On 21st March, media headlines said that M Damodaran, former chairman of the Securities & Exchange Board of India (SEBI) and founder-chairman of Excellence Enablers, an organisation that champions corporate governance, had been hit with damages of Rs206 crore by the International Court of Arbitration (ICA) of the USA in connection with a breach of contract issue. The order from an international 'court' shocked corporate India.
While this may seem straightforward, the reality is more akin to peeling layers of an onion. In fact, it serves as a case study for first-generation Indian entrepreneurs seeking a global presence.
The Deal
On 30 October 2020, UpHealth Holdings Inc (UpHealth), of the US (formerly known as Gig Capital2), and Glocal Healthcare Systems Pvt Ltd (Glocal) of India and its shareholders, signed a share purchase agreement (SPA) under which UpHealth was to invest about Rs1,482 crore to acquire a 90 % stake in the Indian company through a complex structure.
UpHealth alleges that the Indian directors ‘failed to give up control’, despite being paid full consideration. Glocal, on the other hand, claims that it cancelled the SPA with UpHealth after discovering it had been deceived and defrauded into parting with shares under various pretexts. It has, since, filed first information reports (FIRs) against UpHealth and its directors and is working on a counter-suit.
So who is Glocal and why was UpHealth so eager to acquire it?
Glocal Healthcare
Glocal is a social enterprise started in 2010 by a doctor, Dr Sahabat Azim, previously a Tripura cadre officer of the Indian Administrative Service (IAS). It was started as a mission, following his father's death due to unnecessary surgery in an expensive hospital. The aim was to make healthcare affordable to rural and remote areas of India using technology and artificial intelligence (AI) for diagnosis for the design of infrastructure to reach more people. Starting with a small hospital in West Bengal, it now operates 11 hospitals and 500 digital dispensaries and a telemedicine platform in the economically backward north-eastern states.
In 2019, Glocal broke even financially and the COVID-19 pandemic emphasised the importance of telemedicine, prompting a potential global scale-up with investment from UpHealth Inc (formerly Gig Capital). Glocal believed that UpHealth's intricate financial manoeuvres would provide funding for expansion without sacrificing operational control.
Without going into details of why Glocal transferred shares on the basis of promises (this will be looked at by a court), the fact is that UpHealth shares were listed in the US market on 9 June 2021 at a combined value of US$1.35bn (billion), but the price collapsed dramatically and halved within a month of listing, its shares sinking to less than a dollar from the listed value of 10$ within a year. The Indian shareholders refused to accept these dud shares (although they were induced to sign documents to enable listing) or to seek approval from the Reserve Bank of India (RBI) for the transaction.
Other investments that were promised by UpHealth, allegedly, did not materialise, but it now claimed 94% ownership of Glocal, having paid only 16.56% of the total transaction value in cash -- the rest is in the form of now ‘dud’ shares. In 2021, Dr Azim was even persuaded to move to Dubai which was to be the headquarters of the global operation as CEO of Uphealth’s international operations. This was, allegedly, a ploy to make him step down from Glocal.
In 2022, tensions escalated when Uphealth appointed a top consulting firm, which systematically and deliberately undervalued Glocal’s hospital properties and dispensaries at agricultural land prices. Glocal refused to sign the report and filed an FIR against UpHealth Inc, Uphealth Holdings Inc and its key people for data theft and misuse of funds. Meanwhile, UpHealth began to pressure management to replace two directors by appointing its own people. It also invoked international arbitration, despite opposition by Glocal by obtaining court approval. Glocal’s contention is that serious fraud is not a matter of arbitration.
UpHealth Inc
UpHealth Inc, a US-based global digital health firm, has a wholly-owned subsidiary, UpHealth Holdings, which engaged in dealings with Glocal. To summarise the complex financial transactions, UpHealth pledged to bring in US$459mn to expand operations. Initially a direct investment, talks shifted towards an acquisition, with Glocal receiving shares in UpHealth. The SPA was signed based on UpHealth having US$174mn in trust funds and a US$210mn letter of intent from GEM Capital. Subsequently, they represented that they had raised another US$285mn . In 2021, Dr Azim was set to become the chief executive officer (CEO) of the international operations and had even moved to Dubai.
