Former Sebi Chief Damodaran Ordered To Pay Rs 206 Cr in a Breach Of Contract Lawsuit
India's former Sebi chief Meleveetil Damodaran has been asked to pay up to nearly Rs 206 crore ($24.84 million) in damages (both primary and additional) by the International Court of Arbitration (ICA) in America. The damages were imposed on Damodaran with regard to a breach of contract lawsuit involving the 2020 deal between NYSE-listed UpHealth and India's Glocal Healthcare Systems, where Damodaran was a shareholder. Overall, the court had imposed damages to the tune of nearly Rs 920 crore ($110.2 million) against Glocal Healthcare, its promoters, key shareholders and directors. Currently, Damodaran is on the board of a slew of top Indian listed companies.
The Kolkata-based Glocal Healthcare was founded by former Tripura cadre IAS officer and a high-ranking bureaucrat Sabahat Azim, a protégé of Damodaran, who belonged to the same cadre before he took voluntary retirement from civil services and went on to head SEBI between 2004 and 2009. The US-based 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.
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.
Arbitration proceedings were initiated by UpHealth in the Chicago tribunal under the aegis of the International Chamber of Commerce (ICC). Earlier, when Glocal and its promoters had tried to obstruct UpHealth from moving US arbitration, UpHealth's lawyers told the court in India that the arbitration proceedings and the US venue were as per the terms of the SPA (share purchase agreement) agreed by the parties during the deal.
The dispute arose out of Holdings’ acquisition of Glocal pursuant to a Share Purchase Agreement dated October 30, 2020, and the subsequent breach by Respondents of their contractual obligations to relinquish control of Glocal to Holdings. In particular, the Tribunal found that the Respondents “failed to give [Holdings] control of [Glocal]” after the closing of the acquisition, despite the payment in full of the acquisition consideration. The Respondents were held personally liable.
On March 18, 2024, the International Court of Arbitration of the International Chamber of Commerce transmitted the Final Award to the parties. In the Final Award, the arbitral tribunal found the respondents liable for breach of contract.
The tribunal observed that the claim pertained significantly to the actions taken at the EGM to prevent UpHealth from appointing its designees to the board. In this, the arbitration tribunal noted that Damodaran along with other parties voted against the appointment by UpHealth, in plain contravention of the terms of the SPA.
"As such respondent no. 5 (Damodaran) must bear the consequences for his breach and is liable. Damodaran had challenged his liability. Damodaran should be liable for damages given his failure to exercise his position of influence over the other respondents to ensure that effect was given to the terms of the original SPA and the control ceded to the claimant," the court said.
In 2021, Azim had settled in Dubai and also resigned from the board of the company.
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 per cent stake directly. UpHealth also cleared a debt of $35 million (approximately Rs 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 30 October 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.
