US court grants relief to former SEBI Chairman M Damodaran, vacates $25 million arbitral award

A United States court recently set aside an arbitral award which had held former Securities and Exchange Board of India (SEBI) Chairman M Damodaran liable to pay ₹25 million to American healthcare company UpHealth Holdings for contractual breaches.

While deciding UpHealth's plea for enforcement of the award, Judge Sharon Johnson Coleman of the United States District Court for the Northern District of Illinois allowed Damodaran's motion to vacate, while upholding the award as regards other respondents.

"The Court grants Damodaran’s motion to vacate. But Damodaran’s case is not over. This Court makes no ruling on the veracity of his evidence. When an arbitration award is vacated, the “appropriate remedy is to remand the case for further arbitration proceedings"...It will therefore be up to the Tribunal to determine whether Damodaran violated his duties at the EGM after further proceedings."

The arbitral award stemmed from a Share Purchase Agreement between UpHealth, India-based healthcare company Glocal Healthcare Systems (of which Damodaran is a Mentor), certain shareholders and directors of Glocal, and Damodaran. In June 2021, UpHealth completed the cash purchase of shares from Damodaran and other shareholders of Glocal. By the end of 2021, UpHealth held 94.81% of Glocal shares.

Subsequently, UpHealth sought to appoint its proposed designees to the Glocal Board pursuant to the agreement. When the Glocal Board failed to appoint such nominees, UpHealth asked it to call an extraordinary general meeting (EGM).

Before the EGM, an UpHealth employee demanded a vote by poll on its appointments. Instead of following this demand, one of the Glocal directors called for a vote by show of hands of the shareholders in attendance. The shareholder vote favoured Glocal and prevented UpHealth from appointing its designees.

Pertinently, Damodaran contended before the Court that he was not present at the EGM and that he did not vote.

After Glocal shareholders voted against appointing UpHealth’s designees, the latter company initiated arbitration proceedings before a tribunal in Chicago. Damodaran and other directors and shareholders of Glocal did not participate in the proceedings, but wrote to the tribunal objecting to the proceedings. In March 2024, the tribunal held in favour of UpHealth, rejecting the objections made by Damodaran and others.

The tribunal awarded UpHealth damages of more than $110 million, including more than $25 million against Damodaran.

Attempts to challenge the award before Indian courts bore no fruit. Judge Coleman pointed to one particular finding of an Indian court which held, “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."

Challenging the award against him before the US court, Damodaran argued that the tribunal based its award on a “non-fact” or “clear mistake of historical fact.”

He contended that the only basis for his liability was that he voted to block UpHealth’s designees from being appointed to the Glocal Board. Damodaran said that the tribunal never made a specific finding that he did so, that no evidence in the record supported such a finding, and that he was not at the EGM and did not vote.

The Court found that Damodaran was not entirely blameless in the tribunal's error, as he had not participated in the arbitral proceedings.

"But unlike the other Respondents, Damodaran’s behavior is perhaps more understandable. As explained above, Damodaran represented himself in a complex foreign arbitration over claims in which he believed he had no stake. Damodaran objected and told UpHealth and the Tribunal that he had no power to appoint UpHealth’s designees; had no management power at UpHealth aside from his nominal shares; and had tendered his shares to UpHealth, which he believed ended his duties under the agreement," it held.

While granting Damodaran's motion to vacate, the Court remanded the matter back to the tribunal.

Damodaran was represented by US firm Jenner & Block LLP, which was advised by Shardul Amarchand Mangaldas (SAM). The team from SAM comprised Managing Partner Pallavi Shroff, Partners Siddhartha Datta and Aditya Mukherjee, as well as Principal Associate Krishna Tangirala and Trisha Mukherjee, Senior Associate Aditya Thyagarajan and Associate Chetan Kabra.

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