. Fortis received an injection of 9.97 bn in August 2009, a large chunk from the promoters, whose holding rose from 68.45% to 76.47% after the rights issue (Dagar, 2010). Another, 25-27 bn was transferred to companies owned by a family friend and spiritual guru Gurinder Singh Dhillon, and the spiritual organization associated with them called 'Radha Soami Satsang Beas' (RSSB).

Religare Enterprises Ltd. became the holding company for the group's financial services ventures and forayed into every vertical in the financial services space barring banking and foreign currency trading. It was also aggressive in its retail presence. By the end of December 2009, within nine years of its operation, Religare distribution covered 2,042 business locations spread across 546 cities. Compared to this, Kotak Mahindra Bank had 1,647 branches across India, including banking, broking, and life insurance businesses, after over two decades of operations (Dagar, 2010). In April 2010, the Singh brothers quit the board of Religare Enterprises Ltd., making Sunil Godhwani the chairman of the board. The complete management control was given to Godhwani (PTI, 2010).

At the end of the financial year 2013, Religare Enterprises had consolidated revenue of 34.9 bn ($634 mn), with over 1.3 million clients serviced from over 1,750 locations with over 5,300 employees in India and abroad. The promoters held a 71% stake in the listed entity. The company's business portfolio included SME Lending, Mutual Funds, Retail Equity, and Commodity Broking, Health Insurance, Life Insurance, Wealth Management, and Alternative Investments. In FY 2013-14, the promoters started divesting their stake in the company to bring it below 49% to apply for a banking license (THB, 2013).

Changes happened in the other flagship company, Fortis Healthcare, also. The clinical-establishment division was taken out of the parent company and housed in a new entity called RHT in July 2011 (ET Bureau, 2019a and 2019b). Fortis Healthcare retained the medical services division comprising in-patients departments, intensive care units, operation theaters, and emergency services business. RHT was listed in Singapore Stock Exchange in 2012 as a business trust, with Fortis Healthcare being the sponsor with a 28% stake. Fortis continued to run the clinical-establishment division and paid an annual service fee of 2.50 bn every year to RHT (Rajagopal and Layak, 2019). The management argued that this is part of their asset-light strategy (PTI, 2012).

Even after exhausting the Ranbaxy sale money, RHC Holdings continued its acquisition in other businesses by borrowing a lot by pledging its shareholdings in Religare and Fortis. More importantly, funds from Religare and Fortis, raised in the form of debt, were diverted to real estate investments (Kapadia, 2018). The growth of Religare Enterprises stopped after FY 2014 due to the debt burden. Since 2015, the group had started selling the business to overcome the debt problem. For example, Religare got out its life insurance JV with Aegon in May 2015 (Laskar, 2015).

Similar was the case with Fortis Healthcare as well. Net profit at the firm, which was 300 mn in 2009-10 and went up to 2.01 bn in 2011-12. After that, profit started declining. The company started posting losses since 2014-15 until the brothers were in control (Raj and Thacker, 2018).

How It Got Exposed

In July 2016, Sunil Godhwani resigned from the chairmanship of Religare Enterprises, while retaining the CEO and whole-time director position. The Singh brothers returned to Religare board, with Malvinder taking over as the chairman (Subramanian, 2017b). The red flags went up for the first time in early 2017 when three board members of Religare stepped down.

In July 2017, the share prices of Religare Enterprises fell sharply (20% fall on July 10, 2017) on the reports that the lenders of the company were selling the promoter shares pledged with them due to non-payment of loans (Subramanian, 2017a). There were also media reports which indicated that RHC Holding had approached lenders for urgent funds to meet repayment obligations of financial services firm Religare Enterprises (Mint, 2017). Religare shares continued to fall in the subsequent days. On September 6, 2017, Sunil Godhwani resigned from the company and its board, amidst Religare Enterprises seeking to pass a resolution on shareholders' postal ballot, to invest 5 bn in its subsidiary Religare Capital Markets Ltd. (RCML). RCML would transfer a certain sum of the investment to its subsidiary, Religare Capital Markets International (Mauritius) to repay its own liabilities. Both the entities (RCML and RCMIML) had accumulated losses. Religare Enterprises had already made a provision of 300 mn for diminution in the value of its existing investment in RCML. Further, the Religare Enterprises had stated that a provision for diminution for the proposed investment of 5 bn shall also be created in the company's books of accounts since RCML was in losses (Subramanian, 2017b). Though the resolution was passed, this controversial related party transaction created unrest among the external shareholders.

