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Shroff vs Shroff decrypted & uploaded: 2 opposing sides, 4 key questions, 4 fascinating documents

Two sides to every story
Two sides to every story
It might lead to the break up of India’s largest law firm, but Shroff vs Shroff doesn’t have to be complicated anymore.

We’ve distilled it down for you and exclusively share the most important court documents to date below.

Quadruple crux

Other than the long and tumultuous history between the brothers and Amarchand Mangaldas co-managing partners Cyril and Shardul Shroff, there are four main bones of contention between them in their current legal dispute over the will of their late mother, Bharati Shroff, that hit the Bombay high court last week.

  1. Can the family framework agreement (FFA) & partnership deed override the mother’s will?
  2. Is the holographic will valid? And what of the codicil executed by Bharati at the Mumbai Deutsche Bank branch in January 2014?
  3. Was an offer by Shardul to share the equity rejected by Cyril?
  4. Did the management committee (MC) intermeddle?

If you want to do your own analysis, do feel free to skip to the bottom to view the plaint and legal opinions.

1. Can the family agreement & partnership deed override the mother’s will?

This is really the most important legal point that will affect the law firm Amarchand Mangaldas in particular: will the brothers share equally their mother’s 22.5 per cent stake in the firm Amarchand & Mangaldas & Hiralal Shroff & Co (52,000 units), or will Shardul hold all those units after their mother apparently completely disinherited Cyril?

Also at stake are the mother’s shares in Amarchand Tower Property Holdings Pvt Ltd (ATP), which holds the firm’s Delhi office.

The family, including Shardul, Cyril and Bharati Shroff, on 26 March 2001 entered a family framework agreement (FFA) to govern the families’ commercial relationship, at the same time as a new partnership deed was being created under Boston Consulting Group’s first restructuring of Amarchand Mangaldas.

1a. Shardul: FFA was legally FA, therefore will prevails

According to the plaint Shardul filed with the Bombay high court, the FFA was premised upon:

unanimity among the Shroff family partners and all members were mandated to speak with one voice and only through the senior-most member i.e. the Deceased while she was alive, thereafter only through the Plaintiff [Shardul] and after the Plaintiff was no more, through Defendant No.1 [Cyril].

On top of that, according to Shardul’s plaint, the FFA was never binding due to repeated breaches of the agreement by Cyril, details of which Shardul does not specify in his plaint:

Unfortunately, the principle of unanimity was breached from inception. Similarly, various other terms were breached. The family’s intent recorded by the FFA was never implemented / followed through. Further, from inception Defendant No 1 repeatedly breached the terms of the FFA. Under the circumstances, the FFA was given a go by pursuant to the several breaches and was never implemented and was thus of no legal effect.

Shardul does note that the partnership deed expressly provides that on the death of a family member partner, their share would “devolve in accordance with certain inter se arrangements as per the FFA”.

However, he adds that “since the FFA was never implemented and continuously breached and of no legal efficacy the Partnership Share, which is coupled with the ownership interest, devolves in accordance with the Testamentary Dispositions”.

1b. Cyril & MC: FFA robust, backed by deed & overrides will

A legal opinion dated 14 October from senior counsel Virag Tulzapurkar, which was one of the annexures to Shardul’s Bombay high court plaint, was relied on and commissioned by the management committee (MC) to clarify several legal points.

In particular, the MC wanted answered whether it was bound by Bharati’s will in respect of her stake in the firm.

In contrast to Shardul’s main interpretation in his plaint, according to the background information supplied for the opinion, the FFA contained in its recitals as an overriding principle that the family and “its conduct in the firm” should establish “harmony and equality, and deprecates disharmony, inequality and competition among the members of the family”.

Other clauses specified that the share of Bharati should devolve equally between the brothers to “eliminate any unhealthy atmosphere within the Shroff family” and expressly provided that in the case of Bharati’s death or retirement, Shardul and Cyril would get her shares equally.

Citing several Supreme Court cases on the enforceability of family arrangements, the senior counsel wrote that “courts lean in favour of upholding a family arrangement”, and concluded that on Bharati’s death her units in the firm would therefore be immediately and automatically cancelled, notwitstanding “anything to the contrary in any Will”.

The management committee could in effect ignore the will and the units in the firm were “excluded from any testamentary disposition” she could make, wrote Tulzapurkar.

He also added that courts “lean in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds and, even if they suffer from a legal lacunae or a formal defect, the rule of estoppel is applied to prevent an unsettling of the agreement”, citing paragraph 11 of Hansa Industries Pvt Ltd & Ors v Kidarsons Industries (SC 2006), as well as Kale & Ors v the Dy Director of Consolidation & Ors (1976 SC), Hari Shankar Singania & Ors v Gauri Hari Singania & Ors (2006 SC).

