Sebi issues demand notices to 5 entities in Fortis fund diversion case

Capital markets regulator Sebi has sent notices to five entities asking them to pay Rs 5.7 crore within 15 days in Fortis Healthcare's case of fund diversion and misrepresentations to conceal the fraud.

In addition, the regulator warned of attachment of assets and accounts if they fail to make the payment within the stipulated time. The five entities that received notices are Saubhagya Buildcon, Zolton Properties, Tiger Developers, Torus Buildcon and Rosestar Marketing.

The demand notices came after the entities failed to pay the fine imposed on them by the Securities and Exchange Board of India (SEBI) in May 2020.

In five notices issued on Thursday, Sebi directed them to pay Rs 5.7 crore, which includes interest and recovery cost, within 15 days.

In the event of non-payment of dues, the regulator will recover the amount by attaching and selling their moveable and immovable properties. Besides, they will face attachment of their bank accounts. Also, the regulator takes the route of arrest and detention in prison to recover the amount.

Earlier this month, Sebi had issued demand notices to four entities in the same case. In May 2022, Sebi imposed penalties totalling Rs 38.75 crore on 32 entities, including these five entities in the case related to the diversion of funds of Fortis Healthcare Ltd (FHL) and misrepresentations to conceal the fraud. It levied a fine of Rs 1 crore each on the five entities.

The matter goes back to 2018 when a media report came out that the promoters of the listed FHL had allegedly taken massive funds out of the listed company.

It also pointed out that Deloitte Haskins & Sells LLP, the statutory auditor of FHL, had refused to sign on the company's second-quarter results until the funds were accounted for.

Subsequently, the regulator initiated an investigation into the matter to examine possible violations of the provisions of the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices).

In its probe, Sebi found that a systematic scheme of fraud was devised by the erstwhile promoters of FHL to funnel the resources of a listed company behind the facade of investment through Inter-Corporate Deposits (ICDs) or short-term loans to various intermediate entities for the benefit of RHC Holding, an entity which was indirectly owned and directly controlled by the erstwhile promoters.

The funds aggregating to Rs 397 crore were diverted from FHL to RHC Holding, through a wholly-owned subsidiary of FHL -- Fortis Hospitals Ltd. The funds were allegedly routed through a network of entities.