Union Minister of State for External Affairs Shashi Tharoor's partner, Sunanda Pushkar, has a deal with the Kochi IPL team which is the mother of all sweetheart deals — arguably unprecedented in corporate India, says an Indian Express report.
According to the joint venture agreement between the team's shareholders, a copy of which is with The Indian Express, the 25% sweat equity shared by Pushkar and others of Rendezvous Sports World is “undilutable in perpetuity.”
In other words, the value of Pushkar's stake — 19% of the 25% — now pegged at Rs 70 crore can keep rising without she ever investing a single rupee in the venture.
As IPL starts making big bucks, it will bring windfall profits for Rendezvous — the single largest block of shareholders — that will render management services to the team.
In contrast, the other shareholders of the Kochi Team — Anchor Earth, Parinee Developers, Film Waves Combines, Anand Shyam Estates & Developers and Vivek Venugopal — who hold the balance 75% and are the financiers, will have to keep infusing funds.
Typically, as business expands, more funds are needed to sustain operations. The JV agreement is such that even if existing shareholders (other than Rendezvous that has 25% sweat equity) keep pumping in funds to run the team or even if additional capital is brought in through issue of fresh shares to new investors, the sweat-equity holders continue to retain their stake intact at 25%.
However, the other shareholders' stake will diminish to the extent fresh shares are issued.
Further, the sweat equity holders can exit and encash their shares — sell their stake to a third party — after a lock-in period of just two years.
“This is unprecedented, ridiculous and unheard of,” said Nawshir Mirza, leading corporate governance expert who sits on the board of Tata Industries and Tata Power as an independent director. “Generally, such high percentage of sweat equity will be granted only over a couple of years.”
According to the Kochi agreement: “Investors (other than the sweat equity holders), jointly and severally, agree that at no point of time the equity contribution of Rendezvous shall fall below 25% notwithstanding infusion of additional funds...from time to time.”
The Rendezvous free equity is held by Kishan Gaikwad, Shailendra Gaikwad and Pushpa Gaikwad, Sunanda Pushkar, Puja Gulati, Jayant Kotalwar, Vishnu Prasad and Sundip Agarwal.
A chartered accountant, who is a whole-time director on the board of a company, globally respected for corporate governance standards, said, “I have not heard of it in my life. After the sweat equity is granted, value is deemed to have been received.”
According to him, there are two serious issues: One, though shares are issued in lieu of cash for the value the sweat equity holders are bringing to the table, it is considered as income in the hands of the sweat equity holder. So Pushkar has to file an income of Rs 70 crore in her tax returns.
Two, there is a bigger issue of propriety — being the partner of Tharoor, a person who holds public office, she has to justify the value of the management services she renders.
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