Cyril also requested a legal opinion from senior counsel Abhishek Manu Singhvi, which substantially follows Tulzapurkar’s reasoning.

Tulzapurkar in paragraph 8 also noted that the draft partnership deed dated 5 July 2013, created as part of the BCG 3.0 review, specified in detail that in the event of Bharati’s death, her units would be cancelled with equal equivalent units issued to each side of the family, giving power to the management committee to effect this.

Although the 2013 partnership deed, as many others, was never executed, Tulzapurkar found that it was nevertheless binding because it was “mutually accepted by all parties” and has been “effectuated and acted upon”.

2. Is the will valid?

In some ways, challenging the holographic will and the codicil executed by Bharati at the Mumbai Deutsche Bank branch in January 2014, could end up being more of a private side show between the brothers if the first question is settled.

However, the threat of holding a grant of probate and a Rs 680 crore inheritance hostage to decades of legal challenges will be a strategic asset to the Mumbai side.

2a. Shardul: The will is valid & strong

Shardul’s plaint goes through great lengths to establish that the will is genuine and sufficiently evidenced, swearing that before his mother’s death on 24 August 2014, the terms of her will were neither known to him nor his brother, until after the sealed bag containing her will was opened on 9 September 2014.

According to an email cited by Shardul, Cyril wrote that he was “happy that you [Shardul] are dealing with all this sensibly. I don’t think it’s necessary for you to carry the bag to Mumbai. I suggest you call [James Abraham] or Vikram [Bhalla from BCG] and let them present. And then you send me copies in sealed cover”.

Shardul wrote in his plaint that after that email, on 9 September between 8 and 9pm, James Abraham opened the sealed bag, made two copies of the will and codicil, re-sealed the bag and sealed the copies for each of the brother in separate envelopes. “The entire process was video recorded and photographed,” writes Shardul in paragraph 16 of the plaint.

Shardul then hand-delivered his brother’s copies to Mumbai on 10 September in the sealed envelope.

Shardul’s counsel, P Chidambaram, read out large portions of the will in open court, containing allegations of neglect of Bharati by Cyril and his family.

Shardul told the Economic Times on Friday in an interview that he had not influenced his mother’s will.

2b. Cyril: Shardul exerted undue influence

In paragraph 21b of the plaint, Shardul recounts that around 9 October, Cyril in email correspondence “contended (among other things) that the Deceased’s mental capacities were impaired undue influence had been exerted by [Shardul] on the Deceased, the Testamentary Dispositions were invalid”.

Cyril’s counsel in the Bombay high court, Iqbal Chagla, repeated the allegation in open court, vowing that Cyril would file an affidavit proving that Shardul was “deeply involved” in the making of Bharati’s will.

What’s in a unit?

Under the second BCG restructuring in 2008 codenamed “Project Moses”, the firm’s equity was divided into units, rather than percentages. Each unit within a class represents an fixed share of the firm’s profits with certain privileges and partnership obligations.

Class A units have the most privileges and protections, and can only ever be held by existing Shroff family members and their direct descendants.

B units (now known as L units) are available to non-family equity partners, such as S Bhojani, L Viswanathan and Gunjan Shah, including partners who married into the family. (The B class was originally created under the first BCG review in 2001 for the benefit of the Bharucha family when they were Amarchand partners. Under BCG’s 2008, this was widened to include simply any non-family partner, following the Bharuchas setting up Bharucha & Co, which is now advising Shardul Shroff in the current dispute).

Class C units are allocated for the firm’s non-equity partners.

3. Was an offer by Shardul to share equity rejected by Cyril?

This is less of a legal issue and more of a problem of perception and PR, which seemed to have been primarily raked up after an interview by Shardul last week with the Economic Times.

However, this does touch upon legal issues surrounding the FFA and the inheritance.

3a. Shardul offers half of equity, with strings

As argued in court and in the plaint, on 20 September 2014, Shardul offered Cyril 50 per cent of their late mother’s 52,000 units in the family partnership, on two conditions:

  1. The capital value of those units – approximately Rs 3.7 crore for 26,000 units that Bharati held – should be paid into the mother’s charitable trust, of which Shardul was the trustee, in accordance with the will.
  2. The Mumbai Shroffs should issue a non-objection certificate that they would accept the will and not contest it.

In an interview on Friday, Shardul told the Economic Times that he had offered his brother a 50 per cent stake voluntarily “despite my mother’s will” that had bequeathed everything to Shardul. Shardul wrote to Cyril, according to the ET:

My proposal has nothing to do with Mummy's estate and concerned acquiring 50% of her share and sole motive was to keep the firm, such as it is, intact notwithstanding the constant stresses. Since you have not accepted the offer made on September 19 and it is causing confusion, I am withdrawing the offer before its acceptance by you

3b. Cyril & family: Offer dodgy because question marks over family deity & house

According to sources, the Mumbai Shroffs were opposed to Shardul’s September offer primarily because there were several provisions of the will they felt conflicted with provisions of a family framework agreement (FFA) executed between family members during Bharati’s lifetime.

