NMC fraud: ADGM court holds BR Shetty and ex-CEO liable, US$5.39 billion starting point

The court held that both men knowingly took part in fraudulent trading from April 2012, a date most accounts give as 30 April 2012, and that the fraud ran until the group collapsed in 2020. It concluded that they were "party to the business being carried on fraudulently". It also held, on a separate footing, that even without the fraud finding both would have been liable for failing in their duties as directors.

The findings against Mr Shetty, the group's founder, were that he took part dishonestly in the fraud against the NMC group, knowingly received large sums improperly transferred out of the group, and used some of them to buy assets. The court examined more than 500 transfers into his personal bank accounts, totalling AED 4.18 billion, of which about AED 2.6 billion was net after money was returned to the group. The spending included private aircraft, property in Dubai Hills and an investment in a Wyoming oil field. The court rejected his defence that senior executives had defrauded him.

The findings against Mr Manghat were that he knowingly enabled the unlawful transfer of group money for the benefit of Mr Shetty, himself and others. The court rejected his argument that he lacked control over the group's finances.

US$5.397 billion is a starting point, not a bill

Reports round the figure differently, as US$5.39 billion or US$5.4 billion. The judgment's number is US$5.397 billion, and the court describes it as the starting point for assessing the financial contributions the two men should make to reimburse NMC's assets. It is not a final award. A further hearing will decide the exact sums each man owes, along with interest and costs, and any argument about what each can pay will be heard then.

A second claim ran alongside. Abu Dhabi Commercial Bank sued Mr Manghat separately for losses linked to the fraud and succeeded. Its claim was for more than US$1.19 billion in damages, subject to adjustment, made up of about US$1.022 billion in outstanding liabilities and US$168.989 million in lost profits.

How the scheme worked, and who else was in the case

The court found that the group hid its borrowings. By December 2018 it had about US$3.88 billion of borrowings that were not disclosed, against reported debt of only US$1.99 billion. The mechanism was sham supplier transactions: suppliers invoiced for goods or services that were never meant to be supplied, banks financed the invoices, and the money flowed back into the group. The court also found that Mr Shetty failed to disclose securities connected with his personal financing, and that misleading financial statements were allowed to be published and borrowings were concealed from the group's auditors. NMC was valued at about US$10.5 billion at its 2018 peak, and an investigation afterwards found more than US$4.4 billion in debt that had not been reported.

Bank of Baroda was first named as a defendant. The administrators alleged that Mr Shetty arranged with the bank's then managing director that NMC's borrowings would be repaid in return for the bank not disclosing the true position to auditors. The court recorded that the administrators' case was persuasive, but Justice Smith declined to make a finding against the bank, saying it would be unfair to the bank and to the individual. The bank settled with the administrators near the end of the trial and the claims against it were discontinued.

NMC Health was founded by Mr Shetty in Abu Dhabi in 1975, listed on the London Stock Exchange in 2012 and later entered the FTSE 100. The group collapsed in 2020. The judgment closes one stage of a long process, and the next hearing will decide how much of the US$5.397 billion each man will actually be ordered to contribute.

This article is for information and is not investment advice.