Corporate Fraud and Shareholding Disputes: Daiichi Sankyo vs. Oscar Investments

The case of Daiichi Sankyo Company Limited vs. Oscar Investments Limited & Others revolves around corporate fraud, shareholding disputes, and contempt proceedings linked to the sale and encumbrance of shares in Fortis Healthcare Limited (FHL). The Supreme Court was called upon to examine the alleged fraudulent disposal of shares despite court-imposed restrictions and violations of prior undertakings given to the High Court.

Background of the Case

The dispute originates from a foreign arbitration award that favored Daiichi Sankyo Company Limited against the Singh brothers (Malvinder Mohan Singh and Shivinder Mohan Singh), who were the promoters of Fortis Healthcare Limited. The Japanese pharmaceutical company alleged that the Singh brothers had siphoned off funds from their companies and transferred shares to avoid honoring the arbitration award.

When Daiichi Sankyo sought enforcement of the arbitration award, the Delhi High Court was assured that the unencumbered shares held by Fortis Healthcare Holding Private Limited (FHHPL) in FHL would not be transferred or alienated. Despite this, a significant decline in shareholding was observed, leading to the contempt petitions and Supreme Court intervention.

Key Legal Issues

Whether the Singh brothers and associated entities willfully disobeyed the High Court’s orders.
Whether the pledged shares of FHL were unlawfully sold or encumbered despite judicial restrictions.
The role of financial institutions in executing share transfers and pledges contrary to prior court directives.
Corporate liability in cases involving fraudulent conveyance of assets to evade legal obligations.

Arguments by Daiichi Sankyo

Daiichi Sankyo contended that the respondents had given multiple assurances to the Delhi High Court that the status of their unencumbered shares in FHL would remain unchanged.
Despite these assurances, the shares held by FHHPL in FHL declined significantly from 32,50,91,529 shares in 2016 to merely 6,01,607 shares in December 2018.
The petitioner alleged that the respondents knowingly allowed the banks and financial institutions to invoke pledged shares, reducing their effective control over FHL.
It was argued that these actions amounted to fraud, contempt of court, and an attempt to evade the arbitration award.

Arguments by the Respondents

The respondents contended that they had not directly sold any shares and that financial institutions had independently exercised their rights under existing loan agreements.
They claimed that they had acted within the boundaries of their financial commitments and that any encumbrances were a result of prior contractual obligations.
They also argued that the Supreme Court’s orders had subsequently allowed encumbered shares to be sold, which was done in compliance with those directives.

Supreme Court’s Analysis

The Supreme Court meticulously analyzed the shareholding pattern of FHHPL in FHL from September 2016 to December 2018 and found that the number of both encumbered and unencumbered shares had dropped drastically. The Court noted:

“Contrary to the aforesaid solemn assurances and undertakings, which were repeatedly reiterated to procure orders, the shareholding went into a downward spiral.”
“The number of unencumbered shares fell from 7,31,68,281 in January 2017 to merely 6,01,607 by December 2018.”
“This decline was not brought to the attention of the Court and was concealed, despite its clear impact on the ability to satisfy the arbitration award.”

The Court further noted that financial institutions had exercised their rights to enforce pledges, but questioned whether the loans and encumbrances had been structured in a way that facilitated asset transfers in bad faith.

Final Judgment

The Supreme Court directed multiple financial institutions, including banks, to disclose the following:

Details of the loan agreements under which the shares were pledged.
Nature of securities offered for the loans, apart from the pledged shares.
A timeline of all encumbrances created on FHL shares post-2017.
Details of how and why the pledged shares were sold, and whether alternative security options were available.

The case was scheduled for further hearings to determine whether contempt proceedings should be initiated against the Singh brothers and whether fraudulent asset transfers had taken place.

Conclusion

This case underscores the importance of corporate accountability and the role of courts in preventing asset transfers aimed at evading legal obligations. The Supreme Court’s intervention ensures that fraudulent financial transactions do not undermine the enforcement of foreign arbitration awards and that corporate entities cannot escape liability through opaque share transfers.

Petitioner Name: Daiichi Sankyo Company Limited.
Respondent Name: Oscar Investments Limited & Others.
Judgment By: Justice Uday Umesh Lalit, Justice Indira Banerjee, Justice K.M. Joseph.
Place Of Incident: India.
Judgment Date: 18-02-2021.

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