In a follow-up article on Saturday citing sources close to Mumbai, the Economic Times, wrote that this offer was withdrawn on 9 October by Shardul after Cyril had asked to understand the “financing implications” of the offer. It is understood, according to several sources, that “financing implications” include several points other than issues surrounding the late mother’s equity in the firm.

For instance, while the codicil to the will specified that all of Bharati’s possessions, including her shares in the firm, should be given to Shardul, the family agreement is believed to have stated that an heirloom statue of the family deity, which had been in the family for around 80 years, should be kept in the four-storey Mumbai family home called Roopam, where Cyril and his side of the family lived with the late mother.

Furthermore, while Bharati owned one-third of the first floor of Worli-based Roopam, Cyril owned the ground and second floor entirely, and bequeathing one-third of a floor to Shardul was considered impractical and contrary to the family agreement by the Mumbai family.

Finally, the Mumbai family disagreed that the equity stake of Bharati could be bequeathed at all, since her partnership units were automatically cancelled upon her death under the FFA (as explained above (1b)).

The other parts of the mother’s estate, which is believed to be valued at around Rs 680 crore by Shardul as executor, including mutual funds, bungalows in Lonavla and Delhi, jewellery, four cars and her stake in the Delhi office property, are not contested by the Mumbai side of the family on legal principle, according to sources with knowledge of their case.

4. Did the management committee (MC) intermeddle?

An email on 10 November from independent management committee (MC) members James Abraham and George Goulding to the two brothers and fellow MC members and Amarchand equity partners L Viswanathan (Mumbai), Gunjan Shah (Delhi) and S Bhojani (Mumbai) stated that:

uncertainty over the ownership of the interests in the firm of the late Mrs Shroff (‘BSS’) is endangering the future of the firm and its partners and staff. We are running the risk of media attention.

It is in our view imperative to remove this uncertainty from the firm now, and that any discussion over the estate of BSS should be on matters outside the firm. The firm interests cannot in our view be treated as part of the estate and only the funds realizable on return of the capital and undistributed profits should be part of the estate.

On 16 October, the management committee (MC) then decided that the mother’s units should be cancelled, with 26,000 new Class A units (see box) issued to each side of the family after receiving the capital contribution into the firm.

Apart from Mumbai-based equity partner Bhojani, who is not a co-defendant named by Shardul, the MC’s equity partners appear firmly split along Delhi and Mumbai lines in terms of their stance on the issue.

4a. Shardul says MC meddled

Shardul claims in his plaint that he soon realised that the independent MC members, James Abraham and George Goulding (respectively former senior members of BCG and Slaughter and May), were “complicit with” Cyril, his wife Vandana and the firm’s CFO, Ashwin Maheshwari, and that the six defendants “acted in concert and with premeditiation” to “intermeddle with the estate” and “then to lend a facade of legitimacy thereafter and present the Plaintiff a fait accompli”.

He also claims that the MC intermeddled with the estate by purporting to cancel Bharati’s units, and making the firm issue 26,000 new units to Cyril and Vandana, as well as by splitting the capital in Amarchand Towers Properties Holding Pvt Ltd.

In the management committee, Delhi equity partner Gunjan Shah sided with Shardul, according to an 11 November email cited by Shardul, disagreeing with the majority’s proposals.

4b. MC majority (& Cyril) say nay

Relying on the legal opinion by senior counsel Virag Tulzapurkar that they commissioned (see 1b above), Goulding and Abraham wrote that the discussion relating to the will was “no concern of ours” or of the MC.

They reiterated that continuing “equality between the two branches of the Shroff family” were the only outcome acceptable to both branches “because of the many written and oral references to equality in the partnership and other documents and oral discussions”.

Mumbai equity partner and MC member L Viswanathan wrote on 12 November, circulating Tulzapurkar’s legal opinion to the MC and facing letters from Shardul and his counsel Bharucha & Co addressed to the Amarchand partnership at large, that the “voting record speaks for itself” and that the actions of 16 October to cancel the mother’s units were “taken in the best interest of the firm after taking independent legal opinion”.

Viswanathan added that he expected the dispute between the brothers to get resolved amicably,“it is a reality that the firm is more than the family as there are interest of the other partners, the staff and more importantly the client community”, so each MC member and the firm should take independent legal advice.

Anything still unclear in Shroff vs Shroff? Let us know in the comments and we’ll try to clear it up.

The PDF documents

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