In a major relief to US private equity (PE) firm Matrix Partners, the Bombay high court has upheld an arbitration tribunal order against its portfolio company Maharana Infrastructure and Professional Services Ltd (MIPS) to deposit ₹190 crore with the arbitrator or to provide a bank guarantee until a final award is passed.
Matrix Partners India Investment Holdings LLC and Resurgence PE Investments Ltd (previously known as Avigo PE Investments Ltd) approached the arbitration tribunal to recover their money from the Kanpur-based MIPS, which offers services related to infrastructure development and consultancy for educational institutions. Subsequently, the tribunal had directed MIPS, its promoters Shailendra Bhadauria and affiliate societies of MIPS to deposit the ₹190 crore, after finding discrepancies in their accounts. However, MIPS challenged the tribunal's ruling in Bombay high court.
Bombay HC justice B.P. Colabawalla observed: “Tribunal categorically records that despite all these serious allegations, apart from a bare denial and characterization of the PWC report as bogus and one-sided, there was no serious attempt made to meet these serious allegations. The respondents were given a fair opportunity to deal with the said report and make their submissions thereon. However, the respondents chose not to respond to the same.”
The story begins in 2011 when Palo Alto-based Matrix Partners-whose portfolio now includes Ola and Quikr-invested ₹50 crore in MIPS, which offers services related to infrastructure development and consultancy for educational institutions.
A couple of years later, Matrix and Resurgence PE invested ₹140 crore more in the firm. According to their agreement, the firm will help the PE exit through a put option. A put option is a financial instrument that gives the owner the right to sell assets at an agreed price on or before a particular date. However, the exit did not materialize as planned. The funds say MIPS refused to honour this part of the deal, forcing them to move court.
In Bombay HC documents filed in 2017, the funds alleged MIPS had diverted ₹277 crore to four subsidiaries and affiliates-Maharana Construction Pvt. Ltd, Maharana Pratap Education Centre, Sakshi Institute of Technology and Management and Mair Rajput Educational Society. The court asked MIPS promoters to show assets and means to satisfy the put option, along with the source of funds.
MIPS as well as investors, however, moved the Supreme Court, claiming its investment deal with PE funds had the option of arbitration, which had to be attempted first. Both parties then agreed to resolve the matter through arbitration, and Justice B.N. Srikrishna was appointed the sole arbitrator.
However, with the firm failing to deposit the same, the investors moved the high court for executing the tribunal award as well as to take legal action against the company.
Email queries to Matrix Partners and MIPS remained unanswered till press time.
When contacted, Nitesh Jain, a partner at Law firms Shardul Amarchand Mangaldas and Co., which is representing Matrix and Resurgence PE confirmed the order was passed, but declined to divulge details since the matter is sub judice.