During my career spanning over a couple decades, I’ve come across several carelessly drafted legal documents. It takes painfully close combing and sanitizing to weed out the malcontent and a pair of wide open eyes to build in seemingly innocuous omissions before presenting a clean set of documents for clients to sign on. Often on my way back home after such clean up efforts, I meditate over its outcome had the slip up gone undetected. But then it takes a callous client to sign a document before it’s sufficiently vetted.
Here we have one such outcome. SET India, (of which SONY Japan is a 61% majority holder) which operates channels like Sony, MAX, SAB TV and AXN, recently asked its minority shareholders (32%) to infuse fresh equity of $40 million (Rs 156 crore), which they turned down. Now they are considering suing SET India terming the capital call illegal. The capital is to finance SET’s commitments to the upcoming Indian Premier League tournament, for which the company has won the broadcasting rights with another agency.
I say this is the silliest of omissions on the part of minority shareholders. Silly because, they got into bed with a monster not expecting to get screwed. This is normally the route taken by majority shareholders to buyout minority holders on the cheap. This is precisely why in most JV agreements, you’ll find a clause that mandates unanimous shareholder approval BEFORE critical decisions are taken on proposals for major new investments. There will also be mitigating covenants like “all dissenting shareholder(s) be protected by a call/put option at pre-agreed premia or should be exempted from participating in the fresh round [with] or [without] anti-dilution guarantee or that a new class of shares be issued to raise fresh funds without altering the rights/status of dissenters”.
In this agreement between SET India and its minority shareholders, I suspect inadvertence. They will go thro legal hell. Deservedly.