SEBI | Fortis Case: Order against Religare Finvest partly modified, allowing Religare to sell assets to ARCs, restructure debt and raise capital

Securities and Exchange Board of India: G. Mahalingam (Whole Time Member) partly modified its order against Religare Finvest Limited (RFL) in the matter of Fortis Healthcare by allowing the firm to dispose of its assets subject to certain conditions.

The securities market regulator vide its order dated 19-03-2019, had barred Singh brothers – Shivinder Mohan Singh and Malvinder Mohan Singh (former promoters of Fortis Healthcare) – from selling any of their assets till they, along with seven other companies associated with them pay back Rs 403 crore that they had taken out from the hospital chain. The said order was passed when it came to notice that Fortis Hospitals had entered into multiple structured transactions from 30-06-2016 to 30-06-2017, which were prima facie fictitious and fraudulent in nature as the ultimate beneficiaries of these transactions were Singh brothers. The Board had also directed RFL (of which Singh brothers were the promoters) to not dispose of, alienate or divert any of its assets except for complying with a corrective action plan as stipulated by Reserve Bank of India (RBI).

The instant order was passed in an application filed by RFL on 20-06-2019, whereby it sought relaxations from SEBI in order to execute revival plan for the betterment of the company by taking required steps, including the restructuring of loans and securitization/ assignment of its assets to Asset Reconstruction Companies (ARCs) to reduce its standing liability.

SEBI noted that RFL was a Non-Banking Financial Company (NBFC) registered with RBI, and functioned under its overall regulatory supervision. Further, RFL’s current cash flows were insufficient to meet the immediate one-year debt obligations; banks had the first charge over all its assets and coercive steps of a bank for recovery of dues were highly possible. Also, RFL was prohibited from the expansion of credit/ investment portfolios other than investment in government securities.

In view of the above, it was opined that RFL was under severe financial strain and was staring at the possibility of default in meeting its debt obligations to the lender banks. Thus, proposed measures like the restructuring of RFL’s debt with lender banks, assignment of its SME gross NPAs to ARCs and raising of capital to meet capital adequacy norms were essential for survival and revival of the company.

Thus, the Board modified the directions contained in its 19-03-2019 order holding that RFL shall not dispose of or alienate funds assets without the prior permission of SEBI, “except for meeting expenses of day-to-day business operations and taking all measures as it deems fit for revival of RFL (including restructuring of its debts/loans, assignment of its financial assets to ARCs, raising of capital, borrowing, etc.), subject to strict adherence to the terms of “Corrective Action Plan”.[Fortis Healthcare Ltd., In Re, 2019 SCC OnLine SEBI 55, decided on 28-06-2019]

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