This isn’t the first time UpHealth has been accused of shady dealings. Other founders have made similar allegations, claiming to have been misled, strung along and pushed into disadvantageous, value-destructive deals (In lawsuit, medication adherence startup claims it was strung along as part of planned SPAC acquisition). Several special purpose vehicles (SPVs) with names such as GiGCapital1, GigCapital3, GigCapital4 and GigCapital5, that were set up by UpHealth resulted in disputes, serious allegations of wrongdoing or bankruptcy filings.
As litigation continues in India, UpHealth opted to invoke international arbitration through ICA, raising a crucial question: Is ICA a court?
The Arbitration
Although referred to as a court, ICA is not a judicial body; it is part of the International Chamber of Commerce, a private entity. It has issued an ex-parte order, meaning a legal battle in India would be necessary for enforcement.
Interestingly, ICA discovered no significant negative findings against Glocal’s directors, except their failure to participate in arbitration proceedings. The order made headlines due to its substantial figures and Mr Damodaran's involvement. Like Dr Azim, Mr Damodaran was a Tripura cadre IAS officer and holds a 1% stake in Glocal. The allegation against him is that he failed to exercise his influence in pushing a resolution to appoint three UpHealth directors on the board and that he voted against the resolution.
While the cases wind their way through court, if Glocal stumbles, it will be a chilling lesson for Indian entrepreneurship. In a nation where 28% of the population lacks access to doctors and hospitals are scarce, Dr Azim's work in states such as Bihar, Uttar Pradesh, Odisha and West Bengal is invaluable.
Few entrepreneurs possess Dr Azim's administrative background and reach. Doctors are often reluctant to work in rural India or consider implementing technology in digitally-enabled clinics that combine examination rooms, test labs and pharmacies with remote doctor support. Dr Azim's efforts were recognised by the World Economic Forum at Davos in 2021, but if he fails, it is the disempowered people of these states who lose.
While Glocal prepares for the battle, it is vital that police and judicial systems deliver timely justice so that first-generation entrepreneurs can persist. Countless entrepreneurs have lost such battles and seen their local visions crumble in pursuit of global aspirations.
Did you see the judgement of the Honorable Calcutta High Court? Are you going to rubbish him as you did ICA? Azim and Damadoran need to pay up for the damage they have done to UpHealth and its shareholders.
Hope justice is getting served in India. Azim and Damadoran have cause irreparable damages and trauma to UPH shareholders like me. They should be stripped of all their wealth to pay for these damages and taught a lesson that India can serve justice no matter how powerful or influential you are.
A key element fueling the concerning drop in UpHealth's share price is the involvement of Glocal's Azim and Damodaran. They must be held responsible for the distress and losses inflicted upon thousands of retail investors, myself included. I hope the Indian courts uphold the ICA decision against Glocal and ensure they are held accountable.
There is no alleged deception in this scenario. I initially invested in UpHealth and purchased shares at $10 each. However, the current value of these shares has plummeted to $1. Now, can I claim that there was a verbal agreement promising a full refund? This is the argument being made by Azim and Damodaran. They sought to extricate themselves from the plummeting value of UpHealth shares by invoking this supposed verbal agreement. It's essential to note that having multiple cases against me does not automatically imply fraudulent behavior. I trust that the Indian courts will deliver justice and hold Azim and Damodaran accountable for the crimes they've committed and the damages inflicted upon thousands of retail investors like myself.
Thanks to author for giving complete picture. Newspaper headlines earlier had made for shock reading, without reader getting full details. It still begs the question: Inspite of agreeing for international arbitration in their share purchase agreement, why did Glocal not participate in the arbitral proceedings? They could have taken all such defenses (including fraud) which must be the basis of their lawsuit in India's Supreme Court. This would have expose unfair practices of UpHealth and would have had an impact of the award.
There is no alleged deception in this scenario. I initially invested in UpHealth and purchased shares at $10 each. However, the current value of these shares has plummeted to $1. Now, can I claim that there was a verbal agreement promising a full refund? This is the argument being made by Azim and Damodaran. They sought to extricate themselves from the plummeting value of UpHealth shares by invoking this supposed verbal agreement. It's essential to note that having multiple cases against me does not automatically imply fraudulent behavior. I trust that the Indian courts will deliver justice and hold Azim and Damodaran accountable for the crimes they've committed and the damages inflicted upon thousands of retail investors like myself.
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https://www.telegraphindia.com/business/us-based-uphealth-wins-interim-protection-in-case-against-glocal-healthcare-systems/cid/2013660