A US court has set aside a US$25mn (million) arbitral award against Meleveetil Damodaran, former chairperson of the Securities and Exchange Board of India (SEBI), in the Glocal Healthcare Systems Pvt Ltd (Glocal) and UpHealth Holdings Inc dispute. While holding that there was no evidence in the record to hold him liable for damages, the court set aside the award passed by the International Court of Arbitration (ICA) of the International Chamber of Commerce based in Chicago against Mr Damodaran.
In March, the ICA awarded UpHealth damages of more than US$110mn, including almost US$25mn individually, against Mr Damodaran. While allowing Mr Damodaran's challenge against the award on the ground that there was no evidence on which the ICA relied to hold Mr Damodaran liable, the US district court, northern district of Illinois (eastern division) remanded the case to the tribunal.
In its order, the court says, "...the court grants in part and denies in part UpHealth's petition to confirm foreign arbitral award, grants respondent Damodaran's motion to vacate and denies the Glocal respondents' motion to vacate. The court confirms the award as to Glocal Healthcare Systems, Dr Syed Sabahat Azim, Richa Sana Azim, Gautam Chowdhury, and Kimberlite Social Infra Pvt Ltd. The court vacates the award as to M Damodaran only on the issues identified in this opinion and remands to the Tribunal for further proceedings consistent with this opinion."
The award was rendered in relation to a share purchase agreement (SPA) between UpHealth, Glocal Healthcare Systems, certain shareholders and directors of Glocal and Mr Damodaran. According to the SPA, Uphealth acquired some shares of Glocal held by Mr Damodaran and others. However, a dispute arose between Glocal, its board of directors and UpHealth about UpHealth acquiring control over Glocal. After that, UpHealth commenced arbitration proceedings in 2022, claiming that Glocal, its directors and shareholders, including Mr Damodaran, had breached their obligations under the SPA.
Glocal, the board of the company and Mr Damodaran separately challenged the award before the US court in the northern district of Illinois. Such challenges to arbitral awards rarely succeed as the standard for setting aside such awards is exceedingly high.
Mr Damodaran repeatedly stated that he was just a shareholder in Glocal Healthcare. The dispute is related to Glocal Healthcare Systems and the digital health subsidiary of UpHealth Holdings.
As reported by Moneylife, while the deal between Glocal Healthcare Systems and UpHealth Holdings may seem straightforward, the reality is more akin to peeling the layers of an onion. In fact, it serves as a case study for first-generation Indian entrepreneurs seeking a global presence.
On 30 October 2020, UpHealth Holdings of the US (formerly known as Gig Capital2) and Glocal Healthcare Systems of India and its shareholders signed the SPA under which UpHealth was to invest around 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.
UpHealth took the matter to ICA, which is not a judicial body and a part of the International Chamber of Commerce, a private entity that issued an award against Glocal and Mr Damodaran.
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. (
Read: Glocal Healthcare: Beyond the International Arbitration Award Lies a Complex Story of Alleged Deception)
In June this year, taking note of a charge sheet filed by the West Bengal crime investigation department (CID) after completing its investigation, the chief judicial magistrate (CJM) at Barasat in North 24 Parganas district in West Bengal warned six senior officials of UpHealth Inc and UpHealth Holding about issuing a warrant of arrest in the Glocal Healthcare case.
The case is related to an FIR filed by Glocal Healthcare Systems before the Technocity police station in West Bengal, alleging the commission of criminal offences by the UpHealth consortium concerning an SPA executed in 2020 between UpHealth and Glocal.
As reported by Moneylife, 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 stated that they had raised another US$285mn.
According to the FIR (seen by Moneylife), UpHealth Holding held a 92.43% stake in Glocal Healthcare, with the beneficial ownership resting with the six officials. As part of the SPA, Glocal Healthcare was promised shares worth US$110mn (million) consideration for the stake as an interim option. "However, it soon became apparent that the accused persons never had recourse to the funds or equity of US$429mn as represented by them, and they further depleted the resources of UpHealth Holding so that its shares of face value of US$10 fell to the price of US$0.16. Thus, while in lieu of the shares handed over to Glocal Healthcare, we were promised shares worth US$110mn, but in reality, we were only given dud shares of the accused company, which had lost all its value and was not even worth a fraction of the value of the shares of Glocal Healthcare or the promised consideration."
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 US$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. (
Read: Glocal Healthcare: Beyond the International Arbitration Award Lies a Complex Story of Alleged Deception)
