Algo Legal and Kapoor received large, disproportionate payments from portfolio company Zilingo: Sequoia tells Court

Sequoia Capital filed its reply yesterday in response to the ₹1 crore defamation suit filed by Algo Legal and its founder Sandeep Kapoor. Sequoia Capital has stated that the litigation is an attempt to halt the progress of the investigation into alleged irregularities on the part of the law firm..The venture capital fund has argued that the Bengaluru court before which the defamation suit is filed ought not grant an injunction to the plaintiffs "as the only motive is to stop the investigation and halt the progress so that the Plaintiffs may have time to wipe out any further evidence that may be recovered which would be detrimental to them.".Sequoia has also stated that Kapoor's allegation that it was running a “smear campaign” against him and his firm Algo Legal is a "figment of his imagination.".Algo Legal and Sandeep Kapoor had recently filed a defamation suit against Sequoia and others claiming that the publication of false news items resulted in the exit of three partners and several lawyers of the firm.Claiming that the news articles were maliciously motivated, laced with canards and entailed deliberate misrepresentation of facts, Kapoor stated in the plaint that he has been ridiculed and jeered in social circles as a result, and that the good opinion that people have of him has been diminished.Owing to the fiasco, Algo Legal's standing in the market has also been directly impacted, the plaintiffs stated..Denying all these allegations made by Kapoor and his firm, Sequoia has replied that the suit has been filed with the intention of harassing them. It is further stated that these proceedings are a publicity stunt, and have been filed to drag Sequoia into this litigation for mala fide purposes and to settle personal scores..Kapoor was working with Sequoia as General Counsel till 2019, and considering his long standing association, his firm was engaged to do their work. Thereafter, due to certain circumstances, Algo Legal's engagement was terminated in January this year.In its response, Sequoia details some of the circumstances which led to the breaking of ties..Zilingo Fiasco.The reply states that Algo Legal and Kapoor received large, disproportionate payments from Sequoia portfolio company Zilingo, which led to a fact-finding exercise. It was revealed that from April 2020 to March 2022, Zilingo and its subsidiaries had paid Algo Legal and related entities a sum of more than USD 6 million (₹50 crore) out of which Algo Legal itself had received an amount of more than USD 5.2 million (₹45 crore). The fact-finding exercise concluded that several of these payments were not in consonance with the engagement terms/contracts between Algo Legal and Zilingo..Transactions for software products.Sequoia has revealed that another entity which was closely connected to Sandeep Kapoor had received an amount of more than USD 2.2 million (₹18 crore) as fees for a software system which was never delivered.The fact-finding exercise revealed the services rendered did not justify the large payments of a total sum of ₹68 crore that were made to Algo Legal and related firms..[Exclusive] Threats of ED raids, arm-twisting and more: Why Sequoia Capital cut ties with Sandeep Kapoor's Algo Legal.Sequoia in its defence said, since Kapoor was with Sequoia Capital for nine years and therefore was likely considered to be closely associated with or endorsed by Sequoia, the communication of termination of the law firm was individually sent with a secure watermark. ."These communications were made to the senior management of the portfolio companies using a secure watermark and none of the information was leaked to the media...The statement was not issued with any mala fide intention, or with any intention to harm the reputation or goodwill of the plaintiffs, and was merely issued out of a sense of responsibility that Sequoia owed to the portfolio companies" replied Sequoia. .It also took a stance before Bangalore Court that Sequoia was not the publisher of the allegedly defamatory content, and that no specific averments were made against the Law Firm. Therefore, it could not be held liable for defamation..John Doe.Sequoia has also taken exception to Algo Legal and Kapoor impleading 'John Doe' (unknown and unidentified parties who may involved in publishing articles on the issue) as a defendant. This, Sequoia says, would injunct the portfolio companies against making lawfully permitted statements to persons to whom they owe a duty of care and/or to regulatory authorities..As regards Algo's claim that several of its lawyers left the firm as a result of the publication of the news articles, Sequoia states that none of the partners or employees of the law firm have stated reasons for their resignation. Reference is made to an article published in Bar & Bench, in which the Partners who exited Algo Legal to join Argus Partners said that they had been in talks with the latter firm over the last several months.Further, it is claimed that Kapoor and the firm have not shown any evidence of loss of reputation and goodwill that they have suffered in the estimation of others on account of the actions of Sequoia..[Just In] Four Partners from Algo Legal move to Argus Partners .On these grounds and others, Sequoia has stated that the plaintiffs have failed to make out a case for the grant of temporary injunction..In yesterday's hearing, City Civil and Sessions Judge MH Annayyaanavar was told that Sequoia, HT Media Limited (owner of Hindustan Times) and E Eighteen.com Limited (Money Control) had filed their objections to the suit. Counsel for Twitter sought more time to file a reply.During the hearing, counsel for Algo Legal informed the Court that Sequoia has made allegations pertaining to unaccounted payments received by the firm from entities like Zilingo even as the founder of Zilingo has herself clarified publicly that all payments made were for services rendered.Therefore, the very basis of the allegations are circumspect and so the Court must not delay hearing these matters, it was argued..LawyersKeystone Partners with Senior Advocate Uday Holla are representing Algo Legal and Sandeep Kapoor.Khaitan & Co's Senior Partner Ajay Bhargava and Partner Nikhilesh Rao represent HT Media and E Eighteen.com Limited.Sequoia is represented by Senior Partner at AZB & Partners, Aditya Vikram Bhat.Advocate Manu Kulkarni and Partner at Poovayya & Co., Shravanth Arya Tandra with Senior Advocate Sajan Poovayya represent Twitter.