Chicago calling: Former Indian Bureaucrat Sabahat Sayed Azim, Founder, Glocal Healthcare May Face Arbitration Proceedings In US
A recent order from the Calcutta High Court (HC) is likely to deepen the foreign investor confidence in cross-border deals involving Indian companies, since it upheld a 'foreign seated emergency arbitration' as valid and a supplement factor to the Indian laws. On August 23, the Calcutta HC refused to stay the 'foreign seated' arbitration proceedings against Kolkata based Glocal Healthcare Systems, its promoter Sabahat Sayed Azim and others. The arbitration has been initiated in the US by NYSE-listed UpHealth Inc.
Azim, Glocal's founder, is a former high-ranking Indian bureaucrat from the Manipur-Tripura cadre of Indian Administrative Services. A former chairman of Securities and Exchange Board of India (SEBI) was a shareholder in Glocal and later sold his stake in tranches to foreign investors and funds.
UpHealth claims to have paid around ₹2,100 crore in cash, stock, and debt to acquire 94.81 per cent of Glocal and yet its promoters and directors prevented the transfer of management control and did not share financial statements of Glocal with UpHealth. Arbitration proceedings were initiated by UpHealth in a Chicago tribunal under the aegis of the International Chamber of Commerce (ICC). UpHealth's lawyers told the court in India that the arbitration proceedings and the US venue were as per the terms of SPA (share purchase agreement) agreed by the parties during the deal.
Calcutta HC's decision is significant since it is a rare instance where an Indian court held “foreign-seated" arbitration as a supplemental factor in deciding a petition under Section 9 of India's Arbitration Act (Part-II). P&A Law Offices, which had previously represented Amazon against Future Retail where the Supreme Court had for the first time upheld an emergency arbitrator’s order in a domestic-seated arbitration, are representing UpHealth now.
UpHealth told Calcutta HC that despite agreeing to Chicago as the seat of arbitration in the SPA, Glocal and Azim opposed the arbitration there. The former top SEBI official is a likely party to the arbitration proceedings as he was a signatory and party to the sale purchase agreement by virtue of being a selling shareholder in the company, documents in possession of BW show.
Now, unless the decision of the Calcutta HC is overturned on appeal and such decision of the appellate bench is affirmed subsequently by the Supreme Court in India, it is unlikely that Azim and others may escape the arbitration as per the SPA. A copy of the HC judgement and various other legal filings are in the possession of BW.
Remarks of Calcutta HC
In the order dated August 23, Justice Ravi Krishan Kapur of Calcutta HC, who refused to grant a stay on arguments of Glocal and Azim said, "The petitioner (UpHealth Inc) has been able to demonstrate a strong prima facie case on merits. The balance of convenience and irreparable injury are also in favour of orders being passed as prayed for herein. In such circumstances, the ad interim order dated 23 December, 2022 stands confirmed."
In December, Calcutta HC had observed in its interim order: “Prima facie, UpHealth in terms of the shareholders’ agreement (SHA) has invested a substantial sum of money aggregating to approximately to ₹2,100 crore and it is the single largest majority shareholder of Glocal holding with approximately 94.5 per cent shares. Whereas, respondents (Azim and others) being the erstwhile promoters hold a minuscule shareholding.”
It added, “The petitioner having infused substantial funds is now being made to run from pillar to post. The respondents have filed proceedings before the NCLT, Commercial Court at Rajarhat, and also a criminal complaint. Insofar as the prayer is concerned, it is submitted that a nominee and authorised signatory of the petitioner is already having access to the ICICI bank. In view of the aforesaid, there can be no prejudice which can be caused to the respondents if the prayer is allowed.”
