The Exempted Ltd Partners Hip Act (2021 Revision) and the Companies Act (2021 Revision) and the Partnership Act (2013 Revision); New Silk Route Advisors, L.P.
| Jurisdiction | Cayman Islands |
| Judge | David Doyle |
| Judgment Date | 10 February 2022 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO: FSD 278 OF 2021 (DDJ) |
The Hon. Justice David Doyle
CAUSE NO: FSD 278 OF 2021 (DDJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Dismissal of application to strike out winding up petition based on exclusion from management and loss of substratum grounds and application for a general stay on ground of abuse of process due to parallel proceedings in New York — imposition of temporary case management stay pending determination of issues in foreign proceedings
Ewan McQuater QC, Peter Hayden and Ella van der Schans of Mourant Ozannes for limited partners Saxena Holdings LLC and Tagusi Holdings LLC
Ben Valentin QC, Harry Shaw and Guy Cowan of Campbells LLP for Gupta Associates LLC, the Petitioner
Quentin Cregan and Justin Naidu of Maples and Calder (Cayman) LLP for New Silk Route Advisors, L.P. by its general partner New Silk Route Partners Ltd
On 25 January 2022, I heard submissions in respect of an application to strike out or stay a winding up petition. I reserved judgment. I now deliver my judgment.
In this case Gupta Associates LLC (the “Petitioner”), a limited liability company incorporated under the laws of Delaware, is a limited partner holding a 50% interest in New Silk Route Advisors, L.P. (the “Partnership” or “NSRA”). The members of the Petitioner are Anita Gupta as to approximately 70% and the Banyan Family Trust as to approximately 30%. Rajat Gupta (“Mr Gupta”) is neither a member of the Petitioner nor a trustee or beneficiary of the Banyan Family Trust.
The Partnership is a Cayman Islands exempted limited partnership created on 3 January 2008 and is governed by its Third Amended and Restated Exempted Limited Partnership Agreement dated 30 December 2010 (the “ LPA”).
The Petitioner seeks a winding up order in respect of the Partnership on just and equitable grounds.
The general partner of the Partnership is New Silk Route Partners Ltd a Cayman Islands exempted company (the “GP”). The GP's shareholders are stated to be as follows holding the specified percentages of the issued share capital:
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(1) Mr Parag Saxena (“Mr Saxena”) 43.5%;
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(2) NSR-H Associates, LLC (“NSR-H”) 43.5% (stated to have acquired such interest formally held by Mr Gupta personally);
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(3) Mr Mark Schwartz 5%;
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(4) Dr Abdul Hafeez Shaikh 4%; and
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(5) Mr Victor Menezes 4%.
The limited partners of the Partnership were previously Mr Gupta and Mr Saxena personally as to 50% each. On 31 December 2010 the former limited partners assigned their interests to related entities. Since that time the limited partners have been:
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(1) the Petitioner 50%;
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(2) Saxena Holdings LLC 30% controlled by Mr Saxena; and
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(3) Tagusi Holdings LLC 20% controlled by Mr Saxena.
Saxena Holdings LLC and Tagusi Holdings LLC applied for orders striking out certain parts of the petition and also a stay of the proceedings.
In this judgment I have declined to strike out the petition on the grounds advanced. I have also declined to grant a general stay of the proceedings on the ground of an abuse of the process of the court. I have however decided to impose a temporary case management stay. I have decided, for reasons which follow, that the future progress of these proceedings in the Cayman Islands should await the determination of issues in proceedings in the United States of America which were commenced in 2020 (a year before the petition in this case was filed).
Ewan McQuater QC, Peter Hayden and Ella van der Schans of Mourant Ozannes appeared for Saxena Holdings LLC and Tagusi Holdings LLC.
Ben Valentin QC, Harry Shaw and Guy Cowan of Campbells LLP appeared for the Petitioner.
Quentin Cregan and Justin Naidu of Maples and Calder (Cayman) LLP appeared for New Silk Route Advisors, L.P. by its general partner New Silk Route Partners Ltd.
Mr Cregan part way through the hearing on 25 January 2021 produced concise written submissions dated 19 January 2022 which adopted and relied upon the submissions of Saxena Holdings LLC and Tagusi Holdings LLC. The GP on behalf of the Partnership submitted that it was appropriate that the petition be struck out, dismissed, or stayed “for the reasons advanced on behalf of the Saxena/Tagusi parties”. A copy of these written submissions had not been provided to me prior to the hearing. To reduce the risk of this situation arising again in the future I remind litigants and attorneys that section B1.4(e) of the Financial Services Division Guide provides that skeleton arguments “must be delivered to the Personal Assistant to the assigned Judge at the same time as the hearing and authorities bundle(s), together with an agreed chronology and dramatis personae, unless one or other or both are clearly unnecessary.”
