Articles of disassociation: How can a company deal with divorce?

Vandana Shah is a divorce lawyer who practises in the Mumbai family court. She was once thrown out of her marital home in the middle of the night with just the clothes on her back. Let’s say she is someone who would know a thing or two about divorces. And she says it will set an “earth-shattering” precedent if Nawaz Modi Singhania were to get — as she has sought — 75 per cent per cent of her estranged husband Gautam Hari Singhania’s reported $1.4 billion net worth as alimony.

At present, Shah says, there is no fixed percentage in law for the quantum of the husband’s earnings the wife should get in case of divorce. “There is always ‘by and large’, but nothing is clear. Wives pretty much get the rough end of the stick in most cases,” she adds.

In the United States, the law says half of the combined assets belong to the wife in case of divorce.

On November 13, Singhania, chairperson and managing director of Raymond, announced separation from wife Nawaz, who is a non-executive, non-independent director in the company. Nawaz soon sought three-fourths of Singhania’s personal wealth for herself and their two daughters.

Singhania had earlier said that “in the interest of my two beautiful daughters, I would like to maintain my family’s dignity and I will refrain from offering any comment. Please respect my privacy”. Messages and calls to Nawaz were not returned. A Raymond spokesperson did not respond to repeated requests for comment.

Business case

The Singhania separation has been hogging the headlines, some of which have been less than savoury, with Nawaz having levelled allegations of physical assault. The settlement amount she seeks has popped more than a few eyes. But this is not the only high-profile separation to play out in public view in India.

Earlier this year, Sridhar Vembu, CEO of Zoho, dismissed a media report that made serious allegations about his treatment of his wife and their child. The couple was then in the midst of a divorce case in California and the article in Forbes magazine linked it to Vembu’s handling of the company’s ownership.

Vembu called the report “complete fiction” and a hit job. “There is absolutely no fraud of any kind on anyone. Casting aspersions on my siblings is a low grade hit job of the worst kind. I continue to financially support my former wife and son in the US,” he said, among other things, in a series of tweets on November 9. His wife, Pramila, could not be contacted.

Sunjay Kapur, chairman of Sona Group, and actress Karisma Kapoor parted ways after 13 years of marriage amid much acrimony and allegations.
 

It is not clear whether the associated businesses suffered in any of these instances. But Raymond appears to have. 

The saga has drawn considerable interest from the media and Nawaz happens to be a promoter-director on the board of Raymond. Since her allegations of abuse by Singhania and the subsequent declaration of separation by the husband, there has been a sharp decline in Raymond’s stock price, which endured its longest losing streak on record. It touched Rs 1,503 on November 30, compared to Rs 2,180 on September 6.

In a statement on December 1, the independent directors [IDs] said: “The independent directors, over the last few weeks, have been meeting and monitoring the situation so far as it affects the company and the minority shareholders... The IDs are alert to ensure that the matrimonial disputes between the two promoter directors do not in any manner affect the capacity of the chairman to manage the affairs and business of the company.”

Long haul

Reports suggest the lawyers representing Singhania and Nawaz are coming to the negotiating table. Shareholders are already in the wait-and-watch mode. Proxy advisory firms are advising them to remain vigilant.

“Minority shareholders will hope that there is no immediate impact on the company as it is a personal matter. However, if there is a court ruling on the division of wealth that includes promoter shareholding, there is likely to be a change in the board and management,” said Shriram Subramanian of inGovern.

But nothing is likely to happen in a hurry. Lawyers generally concur that the divorce proceedings could drag on for a long time and the best case would be an amicable, out-of-court settlement. One of the lawyers gave the example of a startup couple that split in 2021. The wife had 10 per cent equity with voting rights while the husband owned 57 per cent. The venture capitalists and other stakeholders pressured the husband to go for a quick, out-of-court settlement to speed things up and prevent the business from declining.

Vriddhi Pardasany, another divorce lawyer practising in the family court as well as the Bombay High Court, points out that though there is no fixed percentage for alimony in India, there are Supreme Court guidelines that say that the wife is entitled to approximately 25 per cent of the husband’s net income. “This usually ends up being a third or a fifth of his net income, changing with each matter on the sole discretion of the judge. 

But nowhere has it been 75 per cent, or even 50 per cent of the husband’s net worth. It is possible that such a high payout becomes possible in the  event of an out-of-court settlement,” she said.

What about prenuptial agreements, which are often spoken of with awe among western celebrities, corporate chieftains, and film stars?

Shah says prenups are not legally valid in India, since a marriage in the Indian law is not a contract; it is something sacred, a sacrament. Pardasany gives the example of another high-profile India Inc divorce she handled, where, like in the Singhania matter, the wife was a director on the board of the company but the settlement was amicable, since neither party wanted the details to become public or be dragged in a court.

Shah advises wives to have properties in their own name and do so before the marriage is solemnised. 

“Being financially independent is crucial. This spares women a lot of grief if the marriage, especially in large business families, breaks down.”