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Breakup with older investors haunts Matrimony IPO


Matrimony.com, which runs match-making portals such as Bharatmatrimony, mentioned in its IPO papers earlier last week that its net profit for fiscal 2014, and fiscal 2015 were hit because of defending the company, its promoter and investors from a pending litigation in Desai et al. v. Infonauts, IncThe legal costs in FY 15 were Rs 14.18 crore and Rs 18.90 crore in FY14.

The case, which is being fought in both New Jersey and Chennai, may end up fouling Matrimony’s plans and could also see the company lose its stake to US-based software company, Real Soft Incorporated. Details from the case:

Allegations against Matrimony

– On May 13, 2011, Rajan Desai and Real Soft Inc (plaintiffs in the US) filed a lawsuit against Infonauts, a wholly owned corporation of Matrimony CEO and promoter Murugavel Janakiraman, Bharatmatrimony.com, the board of directors of Bharatmatrimony.com in the Superior Court of New Jersey, Mercer County. The lawsuit alleged that that the Matrimony is orchestrating an IPO for the purpose of diluting or extinguishing the US plaintiffs’ equity interest in Bharatmatrimony.

– The plaintiffs also allege that according to the terms and conditions of a term sheet dated March 3, 2001 signed by Infonauts, Desai and Real Soft Inc say that they were entitled to receive a 10% equity interest in Bharatmatrimony. They also add that they were entitled to additional equity interest in Bharatmatrimony in the event that the company failed to reach monthly revenue or total profit target (it is unclear which) of  $75,000 by April 15, 2002.

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– Infonauts received two checks, for $50,000 each, from the US Plaintiffs and repaid $102,000 to the US Plaintiffs, which they allege is less than what they are owed.

– The plaintiffs also say, that in order to dilute their  interest, the ownership of Bharatmatrimony was transferred to India and subsequently, certain assets were siphoned away in order to defraud them. They added that, to frustrate their ability to enforce their legal rights, Consim USA was incorporated in New Jersey, and the entire business of Infonauts was transferred to Consim USA. Readers need to note that Consim USA and Infonauts are subsidiaries of Matrimony now. 

Matrimony’s counter arguments

– Matrimony argues that the term sheet was entered into between Infonauts and one of the US Plaintiffs, and the company was not even in existence on the date of the term sheet.

– Matrimony also argued that the term sheet expressly states that binding commitments with respect to equity would arise only when the parties enter into a definitive, separate “Purchase of Equity” agreement. The parties did not enter into any such definitive agreements or “Purchase of Equity” agreement. 

– The company has also argued that New Jersey courts lack jurisdiction over Matrimony, as it is incorporated and resides in India. Matrimony also says that it has a number anti-suit injunctions granted by the Madras High Court, as a matter of comity, the New Jersey court should defer to the Madras High Court proceedings.

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Offer to settle

Matrimony also rejected an offer to settle with Rajan Desai and Realsoft Incorporated on June 18 , 2015 for $20 million. From the DRHP:

On June 18, 2015, the US Plaintiffs also filed an offer of judgment with the Superior Court of New Jersey for a monetary judgment in the amount of US$ 20.00 million which is inclusive of counsel fees and costs. Under New Jersey law, an offer of judgment is a device whereby one party to a lawsuit makes a formal proposal for judgment to be entered in a specified amount. New Jersey law also provides that an offer of judgment is ineffective where the plaintiff seeks relief that is not exclusively monetary in nature. Since the US Plaintiffs are seeking other forms of relief, including specific performance and a constructive trust, the US Plaintiffs’ offer of judgment appears to be ineffective. The Company has not accepted the US Plaintiffs’ offer of judgment.

Also read: Matrimony.com IPO lowdown: Rs 242.85 cr revenues in FY15; 647,000 paid subs, 44% registrations via mobile

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