Mauritius-based India Horizon Fund, supported by IDBI Trusteeship and representing a total shareholding of 11% at Religare Enterprise Ltd., moved the National Company Law Tribunal (NCLT) seeking a stay on implementing the resolution. It also sought the company board's ouster on the grounds of mismanagement and oppression of minority shareholders (Gupta, 2017). Though NCLT declined to stay the resolution, the petition exposed the company's governance issues (Agarwal, 2017).

In November 2017, Malvinder Singh stepped down from the chairmanship of the Religare Enterprises board and appointed an outsider, S Lakshiminarayanan, as the executive chairman. However, Lakshiminarayan resigned from the chairmanship within two months. Another newly appointed independent director also resigned from the board in January 2018 (Kumar, 2018a). In January 2018, a New York-based investor in Religare filed a lawsuit against the firm at NCLT. The suit pointed out that the Singh brothers forced Religare Enterprises to make 21 loans to some seemingly independent companies that routed at least $300 mn back to firms privately held by the Singh brothers on the same day. The suit alleged that the Singh brothers diverted the lender's funds to aid them with a personal debt loan of about $1.6 bn, which was forcing the sale of chunks of their empire that included Religare and Fortis Healthcare Ltd. In one such instance, Religare Enterprises' subsidiary Religare Finvest was forced to create a fixed deposit of $180 mn (7.50 bn) with Laxmi Vilas Bank on November 2016. Against this fixed deposit, RHC Holding and its subsidiary Ramchem Private Ltd. were granted loans worth 7.5 bn. In June 2018, Religare Enterprises sued Lakshmi Vilas Bank for invoking deposits against loans to the Singh brothers (Manghat, 2018).

Similar fund diversions happened in Fortis Healthcare as well. In 2017, Malvinder Singh made Fortis Healthcare extend $76 mn (4.73 bn) in inter-corporate deposits to RHC Holdings which was used to pay creditors of RHC Holdings. This related party transaction was executed without the approval of the board of directors (Altstedter et al., 2018).

Amidst all these allegations, the Delhi High Court, in January 2018, passed an order upholding the Singaporean tribunal's $35 bn awarded in favor of Daiichi Holdings, to be paid by the Singh brothers. Subsequently, the Singh brothers resigned from the board of Fortis Healthcare Ltd. on February 8, 2018 (Dey, 2018) and a week later, on February 14, they resigned from Religare Enterprises as well (Kumar, 2018b).

Where did the money go?

The charge sheet filed by the Indian Enforcement Directorate indicated that the brothers and co-accused Sunil Godhwani used 19 shell companies to launder around 21 bn (Ohri, 2020a). The charge sheet said, "Malvinder and Shivinder Singh incorporated and used multiple conduit companies to siphon off public funds from Religare Enterprises through its corporate lending arm, Religare Finvest Ltd. by way of sanctioning and disbursal of loans under corporate loan book" (Ohri, 2020b).

According to the Registrar of Companies (RoC) records, between 2008 and 2016, the group's main holding company RHC Holding and another holding company Oscar Investments pledged immovable properties and shares valued at up to 152.76 bn to various banks and financial institutions to raise resources between them. RHC's pledges since November 2010 (some of which may have been to raise resources to pay off previous loans) added up to 128 bn by FY 2017-18 (Dubey, 2018b).

Most of the money diverted from the listed companies were used to repay the loans taken by RHC Holding. Part of it was diverted to the real estate business. Over the years, the brothers' main holding company loaned about 25 bn ($360 mn) to the Dhillon family and property businesses largely controlled by them. As indicated earlier, part of those outlays was financed with money borrowed from the Singhs' listed companies, and when combined with other Singh investments gone bad, it threw their empire into a debt spiral (Altstedter, 2018).