In its August 2023 proceedings, the HC agreed on the submissions that when parties have agreed to be bound by the order passed by an emergency arbitrator, when such order is a reasoned order, and when such order has not been interfered with or challenged, then it may be a supplemental factor while passing appropriate orders under Section 9 (Part-II) of the Act. It was further observed that depending on the facts of a case, pre-arbitral steps are not mandatory (especially when such steps are an empty formality) and when an arbitration clause is sufficiently broad (as in this case), then disputes arising out of SPA would be arbitrable and an arbitral tribunal would be competent to adjudicate such disputes. A pernicious practice of filing “dressed-up” petitions before the NCLT to defeat the arbitral process would not render the disputes non-arbitrable, the HC considered.
UpHealth had argued that Glocal and others cannot rewrite the terms of the agreement on their own whims and fancies and cannot impose the illegal and unlawful actions in India against UpHealth and avoid the Arbitration Proceedings. There is no question of non-arbitrability of any of the disputes raised in this proceeding. All the disputes raised in this proceeding are covered under the SPA and are ex facie contractual, commercial disputes. There is also no merit in the contention that the SPA is confined only to the purchase and sale of shares. This argument is misconceived and ignores the entire scope, purport and ambit of the SPA, according to the arguments in the court.
It is contended by UpHealth that after the transfer of the last tranche of money, Glocal, Azim and others made as respondents, sought to renege from their obligations under the SPA and also filed diverse proceedings, including criminal complaints and a case in the National Company Law Tribunal against Uphealth with the oblique and ulterior aim of defeating the rights of the petitioner under the SPA. Pursuant to this, UpHealth was compelled to invoke the arbitration clause contained in the SPA and also file an application before the Emergency Arbitrator in the US.
"Prima facie, having received the entire funds under the SPA, the respondents are now entangling the petitioners before every possible Police Station, Tribunal and Court while refusing to discharge their obligations under the SPA," UpHealth had told the court.
Background to the controversy
Before the US company came into the picture, Glocal’s original shareholders sold their stake to various funds and investors in tranches. On the day when UpHealth, earlier known as GigCapital2, acquired Glocal in 2020, Azim and his family held a 31.16 percent stake directly. UpHealth also cleared a debt of $35 million (approximately ₹280 crore) when it purchased a majority stake in Glocal.
UpHealth says that a key covenant of the SPA (clause 10.2 in the agreement) between it and Glocal’s shareholders was that they would facilitate a full acquisition of the Indian company. Hence, after UpHealth acquired a 94.81 per cent stake, they invoked provisions of the SPA (under Clause 5.2.1.b) dated October 30, 2020 to put in place a transition team of directors to facilitate a smooth takeover of the overall management of Glocal and its day-to-day operations from the erstwhile management. It is UpHealth’s grievance that despite having a 94.81 per cent stake in Glocal, it was not allowed to take over the management, which amounted to cheating and a criminal breach of trust.
Counter claims
According to UpHealth, Sabahat Azim had claimed that following the execution of the written agreement, there was another ‘oral’ agreement between them stating that “the funds infused into Glocal by UpHealth were not for acquiring (and taking over its management)." “These were investments simpliciter, in place of which, UpHealth was to profit from payment of ‘reasonable interest’”.
UpHealth says that Glocal’s erstwhile shareholders have also said this in the NCLT. UpHealth says Azim claimed that the Glocal stake they sold to UpHealth was only as a security for the funds infused and not meant to be acted upon and that he was ready to return the money with ‘reasonable’ interest.
UpHealth has called Azim’s claim of an ‘oral’ agreement as absurd and untenable and this false assertion was never raised before in any of the communications earlier. UpHealth says the accused are trying to show that the US company violated India’s Foreign Exchange Management laws.
“The accused persons, in furtherance of their fraudulent and dishonest intention, have not only initiated multiple civil law proceedings against the complainant, based on the claims but have also sought to arm-twist the management of the complainant by falsely implicating its senior managers in frivolous criminal cases,” UpHealth says.
By an order dated 16 November 2022 the emergency arbitrator appointed by the ICC had held that it had jurisdiction to rule on (UpHealth's) application and the same was admissible. The arbitrator had issued certain directions to Glocal Healthcare, including to cooperate with UpHealth in ensuring statutory compliance.
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