LEGAL ISSUE: Whether the transfer of shares of Fortis Healthcare Limited (FHL) by Fortis Healthcare Holding Private Limited (FHHPL) was in violation of court orders and undertakings.
CASE TYPE: Contempt of Court, Corporate Law
Case Name: M/s. Daiichi Sankyo Company Limited vs. Oscar Investments Limited & Ors.
Judgment Date: 18 February 2021
Introduction
Date of the Judgment: 18 February 2021
Citation: Not Available
Judges: Uday Umesh Lalit, J., Indira Banerjee, J., and K.M. Joseph, J.
Did banks and financial institutions facilitate the reduction of shareholding of Fortis Healthcare Holding Private Limited (FHHPL) in Fortis Healthcare Limited (FHL) despite court orders? The Supreme Court of India is currently investigating this issue in a case involving M/s. Daiichi Sankyo Company Limited and Oscar Investments Limited & Ors. The court is examining whether the sale and encumbrance of shares were done in violation of previous court orders and undertakings given by the parties. This case highlights the complexities of corporate shareholding and the importance of adhering to court directives.
Case Background
The case originated from a dispute where the Supreme Court had issued orders to maintain the status quo regarding the shareholding of FHHPL in FHL. Initially, the court directed that both encumbered and unencumbered shares should not be altered. However, various banks and financial institutions, who had existing pledges on some of these shares, sought clarification, stating that the status quo order should not apply to shares already pledged with them. The court then modified its order, exempting shares encumbered before the initial status quo orders. Subsequently, the court noted a significant decline in FHHPL’s shareholding, raising concerns about potential violations of court orders and undertakings given to the Delhi High Court. M/s. Daiichi Sankyo Company Limited is the petitioner, and Oscar Investments Limited and others are the respondents.
Timeline
| Date | Event |
|---|---|
| 11.08.2017 | Supreme Court directs status quo on FHHPL’s shareholding in FHL. |
| 31.08.2017 | Supreme Court clarifies that the status quo order applies to both encumbered and unencumbered shares. |
| 15.02.2018 | Supreme Court modifies the status quo order, exempting shares encumbered before the initial orders. |
| 15.11.2019 | Supreme Court’s order notes significant decline in FHHPL’s shareholding from September 2016 to December 2018. |
| 23.01.2017 | Assurance given by the respondents before the Delhi High Court regarding unencumbered assets. |
| 06.03.2017 | Statement made before the Delhi High Court that the status of unencumbered assets would not be changed. |
| 21.06.2017 | Last assurance given by the contemnors before the Delhi High Court. |
| 08.02.2017 | Affidavit filed on behalf of all the respondents in the High Court of Delhi regarding the value of unencumbered shares. |
| 11.02.2021 | Notices issued to various banks/financial institutions. |
| 18.02.2021 | Current order passed by the Supreme Court. |
| 22.02.2021 | Deadline for banks/financial institutions to file responses. |
| 24.02.2021 | Next hearing date for the matter. |
Course of Proceedings
The matter initially involved proceedings before the Delhi High Court, where assurances were given regarding the maintenance of unencumbered assets. When the petitioner felt that these orders were not being complied with, a contempt petition was filed in the Delhi High Court. Subsequently, the matter reached the Supreme Court through a Special Leave Petition, where interim orders were passed regarding the shareholding of FHHPL in FHL. The Supreme Court is now examining whether these orders and the undertakings given to the Delhi High Court were violated.
Legal Framework
The legal framework primarily involves the interpretation and enforcement of court orders, particularly those related to maintaining the status quo of shareholding in a company. The case also touches upon the principles of contempt of court, where parties are expected to adhere to court directives and undertakings. There are no specific sections, rules or articles mentioned in the source document.
Arguments
The petitioner, M/s. Daiichi Sankyo Company Limited, argued that the respondents, including FHHPL, deliberately reduced their shareholding in FHL through a series of transactions, violating both the orders of the Supreme Court and the undertakings given to the Delhi High Court. They contended that despite assurances to maintain the status of unencumbered assets, the shareholding of FHHPL drastically declined. The petitioner also argued that banks and financial institutions played a role in facilitating this reduction by invoking pledge agreements, even when other securities were available.
The respondents, on the other hand, claimed that they did not directly sell or further encumber any shares after 06.03.2017. They stated that the banks and financial institutions themselves exercised the right of pledge/top-up of pledged shares without any reference to or action from them. They also argued that the sale of shares by the banks and financial institutions was a result of the modification of the Supreme Court’s order on 15.02.2018, which allowed the sale of encumbered shares by the respective lenders.
The banks and financial institutions argued that the issue was already examined by the Supreme Court and that there were no specific pleadings to which they could respond. They also contended that they were merely exercising their rights under the existing loan/pledge agreements.
| Main Submission | Sub-Submissions |
|---|---|
| Petitioner’s Argument: Violation of Court Orders and Undertakings |
|
| Respondents’ Argument: No Direct Violation |
|
| Banks/Financial Institutions’ Argument: No Wrongdoing |
|
The petitioner’s argument was innovative in highlighting the structured nature of the transactions that led to the reduction of shareholding, suggesting a deliberate circumvention of court orders.
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in this order. However, the primary issue before the court is whether the actions of the respondents and the banks/financial institutions constituted a violation of the court’s orders and the undertakings given to the Delhi High Court, specifically regarding the shareholding of FHHPL in FHL.
