A federal judge in Manhattan has dismissed a lawsuit brought by Rajat Gupta, the former managing director of the consulting giant McKinsey & Company, who had accused a former longtime friend of trying to stop him from having a say over a private equity fund they started together.
In his decision on Tuesday, Judge George B. Daniels of Federal District Court in Manhattan did not address the merits of the case, but said none of the claims in Mr. Gupta’s complaint were relevant anymore.
The ruling came as Mr. Gupta, who was convicted in June 2012 on charges of tipping the hedge fund billionaire Raj Rajaratnam on boardroom secrets he gleaned while he was a director of Goldman Sachs, sits in his waterfront home in Wesport, Conn., waiting to hear the outcome of his appeal on the insider-trading charges. Arguments on the appeal were heard in late May.
The lawsuit centered on a dispute between Mr. Gupta and his business partner, Parag Saxena. The two men, whose families used to vacation together at the Palm Island Resort in Cape Haze in Florida, teamed up in 2006 to start New Silk Route, a private equity fund that invests in South Asia. But after Mr. Gupta was convicted of insider-trading charges, long-simmering tensions between the men erupted.
In February 2012, Mr. Gupta agreed to step down from New Silk Route’s two-member board after Mr. Saxena requested that he distance himself from the company while securities charges were pending. To protect his interests in the company, Mr. Gupta was allowed to designate a board member. But Mr. Gupta sued Mr. Saxena in March 2013, contending that his business partner was blocking him from appointing his representative to the board in a bid to gain control of the fund. The suit effectively ended a 25-year friendship between the men that mingled business with games of tennis and bridge.
After Mr. Gupta’s original representative was forced to step down from the board, his current representative, Greg Orman, was appointed.
In handing down his decision from the bench, Judge Daniels said that he was not ruling on the merits of the case, which he said was driven by Mr. Gupta’s fear that Mr. Saxena was maneuvering to sever his ties to the fund.
“That may or may not be the case,†Judge Daniels said. “That may or may not be their intent. But that is not what is currently before this court.†Among other things, Judge Daniels pointed to the fact that Mr. Gupta had a functioning representative on the New Silk Route board, which he said made the original complaint moot.
In his remarks in open court, Judge Daniels did little to hide his feelings about the complaint. “Quite frankly, I have a dim view of the merits of this claim,†he said in a hearing.
His ruling came after a spirited exchange between the judge and Mr. Gupta’s lawyer, Rishi Bhandari. Mr. Bhandari tried to argue that Mr. Saxena could not remove Mr. Gupta’s representative on the board simply so that he could gain control of the fund. Such a move, he said, would fundamentally undermine the purpose of the voting agreement between the two men.
“Why do you say that?†the judge asked.
“Because that was the understanding of the parties,†Mr. Bhandari replied.
“Where does it say that in the contract?†the judge asked.
“It is not in the contract,†Mr. Bhandari said, adding that the intent was implicit.
Though Judge Daniels dismissed the case, he left the door open for Mr. Gupta to bring a suit in the future if Mr. Saxena moved to deprive him of his right to name a member to the fund’s board. Mr. Bhandari declared after the hearing that the suit had already accomplished what his client had set out to do.
“The purpose of filing this action was to have a designee on the board,†Mr. Bhandari said. “If they do anything to impair Mr. Gupta’s rights, we can still sue to stop them.
Mr. Saxena’s lawyer was not available for comment.
Anita Raghavan is the author of “The Billionaire’s Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund,†published June 4 by Business Plus.
