INDIA Law and Practice Contributed by: Rishabh Shroff, Kunal Savani and Chirag Shah, Cyril Amarchand Mangaldas
5. Wealth Disputes 5.1 Trends Driving Disputes
ernance mechanisms to Indian families with Indian residents and non-resident members. A key benefit of trusts is that such structures ring-fence assets from potential creditor claims or matrimonial claims. Any claim on one’s estate in the event of insolvency or any other dispute can be curbed by setting up a trust as that would entail relinquishment of control and own - ership by the owner. By the virtue of such relinquish - ment, the assets held in a trust are safeguarded from being contested during litigation or claims from credi - tors. Trusts can be used for preservation of business India is increasingly adapting to the usage of private business trusts which are created to make the pro - cess of business interest succession seamless. Such trusts hold promoter level shares and other shared properties. As from the public domain, more than 40+ trusts have been set up by promoter families of large, listed entities in the recent years for the purposes of holding shares belonging to such entities. According to reports by Fortune India magazine, approximately 24.9% of the cumulative net worth of the top 38 Indi - an billionaires is held by way of trusts, followed most closely by Hindu Undivided Families as the preferred vehicles for holdings. assets as well as family wealth. 4.2 Succession Planning Interestingly, India has also started embracing the concept of family constitutions (also known as family charters) which are set up by the patriarch or branch heads of powerful business families which set out the family and business governance aspects and also eli - gibility criteria and the succession of the next-gen of the families entering into the family business. Along with the aforementioned documentation, more and more companies have also started adopting family shareholders’ agreements which record the understanding between promoters/respective pro - moter branches qua their shareholding in an entity. Such shareholders’ agreements lay down the rights and obligations such as exit obligations, rights of first offer/refusal, voting rights, etc. 4.3 Transfer of Partial Interest There is no applicable information in this jurisdiction with respect to the transfer of partial interest.
Inheritance of wealth by the mechanism of a Will can be subject to various forms of challenges. A Will can be challenged under the pretext of being not freely made and unjustly enriching one branch of the family as opposed to another. This is the most commonly prevalent type of wealth dispute in India. Issues such as informal governance standards, desire for control and equal ownership in family run compa - nies often lead to conflicts, allegations and lengthy court battles. The ideology of the next generation of brand heads of the business families is not always aligned, which also triggers disputes and disharmony which affects the day-to-day affairs of their business entities. While majority of family businesses have proven to be inherently resilient, more and more instances of the second/third generation heirs of major family busi - nesses having diverse and unique outlooks towards governance have come to light. Many next-gen family members are now keen to start independent entities rather than attempting to carry forward past legacies. The increasing generation gap may also result in a loss of communication between family members. This in turn would affect the relations in the family and could prove detrimental to the business(es). Further, as fami - lies grow, this results in fragmentation of ownership of the business across family members and generations. The unwillingness of families to talk about succession is slowly fading away, which is a positive sign. It is notable that in India, trust disputes are not very common and the ones that arise are often dealt within the family in a discreet manner, so that details are not available publicly. Recent trends which have been driving trust-related disputes are: • ambiguity in the terms of the trust, particularly in relation to tenure of the trust; • lack of clarity regarding trustee succession;
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