In 2011, a year after an IPO that was over-subscribed 13 times, Vikram Akula was forced out of SKS Microfinance after the Andhra Pradesh government and RBI stepped in following reports of intimidation of borrowers. Two years later, records of Mauritius firm Conyers Dill & Pearman show, shareholders of SKS Microfinance argued over how to split their holdings.1
Records investigated by The Indian Express show that at the heart of the dispute was Mauritius-based Tejas Ventures that held 17.6 lakh shares of SKS Microfinance. Sequoia Capital, Westbridge Ventures and Tejas Capital (an entity set up by Akula) held shares in Tejas Ventures. In October 2013, these shareholders proposed to distribute stocks of SKS Microfinance held by Tejas Ventures to each of its shareholders. Citing precedent, Sequoia’s stand was that the proceeds need to be distributed in the ratio of their shareholding which should include various contributions made — like expenses on operational vendors. Westbridge said that the proceeds need to be distributed in the ratio of shareholding as was done at the time of initial subscription towards purchase of shares of SKS Microfinance by Tejas Ventures.
In essence, Sequoia wanted its operational expenses to be treated as capital contributions which, in turn, would increase its share during the distribution. But Westbridge contested this saying this would reduce its shares by as much as 7,000. It argued that subsequent contributions from shareholders were made to meet expenses of Tejas Ventures and as per the constitution of the company, this cannot be used as a basis to change the quantum of shareholding as Sequoia wanted.
Records show that Conyers, acting as a legal advisor to Sequoia in Mauritius, told Sequoia that the constitution could be amended as a way out. This was put on record in an email by a Conyers official in February 2014: “It is best that we amend the constitution …The buyback can then be carried out without shareholders’ approval.” To this the Sequoia official replied: “What exactly are we proposing to amend the constitution for and what is the rationale we can provide for the same?”
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Records show a subsequent deadlock. Meanwhile, while Akula was looking to sell his holdings in SKS held through Tejas Capital in Tejas Ventures, Akula sold all but 10 shares that he had as ESOP after August 15, 2013, as soon as Sebi’s lock-up restriction was no longer applicable.
In 2007, Tejas Ventures was formed to hold shares of SKS Microfinance Ltd on behalf of WestBridge Ventures II, LLC, Sequoia Capital India Growth Fund I and Tejas Capital (personal entity of Vikram Akula). Tejas Ventures paid $3.16 million for 1,760,552 shares of SKS at that time. An e-mail sent to Sequoia Capital did not elicit any response.