It speaks volumes for the reputation of Malvinder and Shivinder Singh, promoters of Fortis Healthcare and Religare Enterprises, that shares of both the companies soared following news that the brothers had stepped down from the board of the former. The two, respectively chairman and executive vice-chairman of Fortis, had opted to step down following a high court ruling upholding a $550-million award by a Singapore arbitration tribunal to Japanese drug maker Daiichi Sankyo against the brothers for concealing facts when they sold group company Ranbaxy in 2007. This is the second management reshuffle in the group. In November, Malvinder, the older brother, resigned as Religare Enterprises non-executive chairman and so did the CEO and CFO, a few months before legal notices from a New York investor alleging that an arm of the non-banking financial company had fraudulently provided loans to the Singh brothers (charges that they refuted as baseless).
The stock market’s ringing vote of no-confidence was hardly surprising. Over the past decade, the Singh brothers, inheritors from one of Delhi’s oldest business families, have done little to justify shareholder confidence, either in their understanding of business ethics or in their ability to run companies efficiently. Failing companies and untrustworthy promoters are, however, an inevitable feature of any country’s business environment. But the Singh brothers’ saga is cringe-worthy because it has done serious damage to the reputation of Indian business globally and, worse, raised the stakes for the Indian pharmaceutical industry in its biggest market, the US. The $2.4-billion sale of Ranbaxy, one of the largest suppliers of generic drugs, to Daiichi Sankyo proved a landmark in the worst possible way. Within months of this deal, the US Food and Drugs Administration (FDA) banned more than two dozen drugs manufactured by Ranbaxy from entering the country. These damaging strictures followed sensational revelations by a former Ranbaxy executive that the drug maker had been indulging in systematic chicanery in testing procedures and filing false reports to the FDA for some years. The expose cost Ranbaxy/Daiichi $500 million in fines as part of a settlement in which the drug-maker also pleaded guilty to violating safety norms.
Embarrassingly, the problem did not end there. Subsequent inspections of Ranbaxy plants revealed further manufacturing violations following which the drug-maker was banned from the US market for two years. Ranbaxy’s reputation as the “poster child of manufacturing gaffes,” as one report dubbed it, rubbed off on the Indian pharmaceutical industry, with company after company facing enhanced FDA scrutiny and bans. The serial controversies saw Daiichi Sankyo, its fingers badly burnt, selling Ranbaxy to Sun Pharmaceutical and exiting India. It would be no exaggeration to say that the group’s troubles, which are expected to continue as the brothers seek funds to pay the steep fine, have revealed to the world the ugly face of Indian capitalism. The fraudulent practices of the promoters are part of it, but questions must be raised about the vigilance of the boards and independent directors in detecting irregularities. As with the Satyam scandal of 2009, the Singh brothers’ business dealings have underscored the suspicion about corporate governance standards in India.