The Singh brothers' effort to pay off the debts by selling stakes in the group companies was blocked multiple times by Daiichi Sankyo through court orders. Daiichi approached the courts to ensure that the brothers had enough assets to pay off the $500 mn arbitration order it had won against them in a case that accused them of concealing crucial information during the Ranbaxy sale. Unable to pump in funds to repay debt, the Singhs' equity holding in group companies pledged with banks got invoked by the lenders. At Fortis Healthcare, the Singh family's shareholding had come down from 68% in 2008 to 0.6% in 2018. Similarly, at Religare Enterprises, the family shareholding had come down from 72% in 2008 to 1.5% in 2018.

What happened to the Singh brothers and Sunil Godhwani

In August 2018, six months after stepping down from both Fortis and Religare, the Singh brothers accused Sunil Godhwani as the reason for the problems in the group. In a joint statement, the brothers said that after the Ranbaxy sale closed in 2008, it was decided that Godhwani would lead the family office in addition to his role in Religare, and from 2008-end, he had full management control of RHC holding and its subsidiaries. He was expected to be a responsible trustee and steward of the family's resources and consequently our reputation, the statement said. "Godhwani used his position to conceive and orchestrate a series of transactions over the better part of a decade that led to our Group's debt load by 2016," it added. It is clear that he used our trust in him to exercise undue influence and has taken advantage of the faith bestowed by both families, the statement said (PTI, 2018a).

Within a month, in September 2018, the younger brother Shivinder Singh moved NCLT against Malvinder Singh, accusing him of fraud in running group companies. Shivinder Singh alleged that after he moved out of the executive position in Fortis Healthcare in 2015, it had moved towards disintegration and ruin (Kumar, 2018c). Shivinder Singh's petition claimed widespread forgery, false claims, and fake documentation in the group. The petition alleged that the company had created documents for many meetings that did not take place. The petition also alleged another serious violation, where Shivinder's wife Aditi was recorded as being present at a board meeting when she was, in fact, abroad. The petition argued that Godhwani had the de facto control of the group holding company RHC holding, even though he was not an office-bearer there, and Godhwani and Malvinder allegedly collaborated in managing the transactions (Dubey, 2018a). However, within 15 days, Shivinder Singh had withdrawn the petition and announced that he was ready for mediation. He said the siblings would try to reach an agreement on which one of them would deal with the ongoing litigation with Daiichi Sankyo and others (ET Bureau, 2018). The peace did not last long. In December 2018, Malvinder Singh alleged that his brother Shivinder Singh physically assaulted him (Dubey, 2018c). Again, in February 2019, Malvinder Singh filed a criminal complaint against Shivinder Singh, Sunil Godhwani, Gurinder Singh Dhillon, and others, alleging financial fraud and threats to kill him (PTI, 2019a). He alleged that Sunil Godhwani was informally made responsible for the affairs of the group holding firm RHC holding on the advice of Gurinder Singh Dhillon. They diverted funds worth 10 bn to Dhillon and Godhwani families from RHC group companies, in collusion with Shivinder Singh (Dubey, 2019).

While there were allegations and counter-allegations, the Economic Offences Wing (EOW) of Delhi Police continued their investigation against the Singh brothers. On October 11, 2019, the EOW arrested the Singh brothers, Sunil Godhwani, former Religare Finvest CEO Kavi Arora, and former Religare Group CFO Anil Saxena. A statement issued by the EOW said, "The alleged persons having absolute control on Religare Enterprises Limited (REL) and its subsidiaries put Religare Finvest Ltd. in poor financial condition by way of distributing the loans to the companies having no financial standing and controlled by the alleged persons. These companies wilfully defaulted on repayments, causing a loss to Religare Finvest to the tune of 24 bn" (BSReporter, 2019). The Singh brothers continued to be in jail as of January 11, 2020 (PTI, 2020).

Fortis-Religare Group After the Resignation of the Singh Brothers

Within a few days of the resignation of the founders, Religare Enterprises recast its board with three new members. The company also appointed Ashok Metha as the interim CEO (Rajagopal, 2018). However, a period of uncertainty followed, with many of the board members quitting. In August 2018, Religare Enterprises appointed Milind Patel as the CEO and also moved to remove the Singh brothers as the promoters of the company.

