Carry Escorts case facts in IPO ads: HC to Fortis

A public issue of over 56.7 million equity shares by Fortis was reined in after Anil Nanda, brother of Escorts Limited chairman Rajan Nanda, moved the Delhi High Court terming the sale a fraud and an attempt to hijack the charitable assets of Escorts Heart Institute and Research Centre (EHIRC) for “huge, personal gains”. The development is the latest in the ongoing legal tussle between the brothers, with Anil resisting the alleged sale of EHIRC to Ranbaxy-controlled Fortis Healthcare Limited for over Rs 5850000000 in 2005. The Delhi High Court had on September 30, 2005, issued a direction to maintain “status quo” on the sale in order to prevent any “further dilution and wiping out of the corpus of charity for personal use”. Justice Anil Kumar had passed the order on a pending suit by Anil Nanda to make void the conversion of EHIRC from a charitable institution to a for-profit limited company (EHIRC Limited and the subsequent transfer of allotment of its 90% shares to Fortis. Passing a series of strictures against Fortis for publishing advertisements of the public issue of shares, Justice Gita Mittal on April 4 restrained Fortis from transferring its shares to “any third parties”, including the IPO that opens on April 16, without full and proper disclosure of facts and facets of the pending litigation. In its advertisement dated April 3, Fortis had mentioned that the Fortis-Escorts combination had “performed 5,000 open heart surgeries, 5,000 angioplasties and 15,000 angiographies during 2006.” The Court further directed Fortis to disclose to the public in its advertisements that in case of an adverse court order in the suit, which would amount to the re-conversion of EHIRC Limited back to a charitable trust, the public would run the risk of losing substantial amounts with the likelihood of the value of their equity holdings coming down. The Court directed Fortis to publish in all its advertisements part of its Risk Factor No 3, including the statement that that “If the plaintiff (Anil Nanda) is successful, the merger and incorporation which made EHIRCL a for-profit limited company in April and May 2000, respectively, could be annulled, as could our (Fortis) acquisition of EHIRCL.” The Court’s direction came in the wake of an application by Anil Nanda challenging a “huge” advertisement in an English daily on April 3, 2007, “wherein the name of Escorts has been extensively used”. “Fortis is acting in collusion with its co-parties, including EHIRCL, and attempting to raise substantial funds by exploiting the name, goodwill and income of Escorts Heart Institute, all of which belong to charity,” Anil Nanda had submitted in an application filed through his lawyer P K Bansal. He had further submitted in his application that Fortis was taking undue benefit of the fact of the pending case by seeking to create new grounds and equities worth approximately Rs 5000000000 to defeat the rights of charity and the public at large. Fortis had countered that all the information regarding the pending litigation had been disclosed in the Red Herring prospectus submitted to Securities and Exchange Board of India (Sebi). To this, Justice Mittal observed that it wasn’t enough and the matter must come in the advertisement in a manner “clearly discernible and legible to the public”. She also made Fortis a party in the litigation while observing that its “presence before the court is necessary to enable an effectual and complete adjudication on the questions involved in the litigation”. The order was the result of apprehensions raised by Anil Nanda that Fortis, in collusion with EHIRC Limited was attempting to “thwart” the status quo order of the court by proposing the public issue on the ground that it was not a party to the suit.