The ADGM Court of First Instance has found that Dr Bavaguthu Raghuram Shetty, founder of NMC Healthcare, and Prasanth Manghat, the group’s former CEO, were knowingly parties to a massive fraud on the company, and has set $5.4 billion as the starting point for the contributions they must make.
The court held that both men are liable to contribute to the assets of NMC Healthcare Limited, now in administration, for fraudulent trading from April 30, 2012, and throughout the period of the fraud. The exact amount each must pay will be decided after further submissions.
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The court also ruled in favour of Abu Dhabi Commercial Bank (ADCB) in its separate claim against Manghat, awarding damages that include $1.02 billion in outstanding monies and $169 million in lost profit. ADCB must give credit for about $30 million in recoveries.
The court noted that it was not disputed that the NMC Group was the victim of a “massive and sophisticated” fraud between April 2, 2012 and April 9, 2020. It had two main elements: the misappropriation of group assets, and the overstatement of its net assets and turnover in its financial statements.
The group’s parent, London-listed NMC Health, collapsed after short-seller Muddy Waters questioned its finances. Its shares were suspended in February 2020, and it later disclosed $2.7 billion of previously unreported debt, followed by a further $1.6 billion. The English High Court put NMC into administration in April 2020. This court placed NMC Healthcare, NMC Holding and 34 other group companies into administration on September 27, 2020.
Key findings
The court found that Dr Shetty took part in the fraud throughout the period. It held that he knowingly received substantial sums improperly transferred from the group, both directly and indirectly, and either used or allowed his signature to be used to make such transfers.
Direct transfers to his Bank of Baroda accounts totalled Dh4.18 billion, or about Dh2.6 billion after counter-payments, the judge accepted, based on unchallenged expert evidence.
The court found he used group funds to acquire personal assets and investments. It also found he knew of, and helped conceal, the group’s borrowings from its auditor EY in March 2019, and that as a director of NMC he allowed the publication of financial statements that hid its true position.
Dr Shetty had argued that he knew nothing and was himself a victim of Manghat and other senior managers. The judge rejected that, calling it “inherently most improbable” that a secret of such scale could have been kept from him for so many years.
The court found all five limbs of the case against Manghat proved, accepting that he was party to a scheme in which money and assets were extracted while the appearance of a successful, growing business was maintained, when the group was in reality balance-sheet insolvent.
Manghat had argued that Dr Shetty perpetrated the fraud and that he himself was “subservient” to Dr Shetty and the Bin Buttis. The judge rejected this as inconsistent with the evidence. He accepted that Manghat’s gains were smaller than those of Dr Shetty and the Bin Buttis, but said they were substantial enough to supply a motive. The judge also said he generally could not rely on Manghat’s evidence.
In the ADCB case, the bank alleged that Manghat took part in a “Loan Recycling Scheme”, under which borrowings taken to cover misappropriations were left out of the group’s accounts, and that he gave the bank false assurances about NMC’s finances.
A further hearing will deal with interest, costs, the cross-claims between the defendants, and the terms of the final orders.
Source: Khaleej Times