The recent BYJU’S battle between the company’s founders and its investors over the rights issue and corporate governance lapses is arguably the most high-profile tussle of its kind. But it’s just the latest one in a long line of such battles.
From Snapdeal vs SoftBank in 2017, to the major Flipkart sagas involving cofounder Sachin Bansal and Tiger Global in 2016, followers by the other cofounder Binny Bansal and his fallout with Walmart in 2018. And then there was Bhavish Aggarwal’s stand-off with SoftBank in 2019 regarding a possible Ola-Uber merger.
And now it’s the turn of WestBridge Ventures which is clashing with Shaadi.com’s founder over an alleged SHA clause violation, which grants the investor a mandatory exit from the company. WestBridge invested in Shaadi.com through the WestBridge Ventures II Holdings fund in 2006. Eighteen years later, the shareholders’ agreement between the two parties is at the centre of a legal dispute across national borders and jurisdictions.
The case was heard in the Singapore High Court, ICC Tribunal, Singapore Court of Appeal as well as being heard in Indian forums such as the Bombay High Court, NCLT, and NCLAT. Many say that this is a landmark case because it could influence future disputes as well, by:
- Determining jurisdiction areas for cases being heard in multiple countries
- Determining the extent of arbitration in legal disputes
- Enforceability of orders of various courts, and
- Legal remedies for corporate oppression in India,
Founded by Anupam Mittal and his brother Anand Mittal in 1997, Shaadi.com (People Interactive (India)) has been one of the most popular online matchmaking platform in India and many other countries including Pakistan, Bangladesh, and have its presence in other countries including UAE, UK, and US.
The company was heavily impacted during the Covid and after having registered profit of INR 8.5 Cr in FY21, it recorded a loss of INR 13.5 Cr in FY22. The company has not filed its FY23 financial statements yet, so we don’t know whether Shaadi.com has been able to get back in the black after March 2022.
Before we delve into the nitty-gritty of the case, let’s first set the context and understand the nature of the dispute between the two parties.
Anupam Mittal Vs WestBridge: The Story So Far
Back in 2006, Mauritius-based private equity fund WestBridge Ventures which has invested in over 150 companies in the last 20 years (with AUM in India having crossed $10 Bn), invested INR 166 Cr in Shaadi.com’s parent. As a result, both the investor and the company entered into a series of agreements, including:
- Shareholders’ Agreement (SHA)
- Share Subscription Agreement (SSA)
- Share Purchase Agreement (SPA)
- And, First Supplementary Subscription-Cum-Shareholders’ Agreement (SSSA) in 2008
According to the ASI petition copy filed in the Singapore High Court, clause 3.4 of the SHA granted WestBridge certain contractual rights, including exit rights by means of:
- An IPO within five years
- The sale of WestBridge’s shares to any independent third party, except a significant competitor
- Redemption and buyback options if an IPO is not held within five years
- Drag-along rights if People Interactive fails to buyback shares within 180 days of exercising the buyback option
Since 2017, the SHA’s clauses have led to a dispute between Mittal and WestBridge, and it escalated as Mittal failed to offer an amicable exit to WestBridge.
With the five-year obligation long overdue, WestBridge exercised its buyback option, mandating that the company convert its 1,000 Series A1 Preference Shares into 580,779 equity shares and buy back the said equity shares.
According to the audit report seen by Inc42, while the company completed the conversion of the preference shares into 580,779 equity shares and allotted them to WestBridge on December 22, 2020, it could not complete the buyback.
Shobhita Annie Mani, General Counsel, WestBridge was appointed nominee director in 2019.
Subsequently, WestBridge issued a drag-along notice to the founders on October 8, 2021. This incidentally mandates that the group liquidate the shares of the minority shareholders including the founder and either buy them or sell them to a direct competitor.
The Rise Of The Dispute
According to court filings, both parties had been fully committed to the agreement clauses until issues arose in 2017 when WestBridge entered talks with People Interactive competitor Info Edge to sell its shares.
It’s important to note that Info Edge runs another matchmaking platform Jeevansathi.com, which is a direct competitor to Shaadi.com. This is in compliance with the terms of the SHA, which say that if Shaadi.com fails to facilitate a buyback, the concerned investor is free to sell shares to anyone, including significant competitors.
The drag-along rights could potentially jeopardise Shaadi.com in a very detrimental way, as it opens the path for Info Edge to execute a takeover.
If Info Edge’s Jeevansathi.com were to acquire the majority shareholding, it would mark the end of the road for the founders and promoters of Shaadi.com.
According to Mittal’s petition at the NCLT, while Mittal holds a 30% stake in People Interactive (India), WestBridge controls 44.3% of the shareholding. In this case, enforcing drag-along rights would mean that Shaadi.com’s Mittal has to mandatorily sell his shares along with WestBridge.
For context, as per reports, BharatMatrimony.com has a market share of over 50-55% among matrimonial platforms, Shaadi.com has around 25-30%, and Jeevansathi.com holds about 10%.
Given the potential impact on Shaadi.com, Mittal filed a petition in the NCLT and refused to provide consent to the sale of WestBridge shares to Info Edge.
