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SMILE Microfinance to remain in Developing World Markets' hands

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(DWM, which manages about…)

CHENNAI: N Sethuraman. founder of the Madurai-based Meenakshi Mission Hospital. has faced a legal setback in his attempt to wrest back control in SMILE Microfinance. which he set up but is now controlled by Connecticut-based social investment firm Developing World Markets (DWM).

The Madras High Court ruled against Sethuraman, who had approached it after proxies in his favour were revoked by DWM. He had wanted the court to restrain SMILE from making any major decisions.

Another suit, filed by Sethuraman's wife, primarily seeking to stop the change of control at SMILE, was also set aside by the court.

Sethuraman told ET, "The foreign investors are trying to take control of the company, and looking to sell their stake to a third party. I have filed an appeal against the Madras High Court order in the division bench, and will be ready to take it to the Supreme Court to get back control."

A DWM spokesperson said in an email response, "We would prefer not to speak to press about this matter."

DWM, which manages about $650 million in assets globally, invested in SMILE four years back, pumping in about Rs 50 crore for about a two-thirds stake. It also allocated proxies to Sethuraman, making up about a third of SMILE, with the rider that it could be revoked in the event of a breach of representation.

The current dispute was triggered

in September 2011 when SMILE was sent a legal notice for dues of Rs 5 crore by Fathi Software, a company run by Sethuraman's daughter Brathibha. Following this, Sethuraman, who was until then still functioning as the firm's chairman and MD, quit. Brathibha, who was a director, also quit.

Sethuraman's proxies were revoked. And he filed a criminal complaint against his daughter, alleging she had forged his signature in SMILE's software maintenance agreement with Fathi.

Justice V Ramasubramanian, who heard both the cases, noted that Sethuraman has not chosen to challenge the revocation of proxies so far. "Nearly a period of two years has elapsed from the date of revocation of proxies. Therefore, when the revocation of proxies is yet to be challenged, the applicant cannot seek an injunction in respect of control," he wrote in his judgement.

"I see very clearly that the parties are either trying to settle a family feud among themselves or trying to settle scores with a foreign investor," he wrote on the suit filed by Sethuraman's wife.

SMILE was founded in 2005, with Sethuraman, and his two sons and the daughter as the promoters. Prior to DWM's entry, Sethuraman, his relatives and friends, held over a 60% stake. The balance was held by over 11,000 members. SMILE, which on its website claims to be the first-ever urban microfinance institution, had loan assets under management of just over Rs 300 crore as of fiscal 2013.

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