“Unraveling the pitfalls of a ‘one size fits all’ MOU approach through the alleged dispute in Kalyani Group’s holding. Key insights on MOU significance, definitive agreements, familial disputes, and litigation conduct. Learn from the case of Sugandha Hiremath and Jaidev Hiremath in the $2.5 billion Kalyani Group, emphasizing the importance of diligence, clarity, and adherence to MOU terms in family business matters. Discover crucial considerations for parties involved to avoid disputes and ensure enforceability.”
What transpires from a Memorandum of Understanding [MOU] that is not followed by a detailed and acquiesced definitive agreement or an MOU that is not acted upon by the Parties thereof can be well explained after studying the alleged claim of Ms. Sugandha Hiremath, daughter of Neelkanth Kalyani, founder of $2.5 billion Kalyani Group, and her husband Jaidev Hiremath over Kalyani Group’s holding in Hikal Ltd.1
Key takeaways from the aforementioned alleged dispute are as under:
1. A MOU is advisable to be followed by definitive agreements, especially in familial matters. If so, the MOU should be a pre-cursor to the proposed definitive agreements.
2. The definitive agreements must cover all the points contained in the MOU.
3. The parties to the MOU must concur with the definitive agreements to avoid any dispute in future. After such concurrence, the definitive agreements must be signed by all the parties to the MOU.
4. If the MOU comprise two or more separable transactions related to the parties to the MOU, then one need to check whether these two different transactions are interconnected with each other. If these two separable transactions are not interconnected, then each of such transaction should be treated as different transaction and the Parties to the MOU need to honour their respective obligations. Breach of any such separable transaction in the MOU cannot constitute a ground to challenge the validity or legality of the MOU.
5. The validity of the MOU can be questioned only on the ground that either of the parties are found to be of unsound mind, incompetent to contract and incapable of suing and being sued at the time of entering such contract. A party cannot challenge the validity of the MOU on the ground of breach of any underlying transaction in the MOU.
6. Clauses like severability, waiver, termination, survival in the MOU should be drafted considering such separable transactions, specifically in family business matters.
7. The complainant should come with cleaner hands in familial disputes.
8. In the event of litigation in such matters, the conduct of the parties following the execution of the MoU is also a pertinent factor in determining the enforceability of the MoU. If, either of the Parties do not act in accordance with the terms of the MOU, then such act can be construed as their breach of the MOU or the definitive agreements. In Jyoti Brothers Shree Durga Mining Co. AIR 1956, the Calcutta High Court held that the Court would rely upon the degree to which such understanding is signed between the parties and whether any of them has acted in reliance on such understanding. Similarly, the Supreme Court held in Jai Beverages Pvt. Ltd. v. State of Jammu and Kashmir and Ors. [2006 (4) SCJ 401]that if the conditions of the Memorandum of Understanding are therefore complied with, the parties to the MoU will receive the profit resulting from the MoU. This leads to the conclusion that binding nature of the parties to the MOU is dependent on the intention of the parties, language used and the nature of the agreement.
9. The parties need to be vigilant about their rights, duties, and obligations in the MOU. Any silence by either of the Parties can be construed as acceptance of the status quo of the transaction at the time of entering such transaction. Any challenge at a later stage to the status quo of the transaction will not hold water in the event of any litigation in such transaction. A party cannot escape from its responsibilities by keeping mum at the time of agreeing to such clauses in the MOU.
10. Any issue relating to title or claim on the underlying property or security should be brought to the notice of all concerned parties within the prescribed limitation period.
11. Despite taking all the above precautions, if a party wants to rake up dispute, such party may raise disputes and create a longstanding bitterness by finding gaps and loopholes in the MOU.
The above article is written by Nilesh Javkar – Senior Manger at MMJC!
1Source: Mint Article titled ‘A familial Dispute, Forged in the Past’ dated 9.5.2023.
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