Calcutta HC Moves To Protect International Arbitration Award
Calcutta High Court (HC) wants the bar to be set high on honouring of International Arbitration Awards in India. In a strongly worded order, Justice Ravi Krishan Kapur asked the shareholders of Glocal Healthcare Systems, engaged in providing technology-enabled healthcare services, to file an affidavit of their respective assets, liabilities and pending litigations within a period of two weeks.
NYSE-listed UpHealth won arbitration in Chicago at the International Chambers of Commerce against India's Glocal Healthcare and its promoters and directors for a breach of contract. UpHealth claimed to have paid around Rs 2,100 crore in cash, stock, and debt to acquire a 94.81 per cent stake in Glocal and yet its promoters and directors prevented the transfer of management control and did not share financial statements of Glocal with UpHealth. UpHealth had moved the Calcutta HC for the implementation of the arbitration award and apprehended that the Glocal respondents would not comply with their financial obligations under the award and make a deliberate and calculated effort to render the award infructuous.
The enforceability of international arbitral awards in India is governed by the Arbitration and Conciliation Act (ACA), 1996, incorporating the principles of the New York and Geneva Conventions. Justice Kapur observed that prima facie, there was no ground either under section 48 of the ACA or otherwise which would make the award unenforceable and a direction to file an Affidavit of Assets was of utmost necessity in order to give the petitioner at least an expectation of receiving the fruits of the award.
In his order, Justice Kapur observed that in view of their past conduct and shenanigans, there was every risk of dissipation of assets by the respondents with the mischievous intent to render the award a paper award.
Ordering Glocal and connected entities to file a list of their assets, Justice Kapur said, "The conduct of the respondents to say the least is prima facie dishonest and fraudulent. In view of their past conduct and dealings, the respondents would make every attempt to dissipate their assets to render the award (akin to the 94.81 per cent shares) absolutely worthless."
The respondents, who were asked to file their list of assets in the matter are Glocal Healthcare and its promoters Syed Sabahat Azim (former IAS Officer Tripura Cadre), M Damodaran (Former Chairman, SEBI) Richa Sana Azim, Gautam Chowdhury and Kimberlite Social Infra Pvt Ltd.
The HC also observed that Glocal had threatened Uphealth in India and abroad. "Prima facie, the unscrupulous conduct of respondent no.1 is also evident from the contents of a Supplementary Affidavit filed by the petitioner, wherein respondent no.1 has gone to the extent of even threatening the legal team of the petitioner in India as well as abroad. Though prejudicial, such conduct certainly does not help the case of respondent no.1 but only makes their subversive and malevolent intent explicit," Justice Kapur said.
Overall, the Chicago tribunal had imposed damages to the tune of nearly Rs 920 crore ($110.2 million) against Glocal Healthcare, its promoters, key shareholders and directors. The $110.2 million damages are apportioned based on the shareholders' percentage of each of the Indian directors and shareholders of Glocal: 34.38 per cent to be paid by Syed Sabahat Azim, 34.38 per cent by Richa Sana Azim, 22.54 per cent by M Damodaran, 4.69 per cent by Gautam Chowdhury and 4.02 per cent by Kimberlite Social India Private Limited.
How Calcutta HC Thrashed Arguments Against Implementation of Award
Syed Azim had contended that Uphealth's application was not maintainable since the petitioner itself was undergoing liquidation proceedings under Chapter 11 of the Bankruptcy Code in the US and had no authority to proceed with this application. It was also contended that the terms of the reference do not contemplate the passing of the award and the same is in any event contrary to public policy. But Calcutta HC thrashed these arguments.
Damodaram, who is respondent number 5 in the matter, had argued that he is an individual of repute and standing and was not involved in the affairs of the respondent no 1 company (Glocal) and had not attended the extraordinary general meeting held on 26 September 2022. In such circumstances, Damodaran argued that he could not have been foisted with any liability under the award.
On the contentions of Damodaran, the HC said that there were no grounds warranting any special treatment being meted out to him and he must bear all the consequences. "There is no merit in the argument that respondent no.5 must be absolved from any liability and no order should be passed against him at this stage of the proceeding. Respondent No. 5 is like any other debtor or potential debtor and has an obligation to secure. The respondent No.5 had received approximately Rs.13 crores from the petitioner. Repeated notices were served on respondent No. 5 by the Arbitral Tribunal. There are obligations flowing from the SPA which are binding on respondent no. 5. In such circumstances, there are no grounds warranting any special treatment being meted out to respondent no.5 and respondent no.5 must bear all the consequences."