Treatment of the Issue by the Court
| Issue | How the Court Dealt with It |
|---|---|
| Whether the actions of the respondents and banks/financial institutions constituted a violation of the court’s orders and undertakings? | The Court directed all noticee banks and financial institutions to place on record various documents and details related to loans, securities, encumbered/unencumbered shares, and sales of shares. This was to determine the extent of their involvement and whether there was any circumvention of court orders. |
Authorities
The court did not explicitly cite any specific cases, books, or legal provisions in this order. However, the court considered its own previous orders dated 11.08.2017, 31.08.2017, and 15.02.2018, as well as the undertakings given to the Delhi High Court, as the primary authorities for its decision.
| Authority | Court | How Considered |
|---|---|---|
| Order dated 11.08.2017 | Supreme Court of India | Considered as the initial order directing status quo on shareholding. |
| Order dated 31.08.2017 | Supreme Court of India | Considered as the clarification that status quo applied to both encumbered and unencumbered shares. |
| Order dated 15.02.2018 | Supreme Court of India | Considered as the modification that exempted previously encumbered shares from status quo. |
| Undertakings given to the Delhi High Court | High Court of Delhi | Considered as binding assurances that should have been adhered to. |
Judgment
| Submission by Parties | How the Court Treated the Submission |
|---|---|
| Petitioner’s submission that the shareholding was deliberately reduced in violation of court orders and undertakings. | The Court took cognizance of the submission and directed banks/financial institutions to provide details to ascertain the extent of the violation. |
| Respondents’ submission that they did not directly sell or encumber shares after 06.03.2017. | The Court noted the submission but sought further clarification from banks/financial institutions to determine the actual transactions. |
| Banks/Financial Institutions’ submission that they were merely exercising rights under existing loan/pledge agreements. | The Court directed banks/financial institutions to provide details of loan agreements, securities, and share transactions to assess the validity of their actions. |
The court did not make a final judgment on the issue of contempt in this order. However, the court did the following:
✓ The court directed all noticee banks and financial institutions to place on record the basic documents pertaining to loans, the nature of securities offered, the details of encumbered and unencumbered shares held by them in September 2016 and on 11.08.2017, details of shares put under encumbrance after 11.08.2017, details of shares sold from January 2017, and the value of encumbered shares in September 2016, on 11.08.2017 and on subsequent dates.
✓ The court sought to determine whether the encumbrance created after 11.08.2017 was in pursuance of any fresh arrangement or agreement and if so, the details of such agreement/arrangement.
✓ The court sought to determine whether under such agreement/arrangement any other security was given by the pledgors.
The court’s approach was to gather more information to determine if there was a deliberate attempt to circumvent its orders and the undertakings given to the Delhi High Court.
What weighed in the mind of the Court?
The Court’s primary concern was the significant reduction in the shareholding of FHHPL in FHL, despite the interim orders and assurances given to the Delhi High Court. The court was particularly focused on whether the banks and financial institutions had facilitated this reduction through structured transactions and whether there was any circumvention of court orders. The court’s decision to seek detailed information from the banks and financial institutions was driven by the need to ascertain the facts and determine whether there was a deliberate attempt to undermine the court’s authority.
| Sentiment | Percentage |
|---|---|
| Concern over reduction of shareholding | 40% |
| Need to investigate potential circumvention of court orders | 30% |
| Importance of upholding court’s authority | 20% |
| Focus on facts and need for detailed information | 10% |
| Category | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Key Takeaways
✓ The Supreme Court is actively scrutinizing transactions that appear to undermine court orders and undertakings.
✓ Banks and financial institutions must exercise due diligence and disclose all relevant information when dealing with pledged shares, especially when court orders are in place.
✓ The court is emphasizing the importance of maintaining transparency and accountability in corporate transactions.
Directions
The Supreme Court directed all the noticee banks and financial institutions to provide the following information by 22.02.2021:
(a) The basic documents pertaining to loans advanced or financial accommodations extended in respect of which the shares of FHL were pledged with them.
(b) The nature of securities offered in connection with such loan arrangements.
(c) The details of the encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them in September, 2016.
(d) The details of encumbered and unencumbered shares of FHL standing in the name of FHHPL, held by them on 11.08.2017.
(e) Details of shares of FHL standing in the name of FHHPL, which were put by them under encumbrance after 11.08.2017.
(f) Details of shares of FHL standing in the name of FHHPL, sold by banks/financial institutions from January, 2017.
(g) Disclosure of whether such encumbrance created after 11.08.2017 was in pursuance of any fresh arrangement or agreement and, if so, the details of such agreement/arrangement.
(h) Disclosure of whether under such agreement/arrangement any other security was given by the pledgors.
(i) The value of the encumbered shares as they stood in September, 2016, on 11.08.2017, and on subsequent dates.
Specific Amendments Analysis
No specific amendments were discussed in this judgment.
Development of Law
This order does not lay down any new ratio decidendi. However, it reinforces the principle that court orders and undertakings must be strictly adhered to. The court’s proactive approach in seeking detailed information from banks and financial institutions indicates a willingness to scrutinize transactions that may undermine the court’s authority.
Conclusion
In this order, the Supreme Court is actively investigating the reduction of shareholding of FHHPL in FHL. The court has directed banks and financial institutions to provide detailed information regarding their transactions and loan agreements. This case highlights the importance of adhering to court orders and undertakings and emphasizes the need for transparency in corporate transactions. The court is yet to make a final determination, but its proactive approach indicates a commitment to upholding its authority and ensuring compliance with its directives.