NMC fraud: BR Shetty, ex-CEO could repay nearly Dh20 billion after Abu Dhabi ruling

Abu Dhabi: NMC founder BR Shetty and former chief executive Prasanth Manghat face potential contributions towards the company’s assets assessed against a figure of nearly Dh20 billion, after the Abu Dhabi Global Market Court of First Instance held both liable for fraudulent and wrongful trading.

In its November 5 judgment, Justice Sir Andrew Smith identified $5.397 billion, equivalent to approximately Dh19.82 billion, as the starting figure for assessing those contributions. The court has yet to determine the final amount payable by each man.

“I have concluded that Dr Shetty and Mr Manghat were both party to the business being carried on fraudulently,” the judge said.

The ruling upheld insolvency and UAE civil claims brought by NMC Healthcare, NMC Holding and their joint administrators. It also upheld a separate claim brought by Abu Dhabi Commercial Bank against Manghat.

The judgment accepted unchallenged accounting evidence that transfers into Shetty’s personal bank accounts totalled Dh4.183 billion during the period examined. The claimants’ schedule listed more than 500 transfers, most from NMC Group accounts at Bank of Baroda into three accounts at the same bank in Shetty’s name.

Substantial sums also moved back from Shetty’s accounts to the group. “Taking these into account, the net value of the Direct Shetty Payments was some Dh2.6 billion,” the judge said.

The judge found that Shetty “knowingly acquired with funds so transferred personal assets and investments, including Travelex, his share with Mr Menon in the aircraft, RCS, the Dubai Hills Villas and the Wyoming oil field and other investments through NNMC”. The judgment identifies NNMC as a company solely owned by Shetty, with Shetty and Manghat as its directors.

On Manghat, the judgment summary stated: “The Court also found that Mr Manghat was a dishonest party to the fraud throughout the Relevant Period”, including by “knowingly facilitating the unlawful misappropriation of funds from the NMC Group for the benefit of Dr Shetty, himself and others” and “concealing NMC Group borrowings from Ernst & Young”.

The court found that NMC’s total borrowing and undisclosed debt increased annually from 2012 to June 30, 2019. By December 31, 2018, identified unreported debt stood at approximately $3.888 billion, alongside reported debt of about $1.993 billion.

The judgment described how undisclosed borrowing was recorded internally but concealed through changes to accounting records. “It was thus disguised through manipulation of the underlying accounting ledgers, and thereby it was concealed from EY,” the judge said.

The court also examined a sham supplier scheme used to obtain financing through transactions that did not represent genuine supplies. Its findings detailed internal arrangements to maintain separate accounting records as NMC upgraded its systems.

Referring to those changes, the judge said “the fraudsters continued to conceal the fraud by maintaining two sets of books”.

Shetty maintained that he knew nothing of the fraud and was himself a victim of wrongdoing by Manghat and other senior managers, the judgment records. Manghat disputed his role and contended that Shetty perpetrated the fraud for his own benefit.

The court found that both men dishonestly participated. It also rejected Manghat’s submission that, despite his job title, he had no oversight of financial transactions and was subordinate to the principal shareholders.

“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 said.

The judge found that Manghat made major decisions for NMC and ran its financial and treasury arrangements. He said Manghat had “a leading role, indeed the leading role, in effecting the misappropriations and operating the fraud to finance them and disguise them”.

In its conclusions, the court held that Shetty and Manghat were liable to make contributions assessed on the basis that they knowingly participated in fraudulent trading from April 30, 2012, throughout the remainder of the period examined, which ended on April 9, 2020.

The judge identified $5.397 billion as the starting point for that assessment, adding: “I shall finally determine the amounts that I order against each of them after hearing any further relevant submissions that I permit.”

In ADCB’s separate action, the court found that the bank established claims against Manghat for approximately $1.022 billion in outstanding liabilities and $168.989 million in lost profits. The outstanding-liabilities figure remains subject to any adjustment Manghat establishes as proper, while ADCB must credit recoveries already received.

Bank of Baroda, originally a defendant in the administrators’ action, settled with the claimants towards the end of the trial. The judgment records that they discontinued their claims against the bank.

The judge declined to determine whether Shetty and the bank’s then managing director, PS Jayakumar, agreed that NMC would repay liabilities in exchange for the bank withholding the true account position. He said he had not heard the bank’s response to the claimants’ closing submissions.

“It would be unfair to Baroda and to Mr Jayakumar personally to make a finding about that,” he said.

Shetty established a healthcare centre in Abu Dhabi in 1975, according to the judgment. NMC’s parent listed in London in 2012 and entered administration by order of the English High Court on April 9, 2020; NMC Healthcare, NMC Holding and 34 group companies entered ADGM administration that September.

The court will hold a further hearing to settle its orders and consider statutory interest, costs and other outstanding matters. Its judgment also requires provision against double recovery under the successful civil and insolvency claims.