Why Puma India is unlikely to sue outgoing MD Abhishek Ganguly as he starts his own sports firm

Abhishek Ganguly, co-founder, Agilitas Sports

When Abhishek Ganguly, former Puma India and Southeast Asia managing director (MD), announced he has raised Rs 430 crore for Agilitas Sports, a startup he co-founded with Atul Bajaj and Amit Prabhu, also outgoing senior executives at the German retailer, a few people doubted whether the trio would be breaching their non-compete clauses.

Agilitas Sports is a sporting goods and athleisure wear company.

A non-compete clause is part of an agreement an outgoing employee and company signs, restricting the former from joining a rival firm or setting up a similar business in the same domain immediately. It generally requires a cooling-off period, which can be anywhere between a few months to a few years.

But Ganguly, Bajaj and Prabhu appear to have not skirted any legal boundaries with their new venture, according to various industry experts and others who spoke to Moneycontrol.

Why non-competes have been unenforceable in India

Historically, most non-competes have been unenforceable in India and have favoured employees simply because, under the Indian public policy, one cannot stop people from working and earning money, Mathew Chacko, co-founder and head, technology, media, and telecommunications (TMT), Spice Route Legal, said.

“Can Puma try and enforce a non-compete? Hundred percent. They can tie him up in legal expenses and distract him from business but it is a costly affair for both parties, costing them millions, and it will only make lawyers rich. Puma is a large multinational. If it sees a threat five years down the line, it may just consider buying Agilitas,” Chacko said.

For now, even Puma has said it will not be pursuing legal action against the trio. Asked if the company would consider suing Ganguly, Bajaj or Prabhu, or if Agilitas’ fundraise announcement should have been delayed until they had exited from the company around August/September, a Puma spokesperson told Moneycontrol: “Their departure and entrepreneurial plans were made with full transparency and planned for a long time, enabling a smooth transition of their responsibilities to their successors.”

Career graph

Ganguly joined Puma in November 2005, according to his LinkedIn profile. Agilitas aims to create an end-to-end chain of all things related to sports, from manufacturing to retail, and it will acquire companies for what it cannot build in-house, as Moneycontrol had reported earlier. Ganguly has even worked with Reebok between 2002 and 2005.

Interestingly, Prabhu, the outgoing executive director and chief financial officer, will be ending his second stint at Puma.

He had quit the retailer between 2015 and 2021 to start his own venture, Sneed, an online workspace aggregator platform but that folded up during the pandemic, after which he returned to Puma in February 2021, according to his LinkedIn profile.

Considering both the stints, Prabhu has completed around 11 years at Puma, while Ganguly and Bajaj were associated with Puma for about 17 years each.

Typically, during such times, companies send their outgoing executives on gardening leave, explained K Sudarshan, India MD at EMA Partners, a firm that recruits C-suite employees across industries. Gardening leave is when employees remain on the company’s payroll but are not involved in the day-to- day working to protect business interests.

The cans and cannots

Even as the three top executives are leaving Puma at the same time, they will likely be bound by a non-solicitation agreement for a certain amount of time. Agilitas will not be able to poach former Puma employees.

A person responsible for scaling up Agilitas told Moneycontrol that “Agilitas isn’t going to build another Puma. It is going to leverage technology which Puma wasn’t doing. So, it is unlikely that they will hire people from Puma – the company wants to be looking forward, not backward.”

Experts, however, said the new venture will be tempted to bring in a few people from Puma, given that they’ve worked together for about 15 years. Sudarshan, from EMA Partners, however, said that companies do take a lenient view if the exit is mutually cordial and if there are no surprises.

Agilitas could also hire a third-party agency, which will invite applications and show Puma that employees came on their will, through a normal application route. If the need be, that’s a workaround, other HR experts said.

Puma can also sit down with Ganguly, Bajaj and Prabhu and negotiate strategically to have a right to invest in Agilitas at some point in the future. Puma could also categorically mention certain sectors where it doesn’t want the new startup to enter for a certain amount of time, said Shoubhik Dasgupta, partner at Pioneer Legal, which advises on private equity (PE) deals.

“If Puma does file a case and loses it, suing your own MD, who has been there for 17 odd years, becomes a public perception issue. And I'm not sure whether Puma’s case is that strong. However, if Agilitas does something that is essentially taking away from the business of Puma, like taking away exclusive distributors, or suppliers and the like, that may push Puma to sue him,” Dasgupta said.

But Puma has already expressed its willingness to partner with Agilitas in the future.

“We are looking forward to establishing a successful relationship with Agilitas Sports on the supply and retail side and see this move as expanding the sportswear market and as an opportunity to further increase Puma’s strong position in the Indian market,” a spokesperson for Puma told Moneycontrol.

Even when Harsha Raghavan, managing partner at Convergent Finance LLP, the PE firm which has committed Rs 400 crore to Agilitas, was asked if there were special considerations he had to make before the investment, to ensure the new venture would not run into legal troubles with Puma later, he said: “Not at all. The deal has been done with consent and collaboration with Puma,” he said.

In a conversation with Moneycontrol earlier, Ganguly, without getting into details, had said he was grateful for the 17 years or so that he spent at Puma and the people he networked with during his stint.

Funding scenario

According to at least three large venture capitalists, it is unusual for a new startup to raise about Rs 400 crore, of the total Rs 430 crore fundraise, from just a single private equity (PE) firm.

“Even good businesses are not able to easily raise Rs 430 crore in this difficult environment. For a new startup to do it is surprising. But then, maybe, it is the pedigree that he (Ganguly) brings in. Even then, from our experience, we think the round is going to be heavily tranched,” a partner at a large VC firm said.

A tranched round means that the capital will likely be disbursed in parts as and when Agilitas achieves certain milestones.

Ganguly had earlier said the new venture is going to be a very capital-intensive business, as it requires manufacturing facilities, offline stores, and investments in tech.

“The entry barriers in this category are quite high for a small player. It is very difficult to scale. That's why we have raised a large round right at the beginning. Because we also want to build for scale quite quickly and deploy the capital quickly,” Ganguly had said then.