On the contentions of Syed Azim the HC said, "There is also no merit in the contention that the petitioner is unable to initiate a proceeding under Section 9 of the Act since they are facing bankruptcy proceedings in the US. In view of the order dated 16 November 2023 passed by the Competent Court and the relevant provision pertaining to the rights, powers and duties of a debtor in possession, the petitioner has demonstrated sufficient authority to maintain this application. The publishing of the award within the extended time period under the Arbitration Rules of the International Chamber of Commerce has also been duly complied with by the Tribunal and there is no substance in the objection that the award has been published beyond the prescribed time period.
HC's Strong Observations
According to Justice Kapur, it was an indisputable fact that pursuant to the SPA (Share Purchase Agreement), UpHealth had inter-alia paid to Glocal and their directors and associates a sum of approximately Rs.538 crores in cash. He also observed that the prompt response furnished by Glocal (respondent no. 1) to Damodaran (respondent no. 5) in producing its Minutes Books and the Attendance Register of the company with regard to the EGM dated 26 September 2022 demonstrates a lack of bonafide and ill motive in not providing similar information contemporaneously insofar as UpHealth was concerned.
The HC observed, "it was mystifying as to how individuals work in unison when it comes to receipt of money whereas divorce each other when it comes to payment. The petitioners have neither control nor access to management nor the working of Glocal. Prima facie, the shares transferred to Uphealth have been made useless and reduced only for ornamental purposes."
The HC also said that the orders of the Emergency Arbitrator had been violated and there was no compliance with the orders passed in the earlier application under section 9 of the Act being AP 809 of 2022. The financial information, books of accounts and other financial records of Glocal were deliberately not made available to UpHealth.
Further, the HC observed that Glocal and other respondents had filed proceedings both civil and criminal, spanning from the District Court at Rajarhat, The National Company Law Tribunal, a criminal complaint dated 14 September 2022 with the Commissioner of Bidhannagar Police, a separate complaint registered with the Technocity Police Station dated 15 October 2022 and an application being CP/298/2022 before the National Company Law Tribunal Kolkata Bench, a Title Suit before the Learned Commercial Court at Rajarhat being Suit no. 19 of 2022 and another suit before the Learned Commercial Court at Rajarhat.
From the above slew of legal proceedings filed by the respondents, Justice Kapur deduced that was it fair to assume that having received a sizable portion of the funds in cash under the SPA, the respondents are determined to embroil the petitioner in a heap of litigation.
"The conduct of the respondents to say the least is prima facie dishonest and fraudulent. Prima facie, the respondents have all the traits of a defaulter," Justice Kapur said.
Balance in Favour of UpHealth
Calcutta HC believed that the balance of convenience and inconvenience was overwhelmingly in favour of orders being passed as prayed for (by UpHealth) until the grind of the formal enforcement and execution was concluded.
In favour of UpHealth which had won an arbitration (initiated as per the SPA), the HC observed that "The fruits of the award must be made real and realizable so that the award is not rendered illusory or meaningless."
Justice Kapur believed that there were no fetters upon the Court exercising jurisdiction under section 9 of the Act and keeping in mind the respect for party autonomy and the finality which is attached to the arbitral process, the Court must at least at the post-award stage make a serious attempt to secure the petitioner. Technicalities of the Code of Civil Procedure cannot prevent a Court from securing an award for the ends of justice, Justice Kapur said.
"In fact, keeping in mind the quantum of the awarded amount, a direction to file an Affidavit of Assets is of utmost necessity in order to give the petitioner at least an expectation of receiving the fruits of the award. Prima facie, there is no ground either under section 48 of the Act or otherwise which would make the award unenforceable. On the other hand, the balance of convenience and irreparable injury is in favour of orders being passed even at this stage. In view of the aforesaid, at this ad interim stage, unless orders are passed to secure the award, the petitioner would suffer irreparable loss prejudice and injury. The petitioner is now armed with an award and that is now at least a prima facie case in its favour. The balance of convenience and inconvenience is also overwhelmingly in favour of orders being passed as prayed for," HC order said while passing the orders.
_20240704184119_original_image_5.webp)
