The founder of NMC Healthcare, BR Shetty, and former CEO Prasanth Manghat have been held liable for fraudulent trading linked to the healthcare group’s spectacular financial collapse. An Abu Dhabi court identified nearly $5.4 billion as the starting point for determining the financial contributions the two executives must make towards the company’s assets.
The Abu Dhabi Global Market (ADGM) Court of First Instance, presided over by Justice Sir Andrew Smith, found that Shetty and Manghat knowingly participated in a scheme involving the diversion of corporate funds, concealment of borrowings and manipulation of financial records.
The ruling follows the collapse of NMC Healthcare in 2020, which exposed a sprawling financial scandal involving billions of dollars in undisclosed debt.
Billions Flowed Through Shetty’s Personal Accounts
The court’s November 5 judgment examined more than 500 transfers into Shetty’s personal bank accounts. The transactions amounted to AED 4.18 billion, with net payments of approximately AED 2.6 billion after accounting for funds returned to the healthcare group.
The money trail also included spending on private aircraft, properties in Dubai Hills and investments in an oil field in Wyoming.
Shetty founded NMC Healthcare in Abu Dhabi in 1975. The company subsequently grew into one of the region’s largest healthcare providers, listing on the London Stock Exchange in 2012 before entering the FTSE 100 index.
However, the company’s rapid expansion was accompanied by a financial picture that concealed its mounting liabilities.
By December 2018, NMC had accumulated approximately $3.88 billion in undisclosed borrowings, even as its reported debt stood at just $1.99 billion.
Fake Supplier Transactions Concealed Borrowings
The court found that NMC used sham supplier transactions to disguise the scale of its borrowing.
Under the arrangement, suppliers generated invoices for goods or services that were never intended to be delivered. Banks financed these invoices, with the resulting funds eventually routed back into the healthcare group.
The transactions helped NMC obtain financing while keeping the true extent of its debt hidden from auditors and other stakeholders.
Shetty argued that he had himself been deceived by senior executives involved in the fraud. Manghat, meanwhile, maintained that he did not exercise control over the company’s financial affairs.
Both defences were rejected.
Justice Smith found Manghat’s position particularly difficult to accept, observing that his claim was inconsistent with the evidence and implausible for someone who had served as CEO of a FTSE 100 company.
The judge concluded that both men were knowingly involved in fraudulent trading from April 30, 2012, making them liable under the ADGM Insolvency Regulations, 2022.
The court has yet to determine the final monetary awards, interest and costs. A further hearing will address those issues.
Bank of Baroda Claims Dropped After Settlement
Bank of Baroda had also been named in the proceedings over allegations that it helped conceal NMC’s true borrowing position.
The administrators alleged that Shetty and the bank’s then managing director, PS Jayakumar, had reached an arrangement under which NMC would repay almost all its outstanding liabilities to the bank in return for the bank withholding information about the company’s accounts from its auditors.
The court recorded that the administrators had presented persuasive arguments in support of the alleged arrangement.
However, Justice Smith declined to make a finding against the bank or Jayakumar, stating that doing so would be unfair to both.
Bank of Baroda reached a settlement with the administrators towards the end of the trial, following which the claims against it were discontinued.
The judgment marks a significant development in the efforts to recover assets following NMC Healthcare’s collapse, with the court’s findings placing Shetty and Manghat at the centre of the group’s fraudulent financial operations.