Private jets and missing billions: inside the trial raising questions for Bank of Baroda

Our recent article on Bank of Baroda looked at how the lender became a defendant in litigation arising from the collapse of NMC Health—a former FTSE 100 company brought down in 2020 by the discovery of US$4 billion in hidden debt.

With the trial now underway at the Abu Dhabi Global Market courts (ADGM), key figures in NMC are taking the stand. Their testimony is largely unfolding as a series of rebuttals—responses to allegations, documents and prior statements put before them. But the evidence is starting to sketch out the wider story, including where and how Bank of Baroda fits in—a role the administrators say went beyond routine banking.

More broadly, the trial offers a dissection of a spectacular corporate failure. Founded by Indian-born entrepreneur Bavaguthu Raghuram Shetty, who refers to himself as a doctor (more on that later), NMC Health grew from a small clinic in 1975 into a major private healthcare provider in the UAE. In 2012 it became the first Abu Dhabi-based company to list on the London Stock Exchange.

By April 2020 it had fallen into administration after an internal review uncovered about US$4 billion in undisclosed liabilities, following a report by short seller Muddy Waters. The business was described in court as a “financial house of cards’’ taking on vast debts to conceal what was being extracted from the company.

The value of the civil claim brought by administrators of NMC is at least US$5 billion, and names three defendants: Shetty; Prasanth Manghat, the former CEO; and Bank of Baroda. All deny wrongdoing. The administrators allege the bank was aware of, and colluded in the scheme, providing banking services to NMC, Shetty and a network of related companies throughout the relevant period.

Shetty and Manghat are alleged to have paid themselves substantial sums, both directly and indirectly, deploying a loan recycling scheme to disguise the payments and conceal the true extent of NMC’s indebtedness. Borrowing was channelled through sham supply contracts involving connected companies to raise finance while masking the group’s true level of debt.

Payments central to the case were routed through accounts held with the bank. In essence, the claim is that the bank knew that payments to Shetty and his associated companies lacked any genuine commercial purpose and did not benefit the group. The lender structured deposits and lending in a way that helped conceal undisclosed debts, while having sight of almost every part of the transactions now under scrutiny. Compliance safeguards such as KYC and anti-money laundering checks were not properly followed, either because staff knew the transactions were improper or turned a blind eye to clear warning signs.

Forensic analysis of NMC’s finances after its collapse suggest the company had in fact been technically insolvent since 2013. For the six years to 2018, the group paid more money directly into Shetty’s accounts—around AED3.3 billion (US$900m)—than the listed company made in profits (AED3.1 billion, or US$840m).

Living large

The 83-year-old Shetty allegedly used NMC funds for projects which included a private jet and a villa in the Dubai Hills, treating entities in the group as a single pot of money. At his peak, the founder featured on the Forbes Billionaires List, with his wealth in 2018 estimated at US$3 billion.

The court heard that when NMC was included in the FTSE 100 in December 2017, Shetty received a congratulatory message from P.S. Jayakumar, then CEO of Bank of Baroda. He later invited him to his home and to a Dubai opera event attended by Indian Prime Minister Narendra Modi. Administrators say Shetty was seeking a new loan facility. He said he did not recall the details but described Jayakumar as a “genuine man’’.

The administrators also claim that Shetty agreed to repay certain Bank of Baroda facilities early—including a US$100m term loan—in exchange for the bank not probing further into NMC’s finances. By settling undisclosed liabilities, the group could then represent to its auditor that those liabilities did not exist.

It was put to Shetty that he wanted at all costs to avoid a deeper inquiry of NMC’s financial affairs and convinced Bank of Baroda not to probe NMC’s position with other banks and more generally. Shetty maintains that he was not involved in the company’s financial management, portraying himself instead as a victim of misconduct by subordinates.

He was also pressed on his credentials as a doctor. NMC’s IPO prospectus said Shetty held an honorary doctorate from Georgia State University in the US. The administrators said the institution itself had no record of it.

There was also a reference during the trial to a previous controversy involving the Bank of Baroda. In 2017 the lender became entangled in the Gupta family scandal in South Africa, where it was accused of allowing funds to pass through accounts despite red flags. 

During the Abu Dhabi proceedings, the court was shown a text exchange between Shetty and his son about the case. It was suggested to him that he was concerned the bank would come under pressure to be fully transparent—and that he needed it to turn a blind eye to NMC, as it had done with the Guptas. Shetty did not accept that characterisation.

The case before Mr Justice Sir Andrew Smith continues.

See also: Litigation watch: Bank of Baroda https://www.fireflyreads.com/litigation-watch-bank-of-baroda/

jmoir@fireflyreads.com

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