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Business Standard

IHH's move to seek increased damages may not affect Fortis expansion plans

Fortis Healthcare is unlikely to be affected by Malaysian health care giant IHH's move to seek around ₹11,800 crore in damages from Daiichi Sankyo for allegedly blocking its bid for the Delhi-based entity, according to analysts and experts. Keyur D Gandhi, managing partner at Gandhi Law Associates, said the damages claimed in a Japanese court were primarily about causing harm to reputation and a loss of opportunity, and, therefore, the impact on Fortis Healthcare's Indian operations was likely to be indirect rather than operational. 'If IHH succeeds in proving that Daiichi's objections were frivolous or malicious, it could strengthen its equity and moral argument in Indian courts. It could become part of the evidentiary narrative but won't be determinative. Indian courts will still apply domestic law and public interest scrutiny independently,' he added. On Tuesday, NTK, an indirect subsidiary of IHH, said it had filed an application with the Tokyo District Court to amend its claim for damages against Daiichi Sankyo, raising the amount sought by 10 times from the previous ₹1,180 crore to around ₹11,800. An analyst who tracks the company said IHH's move would not affect Fortis' expansion plans, and this was to put pressure on Daiichi to pull back. 'Due to Daiichi seeking damages in India, IHH has not been able to go ahead with their open offer, which was supposed to be at ₹170 per share initially. Its money is still lying in an escrow amount and interest-free,' said Aashita Jain, assistant vice-president, Nuvama. Pending litigation has not derailed Fortis' expansion plans because the chain has become more aggressive since last year, with the acquisition of facilities in Haryana and Punjab, she said. Fortis Healthcare did not respond to queries emailed by Business Standard till the time of going to print. On whether a judgement from the Japanese court could affect litigation in India, Gandhi said Indian courts were not bound by any such court's orders, especially in disputes involving domestic legal and regulatory considerations like approval by the Securities and Exchange Board of India (Sebi) or processes concerning the Foreign Investment Promotion Board or National Company Law Tribunal. IHH had acquired a 31 per cent stake in Fortis Healthcare through NTK in 2018. Under Indian law, this triggered a mandatory open offer for Fortis' public shareholders. Daiichi Sankyo obstructed this in December that year, when it obtained an ex parte interim status quo order from the Supreme Court. Daiichi Sankyo had been in a separate dispute with the Singh brothers (Malvinder and Shivinder), the former promoters of Ranbaxy Laboratories and Fortis. The position of IHH and NTK has been that they have no connection with the Singh brothers. In September 2022, the Supreme Court lifted the interim status quo order. However, NTK alleged Daiichi Sankyo threatened regulatory action to prevent the open offer from proceeding. Ayush Agarwala, partner, Bombay Law Chambers, said while Indian courts were not bound by orders and judgements of foreign courts, they could use their judgment or observation to decide on proceedings in India. Meanwhile, on Fortis' recent acquisition of the 'Fortis' trademark, analysts say the hospital chain will save on royalties and that will have a positive impact on earning before interest, tax, depreciation, and amortisation. 'According to the earlier agreement, we used to pay 0.25 per cent of revenue plus the applicable goods and services tax (GST) as royalties. With the acquisition of the brand, we expect a positive 0.3 per cent effect on the net revenue,' said Vivek Goyal, chief financial officer, Fortis Healthcare, in an analyst call on Wednesday.