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.
- Can the family framework agreement (FFA) & partnership deed override the mother’s will?
- Is the holographic will valid? And what of the codicil executed by Bharati at the Mumbai Deutsche Bank branch in January 2014?
- Was an offer by Shardul to share the equity rejected by Cyril?
- 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:
- 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.
- 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.
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If they are willing to pass on this huge amount one wonders what the complete amount in dispute would be?
And Please guide us on one thing. Is it appropriate to join AMSS at this point?
1. In a legal market where most law firms and equity are run like opaque black boxes, getting a glimpse into the inside workings of a partnership is fascinating.
2. AMSS is the biggest firm in India - people pretty much always care about what happens happens at AMSS.
3. There's a human element and personalities involved (read massala), which obviously holds enough fascination for the MSM to also be interested.
Is it appropriate to join Amarchand?
Personal opinion, whatever happens, even worst case scenario and they break up, both halves would probably continue being among the biggest and top firms in India. I also don't think they'd significantly change their policies such as fresher pay and so on.
And in truth, the opportunities in a smaller Amarchand with new offices to build in top markets like Mumbai, Delhi and Bangalore, could create greater opportunities for new joiners (and existing partners).
It could very well be that both sides of the firm would pursue a 1,000 lawyer / Rs 1,000 crore revenue target independently going forward, which is what some competitors are worried about...
So yeah, at the end of the day, it's your call. If you were keen on joining them a year ago, I don't think so much has changed though now, more than ever, you probably need to pick sides between Delhi and Mumbai.
Well i was never in favour of going to Mumbai office.
I hope shardul gets his bigger chunk :p
Don't worry brother cyril will also get something hahaha
You proved that you are indeed a "fresh law product"! If you do see yourself at AMSS (Delhi or Mumbai), one thing which you do need is "Grow up".
I think you need to grow up
I back the step to separate the two. Finally, the annoying friggen charade ends.
Thank Heavens. Now we can all get back to work.
Not really sure, if he ever wanted to have anything/ any kind of settlement with Cyril.
To say that he was not aware of the contents of the will..... Well if that was the case, why videograph the opening of the sealed envelope?
Porsche was once a family run firm, with rising competition, the family realized hey would go turtle unless they turn professional.
The concept of family run law firms will last one generation more at max. The sooner these guys realize this the better. Else they die a slow death.
For someone to go to a lawyer, just so his family in in law, those days are numbered.
www.legallyindia.com/201411185322/Law-firms/shroff-v-shroff-in-bombay-hc-live
According to Shardul's statement to ET, he also offered 50% of the ATP share to Cyril, yes, with the same strings attached.
Or did the Delhi side provide it to you:)?
That's how things are normally done in firms with more than 20 partners anyway but some of the above could be speculation...
Each partnership has their own profit pool, etc, and a quasi-top-co partnership (such as Hiralal), whose partners are also partners in each of the 'subsidiaries', can be used to share surplus profits from one partnership amongst the other partners.
Anyone got any thoughts on whether that's a workable model? Disentanging it would obviously be messy and brand name and all the rest of it would have to be agreed on in mediation or so - at least I doubt that the FFA and Deed contain detailed provisions on how to dismantle the firm...?
do the brothers want to (financially) settle the issues concerning stake in firm and property company and continue together?
If yes: then both brothers to get equal allocation of stake in firm/property company without having to pay for them and resolve crossholding of property as per location being basis of devolving. Subject to property being divided as earlier, Financial assets of Bharati Shroff go to Shardul. Both swallow the adverse publicity and make up And project unified front (- those that took sides, watch-out!)
charities (to which payment from both the brothers) to get something from both brothers, from their personal and private sources. Charities to be overseen by both brothers.
If not: then one brother - Cyril to pay into the charities, and the other doesn't. In such situation, the charities still to be overseen by both the brothers.
This situation also leads to division of Amarchand & split up of the firms and inter-connectedness. Private settlement among brothers to ensure Mumbai house exclusively Cyril's and property company exclusively Shardul's.
No non-compete and co-sharing of brand provided both maintain independence (ie don't tieup exclusively with any one foreign firm). Financial settlement to address joint investments or payouts pending.
Partnerships rejiggered to give each brother his set of firms where the family stakes go up and ability to provide non-family members with further equity available.
If you were the mediator, what would you do?
1) Are plaints and exhibits open for anyone to view?
2) Was the will registered (and therefore open for anyone to get a certified copy from the registrar)? Even if not, once a probate application has been filed, would it not in theory be open for anyone to view, considering that it is an in rem proceeding?
3) Would the written reply be open for public viewing?
4) Are the partnership deeds registered?
I am trying to get a sense of the risk that a litigating family takes in terms of public exposure when they take family disputes to court.
Thanks!
1) first framework agreement was amongst family members. if the family does not come to a settlement on it they can arbitrate, and if no settlement reached even then they can go to court. This is if there is no will. Unless the partnership deed provides so or the FFA gives it the power from where does the MC get the power to intermeddle on succession.
2)We all know the worth of legal opinions. It is the firm which drafts it while the counsel signs on the dotted line if there is even a bare arguable case. Mr. Singhvi signing on an opinion which is a reproduction of the previous one lets the cat out of the bag.
3)a draft contract can be said to reflect the will of the parties and an agreement in force only if the parties have acted on it and there was nothing to show that they disagreed with terms. They could not execute it only because of the time constraints or disagreement on some minor boilerplate clauses. The will shows it was not signed because the most important possible signatory had different ideas.
Also MC emails make it clear that split was already and conclusively thought out by MC and that is where it is heading....#what-goes-up-must-come-down? #RIPAMSS
"If you can't work with your brother, be rest assured that you cannot work with others"
www.business-standard.com/article/companies/40-years-ago-and-now-birlas-a-family-that-hit-the-headlines-over-a-will-114112600002_1.html
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