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What is behind the cracks in the Hinduja Undivided Family?

The Hindujas, known as the Rothschilds of India, were a family that ate together and so stayed together. Now the billionaire brothers face the twin threats of embarrassing exposures as well as a fragmentation of the family fortune.

June 29, 2020 / 06:55 PM IST

Could basic math be behind the Hinduja family feud that has been scorching the newswires over the last one week?

Time was when nothing could stop the Hindujas. Not wild rumours of being gun runners for Iranian despots, not allegations of being middlemen in India’s most controversial defence deal, not a horrific family tragedy, not even an involvement with a political farce in the UK which led to the resignation of key ministers.

This was a family that ate together and so stayed together.

Then came the Hindujas. Or more precisely. their third generation. And promptly, the bonhomie of decades is gone. Instead, a messy court battle has erupted revolving around the ‘validity and effect’ of a letter dated July 2, 2014, as per which the brothers had agreed that any asset that belongs to one of them, belongs to them all.

Close

In immediate contention is the control of the privately-held Hinduja Bank in Switzerland which the family patriarch S.P. Hinduja, the man in whose name the battle of the brothers is being waged, kept to himself in defiance of the so-called accord to share and share alike. But at stake is the larger family fortune spanning multiple businesses across several countries.

Such feuds normally break out when the business begins to look shaky. On the surface, the Hindujas appear to face no such challenges. Just this month they were listed as the second richest Asian family in Britain in the Sunday Times Rich List for 2020.

The root of the problem

The problem lies with the word “family”. In March 2015, their net worth as per Forbes was $14.5 billion. It rose to $16.9 billion in March 2019. But after recent reverses in its banking and trucks manufacturing business in India, as well as the global economic slowdown, it is down to $12.9 billion as of April 2020. Enough, perhaps for a family of four brothers amicably disposed towards each other. But maybe not when another 11 children and a few grandchildren are thrown into the fray.

Straight math, and admittedly the clumsiest way of doing it, would suggest that a division of assets would leave everyone poorer with some members of the large family even forced to shed the coveted billionaire tag. This would be an unkind cut in a family which for years has taken as much pride in earning its money as it has in spending it.

With many parts of the vast conglomerate, all controlled by the family through trusts in particular the Luxembourg-based Acorn Trust, showing signs of strain, a realignment of assets was on the cards for a while, as is evident from the court proceedings.

In her June 23 judgment, Justice Sarah Falk of the High Court of Justice and Property Courts of England and Wales has appointed Vinoo, daughter of SP Hinduja as her father’s “litigation friend”, thus allowing her to act on his behalf in the larger case related to the July 2014 letter. In the process the judge struck down the contention of the three brothers that Vinoo is so financially invested in the proceedings that she is incapable of exercising objective and impartial judgment. In her extensive note on the case, Sarah Falk also lays bare the fears of one section of the family: “They also note that if the claim succeeds then all assets in SP's name would pass to Vinoo and her immediate family on SP's death, including the entire shareholding in Hinduja Bank.”

Adding fuel to the ongoing intrigue, the case proceedings also mention that the three defending brothers claim that they have been prevented from seeing their elder brother for some time. The family patriarch has been suffering from Lewy Body disease, a form of dementia, but before lapsing into this condition, he had chosen Vinoo as one of his attorneys under lasting powers of attorney for both his property and financial affairs, and health and welfare, under powers of attorney made in June 2015.

There is also evidence to suggest that he had sought to disavow the July letter almost immediately after it was signed and got his representatives to meet his other brothers on May 2, 2015 on the assumption that they would agree to his proposal. But shortly after the meeting Gopichand and Ashok referred to the July letter and sought to rely on it. “As a result Clifford Chance (Srichand’s solicitors) sent an email on May 25 stating that SP (and at that stage PP) did not consider themselves legally or morally bound by the July letter.” (PP here refers to Prakash) A further letter from the firm dated 24 July 2015 reiterated that Srichand was not bound by it, and he made the same point in a letter he sent dated 16 July 2015. There is also a witness statement by him in July 2016, which states, among other things, that the July letter does not reflect his wishes and that the family's assets should be separated.

While the legal proceedings have come to a head only recently, the family business has been facing serious headwinds for a while now. The Reserve Bank of India hasn’t yet given its approval to Srichand and Gopichand Hinduja, who had written to the central bank to allow them to raise their stake in IndusInd Bank to 26 percent from less than 15 percent.

And just last month, the Cayman Islands Monetary Authority, the financial services regulator for the island nation, revoked the banking licence of the local subsidiary of the Hinduja Bank on the grounds that it was likely to become insolvent, had contravened anti-money laundering rules, and not been managed in a fit and proper manner.

The Hinduja group, of course, is no stranger to banking controversies. In the 1990s, their name came up in investigations into the scam-ridden Bank of Credit and Commerce International (nicknamed the Bank of Crooks and Criminals). While nothing was ever proved against the Hindujas, in a December 1992 Report to the Committee on Foreign Relations titled “The BCCI Affair” Senator John Kerry and Senator Hank Brown noted as one of the unanswered questions “BCCI's activities in India, including its relationship with the business empire of the Hinduja family.”

Again, in May 2010, the Hinduja group paid $1.69 billion to buy the private banking arm of KBC, Belgium’s biggest bank by market cap. Despite going ahead and announcing the acquisition, the deal came a cropper after Luxembourg’s financial market regulator CSSF refused to clear it. No explanation was offered and that really sums up the Hinduja way of doing business.

The Rothschilds of India
Intensely private, the brothers have always done business with a skilful combination of spotting opportunities worldwide and then using their legendary networking skills at the highest level to take advantage of those opportunities. It was for this that they loosely divided the business by geography with each of them taking charge of one or more important locations, an approach that won them the sobriquet of being the Rothschilds of India.

But what distinguished them in the past was the secrecy that surrounded them and the incredible efforts they made to preserve it. In the book, The New Maharajahs: The Commercial Princes of India, Pakistan and Bangladesh, author Claudia Cragg writes, “They discuss business only in encrypted missives by fax or e-mail, and take long walks in parks to stop anyone from overhearing the content of their conversations.”

Now, as one of their own, but younger in age and more rebellious in spirit challenges that carefully nurtured confidentiality and threatens to blow open the family core, the Hinduja brothers face the twin threats of embarrassing exposures as well as a fragmentation of the family fortune.

Sundeep Khanna is a senior journalist. Views are personal.
Sundeep Khanna
first published: Jun 29, 2020 01:18 pm

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