The Singh brother’s Journey from Heaven to Hell (Ranbaxy)

On 21st September 2016, as per Forbes, Malvinder and Shivinder were on the 92nd position in India’s richest 2016 with a net worth of $ 1.38 billion. Consequently, on 24th September 2018, the two brothers lost Rs 22,500 crore and all their key businesses spread across healthcare, Pharma, and financial sector. Now the question arises, where did all the money go?

To understand the mishaps, we’ll untangle the story of glooms and dooms of the Singh brothers and "the end" of their inherited Company, Ranbaxy.

A background on the voyage of Ranbaxy Company

The journey of Ranbaxy, the largest Indian pharmaceutical company, was started by the two cousin brothers namely Ranjit and Dr Gurbax Singh in 1937 as a drug distribution firm in Amritsar, Punjab that worked for a Japanese Pharmaceutical company named Shionogi. The two brothers had failed to repay the loan amount taken from their cousin brother Bhai Mohan Singh. Therefore, they lost the business to Bhai Mohan Singh in 1947 for 2.5 lakhs.

Bhai Mohan Singh was born in Pakistan's Rawalpindi (then part of undivided India), started a construction business in his initial years, predominantly, during the time of the Second World War. After the partition of India and Pakistan in 1947, he had decided to settle in New Delhi. To earn his daily bread Bhai Mohan Singh worked as a moneylender, and on 1st August 1952, he bought Ranbaxy. Subsequently, he collaborated with the Italian pharmaceutical company Lapetit Spa and later acquired this company too.

The Ranbaxy Company adopted a formal legal structure in 1961 and smashed the market when it introduced its blockbuster drug, Calmpose in 1969. By the year 1973, the Ranbaxy Laboratories Limited became a symbol of pharmaceutical companies in the Indian market under the reign of Bhai Mohan Singh. In this year itself, the company decided to go public, and the offer that was set to mobilise Rs 70 lakhs was oversubscribed 14 times.

Bhai Mohan Singh had saved the company from takeovers by the other companies and made the company reach new heights of success by the support of his US-educated son Parvinder Singh. Bhai Mohan Singh had three children and he divided his business among the three of them. Ranbaxy ended up in the laps of Parvinder Singh. The company had a global reach to 46 different countries and a wide-reach of customers belonging to 125 countries.

Manjit got Montari industries that owned the Indian franchise of Bausch and Lomb. Bhai Mohan Singh had jointly founded the Marx life Insurance with his younger son Analjit Singh. Analjit also got the Okhla plant, which was Ranbaxy’s first manufacturing facility.

Analjit Singh has a real net worth of $ 1 billion as of 12th August 2020.  He has a business spanning from healthcare to insurance to speciality packaging and real estate. He is also the non-executive chairman of Vodafone India.

In consequence later on, Bhai Mohan Singh was in dissent with Parvinder Singh as he had handed over the strings of Ranbaxy to Mr Davinder Brar, by making him the CEO and Managing Director of Ranbaxy in 1999 instead of his sons, Malvinder, 27, and Shivinder, 23.

The decision by Parvinder Singh was taken by sidelining the old tradition of the Singh family concerning promoting family members in the board of directors for taking crucial board decisions.

Bhai Mohan Singh was also disappointed with the decision of the two brothers, Malvinder and Shivinder on staying away from the management of the company. Parvinder Singh did not want his two sons to take hasty and unwary entry at the top level of the business unless the senior and superior personnel of the company found them competent enough to lead the organisation.

Besides, both brothers issued a joint notice stating,'' We both are of the firm belief of distinguishing ownership from management. ‘Hence after the death of Parvinder Singh, no family member had a representation on the company board.

Also, soon after the death of Parvinder Singh, Brar had agreed to take charge from him for five years. Brar continued on the vision of Parvinder Singh of taking the company forward and towards a new window of opportunities. A massive spike in total worldwide sales of Ranbaxy was witnessed, being at Rs 1,560 crore in 1999 to lifting at Rs 3,940 crore in 2002. The total revenue reached Rs 4,370 crores in December 2003, thanks to the efforts and dedications of Brar. He played a major role in setting up the plant of Ranbaxy outside India and taking the company international. So when Davinder Brar had announced his retirement from the company and had cancelled his extension of five years of his terms, the market hit negatively, the stock fell from Rs 1140 to roughly Rs 1060, but later managed to rise at Rs 1100.

The company’s board of directors asked Brar on who should be appointed next as the CEO of the company, to which he had suggested two names. One was of the company’s President Brian W Tempest and more importantly the other recommendation was of Malvinder Mohan Singh, the elder son of late Parvinder Singh. The board had taken both the suggestions into consideration.