This initiated a legal battle between the two parties, spanning courts in two countries and involving at least half a dozen courts and quasi-judicial bodies.
How The Legal Battle Unfolded
In its submission to the Singapore High Court, WestBridge says that the SHA makes it clear that the contract is governed by the laws of India. Further, Arbitration Proceedings were stated to be as per International Chamber of Commerce Rules and the seat of arbitration shall be Singapore.
And, the enforcement of the award shall be subject to the provisions of Indian laws.
Since People Interactive failed to comply with the SHA, WestBridge approached the Singapore courts seeking a permanent injunction, which was eventually granted by both the Singapore High Court and the country’s Supreme Court.
In his submission to the Singapore courts, Mittal stated that disputes related to oppression and mismanagement are not arbitrable because the NCLT has exclusive jurisdiction to adjudicate these disputes. Mittal has alleged that WestBridge colluded with the other directors of the company with the intention to wrest control of the management of the day-to-day operations of the Company in a manner contrary to the interests of the Company.
Mittal further claimed that the disputes are contractual in nature as argued by WestBridge itself.
The disputes referred to the NCLT fall outside the scope of the arbitration agreement, Mittal argued, and said that the arbitration agreement would be unworkable and liable to be declared void under Indian law.
While both the Bombay High Court and the NCLT have not yet addressed the merits of corporate oppression and mismanagement, they granted Mittal interim relief from the injunction order based on these arguments.
Now, the NCLT is set to hear the case on October 30, and the NCLAT will hear it on September 18, 2024.
Understanding The Jurisdictional Issues
Multiple lawyers consulted by Inc42 believe that under Indian law, such disputes are not subject to arbitration, as the NCLT holds exclusive jurisdiction over them. However, under Singapore law, claims of oppression and mismanagement can be resolved through arbitration.
Aaushi Doshi, associate partner at IndiaLaw LLP, explained that Singapore law is governed by the ICC (International Chamber of Commerce), and the arbitration agreement was subject to Singapore law. The parties have not only chosen to arbitrate, but have also chosen “to arbitrate under Singapore law in Singapore” in accordance with the rules of the International Chamber of Commerce (“ICC”).
Therefore, it was within the jurisdiction of the Singapore court to consider claims of oppression through arbitration.
Doshi added that the Singapore court adopted a broader interpretation. While this broader interpretation was not expressly consented to, the arbitration clause itself serves as express consent, establishing Singapore as the jurisdiction according to the terms of the agreement.
The Singapore High Court noted that Mittal and other People Interactive directors violated a permanent anti-suit injunction issued by the court by starting proceedings with the NCLT, and then the Bombay High Court.
The court maintained that since Singapore law is the governing law, the disputes between the parties can be arbitrated under this law, and even if Indian law governed the arbitration agreement, the dispute would still fall within the scope of the arbitration agreement.
However, enforcing this would be complicated.
Piyush Agarwal, a partner at Acquilaw, explained that Indian law is clear on this matter. This arbitration itself is contrary to the public policy in India and hence it cannot be enforced, he added.
The NCLT has exclusive jurisdiction over these types of disputes, and no civil court has the authority to interfere in matters handled by the NCLT or the Appellate Tribunal (NCLAT).
Further, even if the Singapore Courts have imposed an anti-suit injunction against Mittal, the first issue is that the enforcement proceedings cannot be done in India which would be the case here, Agarwal told Inc42.
This is something that the Bombay High Court also observed, “a final award issued by the ICC Tribunal dealing with issues of corporate oppression cannot be enforced in India as such disputes are not capable of being arbitrated under Indian law, a recognised ground to resist enforcement of a foreign award under Section 48(2)(a) of the Indian Arbitration & Conciliation Act 1996.”
A Landmark Judgement For Startups And VCs?
The case judgments have sparked discussions across startup ecosystems in the US, UK, Australia, Singapore, China, and many other countries, highlighting the pros and cons of such situations and exploring the appropriate legal remedies.
An early-stage fund manager told Inc42, “This situation is quite typical for Indian startups, as very few go public within five years of funding. When this occurred, early-stage investors often had to wait 7-10 years to secure an exit. Fortunately, this has improved, with founders now better prepared to facilitate exits.”
In reviewing the case, there have been numerous instances where founders have failed to provide exits within the agreed timeline. However, such issues should ideally be resolved amicably, with both parties negotiating around the table.
The fund manager added that while WestBridge must adhere to its contracts with LPs, actions should not come at the expense of the company’s well-being. Unfortunately, the current case seems to have damaged the VC’s brand to a certain extent.
The case also presents how Singapore’s judiciary has simply gone by the arbitration agreement and imposed a fine of $100K on Mittal and other directors for disobeying their judgement while the Indian judiciary bodies including NCLT and Bombay High Court have looked at the merits of their argument. The ICC tribunal judgement could have a severe impact on Shaadi.com by relinquishing the control of the promoters, and the cases of oppression and mismanagement will no longer be heard in India if the anti-suit injunction order is adhered to.
While all eyes are now on the NCLAT which will look into the merits of the NCLT interim order, for startup founders and VCs, any adverse ruling could open a can of worms and a litany of litigations.
[Edited By Nikhil Subramaniam]
