Dubai: Will Dr. B.R. Shetty win it in the US? More specifically, in a New York court of law, where he has sought damages totalling more than $7 billion against his former audit firm, banks, and senior executives of Abu Dhabi headquartered NMC Health, the UAE Exchange Centre and NeoPharma, a pharmaceutical business that he owns.
Informed sources in the UAE who had dealt with Shetty in the past are baffled that he has taken on a legal battle in the US despite being involved in sundry legal issues in the UAE, in the UK courts and in India. His assets are under freeze through various court orders, and he remains stuck in India despite repeatedly announcing that he wants to fly back to the UAE to clear his name.
“It’s interesting that Shetty has sought damages of $7 billion plus – which is more or less the same amount that was siphoned off from NMC’s books while he was holding senior positions in the healthcare group,” said a senior banker closely involved in the rescue act that the hospital operator went through since April 2020 after finding that loans taken from the banks were never reported in the books.
“The financial misdeeds happened in the UAE – involving US courts is more of a diversionary play, that’s how I see it. Fleecing of NMC’s funds/assets between 2012 and end 2019 happened in the UAE and involved parties based in the country. Justice too will need to be served in the UAE.
“It was NMC funds that got diverted, not Shetty’s. if at all anyone has a claim on damages, it is NMC’s lenders and creditors, most notably ADCB.”
Some sources say that getting the matter into a US court is double-edged – US-based pension funds had shareholding in NMC and if Shetty himself gets implicated in any way, it will set off more problems. “Such deeds would be viewed quite adversely in the US – opening legal proceedings in the US courts could be a potential can of worms,” said the banker.
Benefit of doubt
It will now be up to the New York court to decide whether there is enough merit in the Shetty claims and whether the case can be heard in the US. There are high stakes involved for Shetty, who in his filings in the US says that a “substantial number” of the NMC account diversions “involved US dollar-denominated transactions that cleared through New York banks”. The filings suggest that audit firm, the banks and senior management put together a “Ponzi scheme” that could tap into ever higher bank loans as and when they were needed.
Jonathan Davidson, Partner at the DIFC-based law firm Davidson & Co., said: “His US lawyers must consider that they have a sufficiently strong argument that the US courts will accept jurisdiction. Because if the court rejects the jurisdiction, Shetty will face significant adverse costs awards which he will have to pay as well as his own legal costs.
“It is impossible to crystal ball gaze what that argument might be, but I am sure they will unfold as the US courts are a transparent forum.”
The Muddy Waters Research report immediately set off a chain reaction, leading to the exit of Prasanth Manghat, then then CEO, Shetty stepping down as non-executive chairman, and then the departure of the entire board of directors.
In April 2020, a UK court formally placed NMC Health under administration, with three Alvarez & Marsal officials overseeing the operations.
A victory of sorts?
If the US court takes on the claim and allows legal proceedings, it will break the chain of court verdicts that have gone against him in these last few months. The latest was an order issued by DIFC Courts early this saying that Shetty should pay one of his lenders Credit Europe Bank (Dubai) $9.33 million to settle claims. The same court had in April last year issued a worldwide freeze order on Shetty trying to dispose of his assets.
The $9.33 million was to paid within seven days of the court order – it is not known whether Shetty had indeed paid this off. Interestingly, Credit Europe Bank has been named in the US filing, as is E&Y, the former audit firm at NMC and UAE Exchange Centre. According to informed sources, the last statement that E&Y signed off on was the first-half 2019 results of NMC.
Currently, the accounting is done in-house in joint supervision with Alvarez & Marsal, the consultancy that is administering NMC’s return to financial health. It is also simultaneously working on a strategy that will see NMC pay off its combined debts – and at the same time pursue legal action against NMC shareholders and former management who were party to the diversion of bank loans.
Naming and nailing the guilty
The internal investigations launched by Alvarez & Marsal on NMC’s past activities – the period between late 2012 and end 2019 – is at an advanced stage, according to multiple sources. Once that gets done, it will then set the stage for formal filing of charges in the Abu Dhabi courts against those who were party to the fund diversions.
“Once the DOCA (deed of company arrangements) is voted through, legal cases will start to be brought,” said a source. “The DOCA is a change of ownership, where the NMC Group operating companies will leave administration and be owned by the creditors. It’s a step towards an ultimate sale. The DOCA is the best way to ensure quality of patient care while continuing the financial and operational restructuring.
All major creditors to NMC except Dubai Islamic Bank have extended support to the change of ownership. But for Shetty, this is only a detail at the company that he founded in 1974 and turned into the biggest private hospital operator in the UAE.
His attention will be fixated on what happens with his $7 billion claim that will be heard by the court in New York.