Brian W Tempest, who had joined the company in 1995, was promoted from Regional Director to the post of President of the company to the position of Managing Director and CEO. He had just two years of service left as the age of retirement at Ranbaxy was 58 years unless there is an extension and Brain was 56 when he took charge. He stayed as the CEO of Ranbaxy till 2005 after Brar had decided to step down.

Malvinder Mohan Singh finally took charge after the retirement of Brian W Tempest in 2005. Earlier the two brothers had denied joining the company as the CEO, but then took charge of the company in 2005.

Money Splash out

The Singh brothers got educated from the prominent institutes of India. They studied at The Doon School of Dehradun and completed graduation from Delhi’s St Stephens College. Both hold a Master in Business Education (MBA) from the Fuqua School of Business of the Duke University in the United States.

When their father died in 1999, both brothers inherited a 33.5% stake in Ranbaxy. The company was scaling to new heights; meanwhile, the brothers opened a hospital in Mohali in Punjab under two years in 2001 and named it Fortis. They later bought escort group’s hospitals and set the journey of spreading the business worldwide. Also, the brothers started Religare to position their foot in the financial services sector.

When the value of Ranbaxy was at its peak, the brothers sold their 33.5% stakes to the Japanese pharma giant Daiichi Sankyo group and got loaded with Rs 9,576 crore cash in hand from the deal in 2008. They sold the company for an estimated $ 4.6 billion. After ten years, nobody knew where the money they received disappeared. They invested Rs 2,230 crores in developing Fortis, as the largest chain of hospitals, and invested Rs 1,750 crores in Religare Enterprises. Both brothers paid taxes to the tune of Rs 2,000 crores. Everything till now was running smoothly until in 2013-2014 the companies, namely Fortis and Religare started reporting losses in their financial reports. Consequently, there were scents of financial wrongdoing and allegations about the remaining Rs 2,700 crores gathered from the Ranbaxy deal, being transferred to Gurinder Singh Dhillon, head of the spiritual sect Radha Soami Satsang Beas, and his family.

The Radha Soami Satsang Beas has around 5000 centres and land ownership in vast swathes of India. The Shiv Dayal Singh founded the Radhaswami movement in the 19th century, and the group is a 1918 withdrawal from the Radha Swami sect. Dhillon was an operating guru since 1990 after taking over from his maternal uncle Maharaj Charan Singh. The daughter of Charan Singh is Nimmi Singh, who is also the mother of the Singh brothers. Therefore, Dhillon is the maternal uncle of Shivinder and Malvinder and also their spiritual master.

The other character in the story is Sunil Naraindas Godhwani, who was the Managing Director since April 9, 2007, and Chairman since April 6, 2010, of Religare. The Singh brothers had absolute trust and had turned a blind eye on him. It is alleged Mr. Godhwani was recommended and backed by the Dhillon Baba for running the Non- Banking Finance Company, Religare Enterprises.

It was alleged, Rs 2,700 crore were transferred to Dhillon Baba along with his wife Shabnam Dhillon and to the companies connected with the Radha Soami Satsang Beas. Dhillon was tempted by the real estate sector that was delivering phenomenal results in 2008 – 2011. The recipient companies took a loan from the banks at the rate of 12- 14 % to buy more real estate. While the rapid expansion of Religare and Fortis resulted in a poor quality of drug manufacturing, it also became an example of a careless expansion. Lately, the money transferred to Dhillon of Rs 4000 – 5000 crore, interest included remained unpaid to the Singh brothers.

After the slowdown progressed in 2012, it led to a decline in the prices of real estate. Also, funds pumped in Fortis and Religare had to be paid back to the bank, but the two brothers had pumped money, irrespective of what they had in their bank account. All this brought troubles for the Singh brothers and Dhillon.

Now, there came an endless loop of mortgaging assets and equity to obtain a loan to compensate for the previously taken loan. The records of Registrar of companies showed the company held by Malvinder and Shivinder namely RHC Holdings Private Limited (RHCPL) and Oscar Investments mortgaged the immovable properties and shares of Rs 15,276 crore in 2008 and 2016.

In 2010, just the RHC loans piled up to Rs 12,800 crore. The debt taken by the two companies compounded to Rs 4,063 crore and Rs 840 crore in March 2016 and March 2017 for RHC and Oscar investments, respectively.

As the debt was due to be paid and the loan amount kept on compounding, the two firms Fortis and Religare faced losses. The holdings of Malvinder and Shivinder dropped from being 63% and 72% to 0.6% and 1.5% in Fortis and Religare, duly. The Fortis went to Malaysia’s IHH Healthcare, and PE firm Bay Capital took the control of Religare.

The Conundrum between Ranbaxy and Daiichi

It was a win-win deal for both Daiichi and Ranbaxy in 2008, where the Singh brothers decided to sell off Ranbaxy until Daiichi found out about the deal being highly overpriced. Almost 70% of the revenue of Ranbaxy was from the United States, but the US drug regulator - Food and Drug Administration (FDA) had banned Ranbaxy’s drugs because of its poor quality. Consequently, Daiichi, unaware of the facts, suffered a major setback.

