Mumbai: The Bombay High Court on Wednesday appointed retired justice SJ Kathawalla as the sole arbitrator in a dispute between Max Healthcare Institute and Care Hospitals and the latter’s owner Evercare Group, which belongs to private equity giant TPG, to decide upon all disputes between the parties.

The arbitrator will have to decide on the interim relief within the next 15 days. This move comes even after Care’s counsel Darius Khambata, appearing for Touch Healthcare — one of the respondents in the case — argued that Care/TPG has already entered into a share purchase agreement (SPA) with a third party that’s a reputed global investor. Even though he did not explicitly name Blackstone, the world’s largest PE fund has been the other serious contender in the takeover battle.

On Tuesday, Max Healthcare, in a stock exchange filing, said that it had approached the court against Touch Healthcare Pvt Ltd, Quality Care India Ltd and Evercare Group Management Ltd. Quality Care is the company that operates Care Hospitals, while Touch Healthcare and Evercare are part of US-headquartered fund TPG.

Section 17 Proceedings
“Considering the exigency and request made out by senior counsel Janak Dwarkadas, the learned sole arbitrator is requested by the court to dispose of the Section 17 proceedings within a period of two weeks from today,” observed the court. Dwarkadas is Max Healthcare’s counsel.

Under Section 17, the arbitration tribunal has the power to pass any interim order to protect the assets under dispute, while the proceedings are still going on.

Max Healthcare Institute, one of the leading hospital chains based in North India, had approached the court citing breach of term sheet clauses, contractual rights and dishonouring a commercial agreement it had signed with Evercare and Care Hospitals in March to acquire the hospital chain.

“Both parties have agreed to refer all their disputes for adjudication to the sole arbitrator and have urged the court to appoint the sole arbitrator to adjudicate all disputes between parties emanating from the term sheet dated March 16, 2023, including the issue of jurisdiction,” justice Milind Jadhav said in his order.

The court has, however, clarified that it has not gone into the merits of the matter and all contentions of the parties are expressly kept open to be decided by the arbitration tribunal.

Before the court’s order, Dwarkadas and Vyapak Desai of the law firm Nishith Desai Associates argued on behalf of Max Healthcare that there was a binding term sheet and it contained a clause of exclusivity. “Our prayer is just to maintain a status quo till the arbitration tribunal passes its order,” argued the counsels.

Max, TPG and Blackstone declined to comment.

Term Sheet Turbulence
At the centre of the dispute is a non-binding term sheet. Sources close to Max claim it entered into deal exclusivity for bilateral negotiations late March, as reported by ET April 21. As per the terms of the agreement, Max has already given a non-binding offer to TPG within the stipulated six-week window for a buyout, said people in the know. The Max offer — a structured agreement with an option on the Bangladesh assets after two years — valued Care Hospitals at Rs 3,700 crore, excluding Bangladesh assets. Max wanted to run the Bangladesh operations for two years before making an offer to buy it.

Sources close to TPG, however, counter this by claiming that on March 1 both Max and Evercare did enter into a non-binding agreement in which a number was quoted by the hospital chain. But, they say, no firm offer came from Max within the stipulated period of one month. On April 10, Max furnished a revised offer that was lower than the original one. “By then the exclusivity had lapsed and no SPA was signed,” said an executive aware of the matter.

Max argues the numbers have changed since Care’s financials dipped and the agreement clearly stipulated that any changes in ebitda, compliance or regulatory issues will get captured accordingly. But the decision to take legal recourse was made as Max felt its offer had been shopped around. Blackstone, the world’s largest PE fund, re-engaged with TPG after going cold last year on valuation differences. Blackstone’s counter offer is believed to have trumped the Max bid by at least 15-20% and TPG and Blackstone are believed to have signed a binding agreement. Max has been citing a legal clause known as “specific performance”, which puts the onus on Evercare-TPG to specify why it is not honouring an agreement.

Among the largest hospital chains in India, Care Hospitals has a predominantly South India footprint with more than 2,400 beds offering 30 clinical specialties in six Indian states and Bangladesh. It has two hospitals in Dhaka with 1,000 beds.