The internal enquiries of Religare Enterprises indicated that the promoters might have indulged in financial fraud worth around 25.20 bn during the period 2008-2017 and filed a formal complaint with the Ministry of Corporate Affairs (Religare AR, 2018).

The new management tried to revive the fortunes of the company. In April 2019, Religare Enterprises said that as part of its revival plan, it had reduced the overall borrowings of the group to 58.52 bn from 98.01 bn, as of March 2019. The statement indicated that the company was trying to rebuild the business by raising fresh capital as well as through right-sizing employee strength (Rajagopal, 2019a).

However, the revival proved tougher for its subsidiary Religare Finvest Ltd., a Non-Banking Finance Company, and Religare Finvest's subsidiary Religare Housing Development Finance Corporation (RHDFC). Religare Finvest had posted revenue of 7.96 bn in fiscal 2019 when Religare Housing had registered about 1.3 bn. In April 2019, Religare Finvest failed to pay an installment of loan repayment and proposed a debt resolution plan to banks (ET Bureau, 2019a and 2019b). Though Milind Patel had stepped down as Group CEO of the Religare Enterprises in June 2019 (PTI, 2019b), the restructuring exercise continued.

In July 2019, Religare Enterprises decided to sell Religare Finvest along with its subsidiary RHDFC to the Kolkata-based TCG Advisory Services of The Chatterjee Group (TCG) (Businesstoday.in, 2019). The deal was finalized in October 2019, with Religare Enterprises agreeing to sell its entire stake in Religare Finvest for 3.3 bn to TCG Advisory Services (PTI, 2019c). The deal was pending approval from the lenders of Religare Finvest, as on January 10, 2020 (Rebello, 2020).

Meanwhile, in December 2019, the Religare Enterprises board predesignated the non-executive chairman of the board, Rashmi Saluja, as the executive chairman. As of January 10, 2020, the Religare Enterprises board had six members, all appointed after July 2018, with five of them being independent directors.

The biggest dilemma before the new executive chairman was how to manage the future of Religare Enterprises. One option was to sell the different verticals of the company slowly and become a lean organization, which could fight to recover the dues from the Singh brothers. However, this asset sale option had its uncertainties. Even the deal to sell Religare Finvest to TCG might not materialize, felt the analysts. They opined that even if the lenders approved the deal, the banking regulator might not approve it, as Religare Finvest was under the Prompt Corrective Action (PCA) framework of the Reserve Bank of India. Similarly, Religare Enterprise's plans to revive the health insurance business either by bringing in a new investor or through stake sale, were under a cloud due to the uncertainties surrounding it.

The second option before the new executive chairman was to find a strategic investor for the parent Religare Enterprises who would pump in new investment to revive the verticals. However, the new investor would prefer to value the company at a discount, which may not be accepted by the existing shareholders, because a favorable verdict in the case to recover money from the Singh brothers, which is most likely, would increase the valuation sharply. However, such cases take years to reach the legal conclusion in India. In the case of Fortis Healthcare also, after the resignation of the founders in March 2018, three more directors had quit the board. In June 2018, Fortis Healthcare sued the Singh Brothers for the loans given to the promoter-controlled companies (Stacey, 2018). Due to the fund crunch caused by the promoters' diversion of funds, Fortis sought to get acquired by a potential bidder. Initially, TPG Capital & Manipal Health Enterprises combinely tried to acquire Fortis. However, later, in July 2018, Malaysian-Singaporean private healthcare group 'IHH Healthcare Berhad' joined the race to acquire Fortis. The board of Fortis Healthcare unanimously accepted the binding offer made by IHH, through its wholly-owned subsidiary Northern TK Venture Pte. Ltd., to invest 40 bn by way of preferential allotment at an offer price of 170 per share. With this investment, IHH would get a 31.1% stake in Fortis. The acquisition valued Fortis Healthcare at 88.8 bn, with the offer price of 170 apiece, representing 22.3 times multiple of Fortis Healthcare's earnings before tax for the 12 months ended March 31, 2018, and 19.5% and 15.3% premium to the closing share price on July 12, 2018 and 60-day volume-weighted average price, respectively. The transaction was to be followed up with an open offer for an additional 26% stake. IHH Healthcare was expected to spend a total of 73 bn to acquire a 57.1% stake, provided the open offer is fully subscribed. The shareholders of Fortis approved the deal in August 2018. After acquiring a 31.1% stake in the firm in November 2018, IHH started recasting the board by appointing four nominees to the Fortis board (PTI, 2018b). The top management of Fortis Healthcare, including CEO Bhavdeep Singh, was replaced by the new board (TBH, 2018).