Daiichi tried finding the solution but had suffered losses in the deal. Therefore, it decided to sell Ranbaxy to Sun Pharma in 2014 for $ 3.2 billion, but it had purchased the company at an expensive price and had to sell it at a loss. Hence, in 2013 Daiichi had filed a case of arbitration in Singapore; it had accused the brothers of misrepresentation of facts and withholding information. At first, Daiichi got $550 million from an Arbitrator in Singapore on the damage it suffered from the deal. Afterwards, the same case was filed in the Indian court, where the two brothers were urged to pay Rs 3,500 crore to Daiichi. This decision was supported by the Delhi High Court in 2018. Following the event, the Singh brothers had resigned from the board of Fortis Healthcare in the same year.

In 2009-2010, Ranbaxy registered a net profit of Rs 30 crore. The profit went up to Rs 201 crore in 2011- 2012, after which the company persistently faced losses.

The Singh brothers have appealed in the Supreme Court against the high court verdict that supported Daiichi. They are fighting other verdicts too, but a patch on the credibility of the two brothers is here to stay.

Unravelling the Mystery

Former Fortis Healthcare promoter, Shivinder Singh was accused of diverting funds of Religare Finvest Limited to the extent of Rs 2,397 crores. The Singh brothers, along with former Religare Finvest MD Kavi Arora, Ex group Chief Financial Officer Anil Saxena, and Religare’s Ex-managing director Sunil Godhwani were arrested by the Economic Offences Wings (EOW) of Delhi Police.

Religare Finvest Limited is the subsidiary of Religare Enterprises Limited. The EOW had acted on the complaint filed by Manpreet Singh Suri, who belonged to Religare Finvest Limited. He had claimed, Shivinder Singh, while being the Managing Director of Religare Finvest Limited, had taken loans except the money was diverted to other companies that had no financial standing. Eventually, the companies defaulted on repayments of loans.

Fortis hit the doors of the Securities and Exchange Board of India (SEBI) to initiate a legal proceeding on the Singh brothers to retrieve the dues.

Events

In November 2016 and January 2017, Religare Enterprises Limited (RFL) had invested Rs 750 crores in fixed deposits (FD) in Lakshmi Vilas Bank (LVB). It revived the securities till July 2017.

In July 2017, it was alleged by Religare Finvest Limited (RFL) that the LVB had deposited the money from FDs to RFL’s current account and withdrawn roughly Rs 724 crores without the knowledge of RFL.

When the RFL got aware of the matter, it in no time informed the bank by letters and legal notices to re-institute the FDs. After getting the notices, the bank had claimed to have restored the FDs.

In December 2017, RFL alleged of getting a letter from LVB stating loans of Rs 532 crore and Rs 174.8 crore being issued to RHC Holding and Ranchem Private Limited, independently.

RFL had claimed of the FDs being free from the right to keep them until a debt was discharged. RFL alleged LVB didn’t communicate about FDs being placed as a security-based on which loans were sanctioned to RHC and Raychem. RFL failed to perform the documentation for placing the FD’s as security against the loans sanctioned to the two companies.

At last, RFL filed a legal complaint against LVB in Delhi High court. In August, the Enforcement Directorate had raided several offices of the Singh brothers.

The RBI looked into the matter and placed LVB under its corrective action framework. The Delhi Police had arrested the two brothers on October, 10 and booked them under section 409 of criminal breach of trust and section 420 cheating of the Indian Penal Code.

Fortis affair

The Singh brothers are wrong doers in the Fortis Healthcare case. Fortis hit the doors of the Securities and Exchange Board of India (SEBI) to initiate a legal proceeding on the Singh brothers to retrieve the dues of Rs 472 crore. The amount of Rs 472 crore was withdrawn from the company through unsecured borrowings called inter-corporate deposits.

As per the probe conducted by SEBI in October 2018, it found the Singh brother to be guilty of diverting funds fraudulently and specified to repay the amount along with the interest rate to Fortis Healthcare by 2019. However, the brothers couldn’t pay the amount to Fortis Healthcare.

The case related to Fortis Healthcare is undergoing. Besides, the total debt pile of Rs 13,000 crore is on both brothers.

Conclusion

The Singh brothers had aimed to achieve hasty growth, where the Ranbaxy was expanding and serving too many markets at the same time. Therefore, they had run into troubles with the American regulator as they failed in maintaining the quality of its generic drugs. If the company had been patient and indulgent, it could have sustained in the market for long.

Also, the Singh brothers had gone for acquisitions recklessly instead of setting the business and securing its roots. The brothers diverted from focusing on the core business and were unsuccessful in retaining the top management of the company. Besides this, the concealing of facts didn’t work well in the Daiichi case.