Breach of Contract: Ex-SEBI Chief M. Damodaran Hit with Rs 206 Crore Penalty

M. Damodaran, a prominent figure in the Indian business landscape and former head of the Securities and Exchange Board of India (SEBI), finds himself embroiled in a significant legal battle. An international arbitration court has ruled against him and other parties involved, imposing a hefty penalty of Rs 206 crore (approximately $24.84 million) for breaching a contractual agreement.

The Dispute at the Heart of the Case

The case centers around a 2020 agreement between UpHealth, a US-based healthcare company, and Glocal Healthcare, a Kolkata-based hospital chain. UpHealth acquired a 94.81% stake in Glocal through a Share Purchase Agreement (SPA) for a sum of Rs 2,100 crore in cash, stock, and debt.

However, following the acquisition, UpHealth claims that Glocal's promoters and directors, including M. Damodaran, obstructed the transfer of management control and withheld crucial financial statements. This alleged breach of contract by the Glocal parties prompted UpHealth to initiate arbitration proceedings.

International Arbitration and a Decisive Ruling

UpHealth invoked the arbitration clause within the SPA, leading to proceedings at the International Chamber of Commerce (ICC) tribunal in Chicago. Despite attempts by Glocal and its representatives to challenge the venue and legitimacy of the arbitration, the tribunal moved forward with the case.

On March 18, 2024, the ICC tribunal issued its final award, finding the Glocal parties, including M. Damodaran, liable for breaching the contract. As a consequence, the hefty penalty of Rs 920 crore (approximately $110.2 million) was imposed, with a significant portion (Rs 206 crore) falling upon M. Damodaran.

Repercussions for M. Damodaran

This legal setback comes amidst a period of heightened scrutiny for M. Damodaran. Following the Paytm Payments Bank controversy, he was appointed to chair a compliance and regulatory advisory committee for One 97 Communications, the parent company of Paytm. This new legal case raises questions about his suitability for such a role.

UpHealth Seeks to Enforce Award

UpHealth is expected to pursue enforcement of the arbitration award in Indian courts, potentially leading to asset seizure or other measures to recover the awarded damages.

A Cautionary Tale for Businesses

This case serves as a stark reminder of the importance of upholding contractual agreements. Businesses operating internationally, especially those engaging in mergers and acquisitions, should carefully consider potential disputes and ensure clear and enforceable arbitration clauses are included in their contracts. The high cost of breaching such agreements underscores the need for meticulous adherence to contractual obligations.

Looking Ahead: Unresolved Issues

While the arbitration court's ruling provides a significant victory for UpHealth, the full impact of the case remains to be seen. The enforceability of the award in India and M. Damodaran's ability to pay the penalty are issues to be monitored in the coming months.