However, the open offer to acquire a further stake in Fortis was halted in December 2018 due to a court order in the case between Daiichi and the Singh brothers. Daiichi won an arbitration award of $400 mn and approached the Delhi High Court for enforcing the arbitration award. Daiichi also requested freezing the Singh brothers' various assets, including their shareholding in Fortis, for recovery of the money. On August 11, 2017, the Supreme Court accepted the demand and ordered to keep the shareholding structure of Fortis unchanged. However, IHH acquired a 31.1% stake in Fortis Healthcare. Hence Daichii approached the court, arguing that the IHH-Fortis deal would impact the enforcement of its arbitration award against the Singh brothers (Raghavan and Rajagopal, 2018). The court did not nullify the stake acquisition by IHH but ordered for status quo in the Fortis shareholding, due to the ongoing case against the Singh brothers.

Fortis' performance recovered after IHH take over. The company booked profit for the first time in the last quarter of 2018-19 (Das, 2019), after six consecutive quarters of losses. It continued to make profits in the first two quarters of the financial year 2019-20 also (Pilla, 2019).

In October 2018, the SEBI directed the Singh brothers and eight entities related to them to repay the Fortis group companies over 4 bn that was earlier transferred as inter-corporate deposits. In its interim order, SEBI issued directions to Fortis to "take all necessary steps" to recover 4 bn along with due interest within three months from the Singh brothers and entities controlled by them. Nevertheless, those efforts did not bear fruit.

Meanwhile, there was a change in the management of IHH in Malaysia. In November-December 2018, the Mitsui group of Japan acquired a 33% stake (and management control) in IHH from Malaysia's Khazanah Nasional Berhad (Mitsui, 2018).

In January 2019, Fortis bought out all the hospital assets from RHT of Singapore by paying 46.66 bn. However, that deal came under scrutiny in November 2019 when the Indian court questioned the validity of the transaction. The court observed that Fortis's acquisition of assets from RHT had been made in a "hurried and clandestine manner" and was "required to be gone into" (ET Bureau, 2019a and 2019b). The court pointed out that because the Singh brothers were the biggest unitholders of RHT, this money could have been used to pay Daiichi. The court suspected that the transaction was done to ensure Daiichi Sankyo did not get the money the Singh brothers were ordered to pay to the Japanese drugmaker in 2016. The court also directed the initiation of contempt proceedings against Fortis (Thacker, 2019b). The analysts commented that the future of Fortis Healthcare depended on the verdict of this case (Rajagopal and Layak, 2019).

Even before the court scrutiny, Mitsui, which was in control of IHH, decided to go slow on the growth plans for Fortis. For example, Fortis, which owned a 57% stake in its diagnostics subsidiary SRL Labs, was planning to buy back stake of the Private Equity investors in it, as per the original IHH-Fortis deal (Thacker, 2019a). However, after Mitsui took charge, the IHH board did not approve this deal, which would have cost Fortis 7 bn. The market speculated that it was because Mitsui did not want to put more money into Fortis while the case between Daiichi and the Singh brothers was going on (Rajagopal, 2019b).

The top management of IHH had to decide on how to take Fortis forward. One option was to wait until the case between Daiichi and the Singh brothers came to a legal conclusion. Given the slow pace of such cases in India, it might take years, forcing the Fortis to lose the competitive edge to the rivals. The other option was to talk to the fellow Japanese company Daiichi and request them to quickly settle the case out of court with the Singh brothers. The media was indicating that both Mitsui and Daiichi were in talks in late November 2018. Nevertheless, there were no assurances that it would work. The third option was to proceed with Fortis's expansion plans, assuming the Indian government would protect them from the fallout of any adverse court verdict and send a positive signal to the FDI inflow.

Both companies' boards also had the big challenge of revamping the corporate governance systems at the respective companies and winning back investors' confidence. References

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