NMC Healthcare founder BR Shetty held liable for $5.4 billion fraud in Abu Dhabi - All you need to know about the case
A court in the United Arab Emirates (UAE) has held Indian-born businessman Bavaguthu Raghuram Shetty, aka BR Shetty, liable for fraudulent and wrongful trading in connection with a massive financial fraud that led to the collapse of Abu Dhabi-based NMC Health, which he co-founded in 1975.
According to the Abu Dhabi Global Market (ADGM) Court, Shetty and former NMC Healthcare Chief Executive Officer Prasanth Manghat knowingly participated in a fraudulent scheme involving the misappropriation of company funds, concealment of borrowings, and manipulation of financial statements, Bar and Bench reported.
Justice Sir Andrew Smith of the ADGM Court of First Instance held that the starting point for assessing the financial contributions that the two would be required to make towards the company's assets would be $5.397 billion.
NMC Healthcare, which at one point was the largest private healthcare provider in the UAE, operating a network of hospitals, specialty clinics, and day surgery centers across Abu Dhabi, Dubai, Sharjah, and Al Ain, collapsed in 2020 after the massive financial fraud surfaced in 2019.
It was made public by Muddy Waters Research, a US short-seller that published a report accusing NMC Health of understating its debt and manipulating its balance sheet.
NMC was placed under administration in April 2020, and the administrators found that the management diverted substantial company funds for personal use while concealing billions of dollars in borrowings.
By December 2018, the group had accumulated approximately $3.88 billion in undisclosed borrowings while reporting debts of only $1.99 billion.
The Abu Dhabi court rejected Shetty's defence that he was himself a victim of fraud perpetrated by senior executives. It also rejected Manghat's argument that he lacked control over the company's financial affairs.
"This is an unlikely submission from a man who was the CEO of a FTSE 100 company, it is inconsistent with the evidence, and I reject it," Justice Smith observed, according to Bar and Bench.
The Court held that both men knowingly participated in fraudulent trading from April 30, 2012, attracting liability under the ADGM Insolvency Regulations, 2022.
"I have concluded that Dr Shetty and Mr Manghat were both party to the business being carried on fraudulently."
Earlier, Shetty had alleged that the Bank of Baroda and several of its officials and others helped facilitate transactions that led to the collapse of his business.
Besides BoB, other creditors to the company were Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD, among others.
However, Justice Smith declined to make a finding against the bank.
"It would be unfair to Baroda and to Mr Jayakumar (then BoB managing director) personally to make a finding about that," the Court observed.
In July, Bank of Baroda stated that it has reached an out-of-court settlement with NMC Health PLC, NMC Healthcare Ltd, and NMC Holding Ltd, with USD 600 million (about ₹5,700 crore) paid through its Abu Dhabi branch.
The case involved proceedings under Abu Dhabi Global Market (ADGM) and UK insolvency regulations, and UAE civil law in relation to NMC Health PLC, NMC Holding Ltd, and NMC Healthcare Ltd, the bank had said.
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