SC verdict to refine family MoUs, say experts

The Supreme Court (SC) ruling that the family agreement between the Ambani brothers over sharing of gas could not override the government’s rights would have a far-reaching impact on such decisions within promoter families. 

Legal experts feel the SC clarification could lead to changes in listing agreements and corporate governance guidelines to ensure family memorandums of understanding (MoUs) are not in conflict with the shareholder or public good. 

H P Ranina, a Supreme Court advocate and Reserve Bank of India board member, says: “There is no problem with an MoU, as such; it has legal sanctity. While drawing an MoU, one should be careful about prevailing laws in the country. They will always supersede the MoU.” 

A senior legal advisor, close to the current imbroglio, says private treaties should be handled in the private domain. Once these come into the public domain, they may not be able to hold through. 

Manoj Kumar, senior partner of Delhi-based Hammurabi & Solomon, a corporate law firm, feels the two key points which all family MoUs should incorporate are, “the supremacy of the larger national interest of economic stability and the laws of the land”. 

Corporate lawyers say the “hardship clause” should be more explicit in family MoUs, to avoid litigation in case of future disputes among kin. 

“There should be specific mention about arbitration in the MoU. It can also be clearly spelt out that none of the parties will go to court and will sort out future issues between themselves,” said Subash Lakhotia, a Delhi-based specialist in succession planning. 

Experts also feel the verdict is significant from the corporate governance point of view. The importance of articulated succession planning is now being highlighted, says a leading legal expert close to the current developments. Several leading corporate groups, such as those of Godrej and GMR, have begun using the services of succession planning experts. 

“The SC observations point to the need for more disclosure on how promoters safeguard shareholder interests as well as national interest while framing their succession plans. The guiding framework on such MoUs should be built into the corporate governance system,” said Kumar. 

According to Peter Leach, a leading advisor to families and a best-selling author on this subject, “A clear strategy is required to manage family shareholder expectations and ensure that communication channels (e.g family councils and other governance structures) are open and effective.”