In a California court ruling, Zoho's Sridhar Vembu must post a $1.7 billion bond amid divorce proceedings with Pramila Srinivasan. The court aims to protect community assets, scrutinizing Zoho's ownership structure. A receiver will oversee assets to prevent dissipation, as Vembu's tax optimisation claims were dismissed.

Sridhar Vembu, the co-founder and chief scientist of software giant Zoho, has once again made headlines, but this time for a completely different reason. A California court has mandated Vembu to furnish a $1.7 billion bond amid acrimonious divorce proceedings with his ex-wife, Pramila Srinivasan. The ruling, which highlights concerns over asset transfers potentially disadvantaging Srinivasan, underscores the intersection of personal disputes and corporate governance in the tech sector.

According to The News Minute, the order from the Superior Court of Alameda County aims to safeguard community assets accumulated during the couple's nearly three-decade marriage. Vembu, known for his advocacy of rural development in India and a philosophy of simple living, has yet to comply fully, prompting judicial scrutiny of Zoho's intricate ownership structure.

Court's intervention in the divorce

In a new order described as strongly worded, the court appointed a receiver, Kyle Everett of San Francisco, to oversee multiple entities including Zoho Corporation, Zoho Technologies, Zoho Distribution Corp., and T&V Holdings, as well as the personal assets of Vembu and his associate Tony Thomas. The receiver's mandate includes seizing control of assets, records, and property to prevent dissipation until the divorce is resolved.

The court halted a multi-stage asset transfer that would have shifted the operations of the US-based Zoho Corporation to an entity fully owned by Thomas. Judges dismissed Vembu's claims that the move was for tax optimisation as 'not credible,' noting it breached temporary restraining orders designed to protect marital property.

"The record in this case demonstrates that Petitioner has acted without regard for Respondent’s interests in community assets and without regard for the law," the order stated.

Vembu initially offered no bond, later proposing sums up to $150 million, all rejected by the court. Srinivasan, in turn, posted a $275,000 bond to activate the receivership, though related entities have secured stays by furnishing their own guarantees.

Divorce allegations and ownership scrutiny

The proceedings stem from Vembu's 2021 divorce filing in California, where the couple resided with their son before Vembu's relocation to India in late 2019. Under state law, assets acquired during marriage must be divided equally unless otherwise agreed in writing.

Srinivasan alleges Vembu surreptitiously transferred substantial Zoho shares to family members, including his sister Radha Vembu (47.8 percent stake) and brother Sekar Vembu (35.2 percent), leaving him with a claimed 5 percent holding in the parent Zoho Corporation Pvt Ltd (ZCPL) in Chennai. She claims to have supported Vembu financially in Zoho's early days, enabling him to quit his job for entrepreneurship. "I felt shocked to learn only after he filed for divorce that he claimed to own just 5 percent of the company he had spent our marriage building," Srinivasan stated in court filings.

Vembu denies the transfers, asserting his stake has always been 5 percent following a 2010 restructuring where ZCPL acquired the US entity's intellectual property for $50 million — a transaction Srinivasan disputes as unsubstantiated. The court highlighted a lack of financial transparency, raising possibilities of fiduciary duty breaches that could entitle Srinivasan to a greater share.

The case casts a shadow over Zoho, a bootstrapped SaaS provider rivalling global players like Salesforce and Microsoft, with operations spanning cloud services and enterprise software. The paused asset shift to Thomas, who holds an 8 percent stake in ZCPL, could disrupt US-based revenue streams and data centre migrations, potentially affecting operational efficiency.