In the petition it is stated that the Partnership is part of the New Silk Route Group (the “NSR Group”). The Partnership is a registered investment advisor with the United States Securities and Exchange Commission (the “SEC”) and provides advisory services to funds within the NSR Group and is also responsible for the regulatory compliance for all NSR Group funds.
The 51 page winding up petition dated 23 September 2021 also pleads details of the current state of the Partnership. The Petitioner refers to the hostilities between the limited partners over the last decade and makes detailed reference to a series of lawsuits being issued in the United States of America concerning:
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(1) the attempted removal of Aaron Deuser as a director of the GP by Mr Saxena;
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(2) alleged misfeasance, self-dealing and misappropriation of the Partnership's assets by Mr Saxena; and
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(3) counterclaims against Mr Gupta alleging fraud and dishonesty in connection with an agreement between the parties in 2012.
It is stated that there is a breakdown in the relationship between the Petitioner and NSR-H (the “Gupta Parties”) and Mr Saxena, Saxena Holdings LLC and Tagusi Holdings LLC (the “Saxena Parties”).
It is pleaded at paragraph 12 of the petition that it is just and equitable for the Partnership to be wound up and/or dissolved on the grounds that:
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(1) there has been a complete and irremediable breakdown in trust and confidence between the Gupta parties and Saxena Parties as limited partners such that it is impossible for each of the limited partners to place any confidence in the other; (the “loss of trust and confidence ground”);
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(2) the Partnership has lost its substratum as a consequence of the funds to which the Partnership provides management services now being in dissolution pursuant to the terms of their respective LPAs, such that the Partnership can no longer carry on business as an investment manager as intended (the “loss of substratum ground”);
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(3) the Petitioner has now been completely and unjustifiably excluded from the management of the Partnership contrary to its legitimate expectation that it would continue to fully participate in the management of the Partnership through its nominee on the Board of the GP (the “exclusion from management ground”); and
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(4) there are various allegations which have been raised against Saxena and the GP suggesting a lack of probity (including from the NSR Group's former Chief Financial Officer/Chief Compliance Officer and Mr Deuser) which warrant investigation by independent liquidators (the “independent investigation ground”).
The Petitioner pleads in respect of the formation of the NSR Group in 2006 which was stated to have been founded in 2006 by Mr Gupta and Mr Saxena. The Petitioner refers to the early years of the NSR Group. There is an allegation that Mr Saxena caused the Partnership to be deprived of management fees of approximately US$5 million.
There is reference to the SEC filing charges against Mr Gupta for insider trading in late 2010. It is stated that Mr Gupta and Mr Saxena agreed that it would be in the best interests of the NSR Group for Mr Gupta to resign as a director of the GP and to divest the entirety of his economic interest in the NSR Group to his family members. Mr Gupta resigned as a director of the GP in 2012 and transferred the economic interests to his family thereafter.
Crucial to the dispute between Mr Gupta and Mr Saxena is an agreement entered into on Valentine's Day 14 February 2012 between Mr Gupta, NSR-H and Mr Saxena (the “Voting Agreement”) which “shall be construed and enforced in accordance with the laws of the State of New York” (paragraph 3.1 of the V oting Agreement under the heading “Governing Law”). It also has at paragraph 3.5 an “Entire Agreement” clause.
The Petitioner places great reliance on the Voting Agreement in these proceedings. It is plainly a core part of its case.
The Petitioner refers to:
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(1) the period from 2012 onward under the heading “The removal of Gupta's nominated directors, and the beginning of the breakdown of trust and confidence”;
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(2) “2014 – 2015: Tensions worsen as Mr Deuser is immediately marginalized”;
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(3) “2016: Further disputes and attempted settlements”;
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(4) “2016: Hostilities worsen as Mr Saxena refuses to accept oversight”;
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(5) “The Welland Transaction” (some 5 pages);
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(6) “2017: The Funds' terms are extended”;
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(7) “2019: The Rishi Gupta Complaint”;
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(8) “2019: Mr Saxena continues to avoid oversight and to exclude Mr Deuser from management”;
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(9) “2019: Expiry of the Funds”;
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(10) “2020: The ultra vires capital call”;
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(11) “2020: The New York Complaint and Mr Saxena's counterclaims” (some 4 pages) and at paragraph 85 it is pleaded that: “The allegations, assertions and facts contained within the New York Complaint are hereby expressly adopted by the...
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