The Board of Directors of fintech company BharatPe is learnt to be setting the stage for terminating the employment of its co-founder and MD Ashneer Grover, who, along with his spouse, are under the scanner for alleged financial fraud.
The move by the Board will likely leverage provisions in the company’s Articles of Association (AoA) to buy back certain restricted shares held by Grover at a lower fair market value, sources told The Indian Express.
The Board has appointed Big 4 audit firm PwC to investigate these allegations.
The company’s AoA provides for a founder’s shares to bought back by the company if it has terminated the said founder’s employment for “Cause”.
The Indian Express reviewed the AoA of Resilient Innovations Pvt Ltd (parent company of BharatPe) that was filed with the Registrar of Companies (RoC) on September 3, 2021.
Among the seven scenarios that fall under the definition of “cause”, is “gross negligence or wilful misconduct by such Founder, as determined by a Big 4 Firm, which does not have any relation with the Company, after which the Board shall, through a simple majority, take a decision on such Cause event based on the report shared by the appointed Big 4 Firm after following principles of natural justice”.
The AoA defines “Big 4” as any of: KPMG, PricewaterhouseCoopers, Ernst & Young or Deloitte Touche Tohmatsu Limited, or their respective affiliates in India. Separately, effective April 1, 2019, BharatPe had onboarded Deloitte Haskins & Sells LLP as its statutory auditor until March 31, 2024.
PwC was roped in by the company’s Board late last month to investigate aspects such as accounting, approval processes, expenses and hiring. As a part of this process, PwC is also involving its forensic team, which is likely to study the findings submitted by independent advisory firm Alvarez & Marsal (A&M).
A&M was appointed by BharatPe through its legal firm Shardul Amarchand Mangaldas to look into internal governance issues — specifically assessing if senior executives were making proper internal disclosures about personal investments and check for conflicts.
According to some of the early findings by the advisory firm, payments were allegedly made into “dubious” recruitment firms with expenses running into crores of rupees spent on “non-existing” vendors and “questionable invoices” created to substantiate such spends.
The other scenarios where a ‘Cause’ can be established includes the founder being chargesheeted for any offence involving “moral turpitude or fraud in relation to the affairs of the company” that is not quashed, stayed or set aside within 60 days.
However, through this clause that allows the buy back of a founder’s shares — the company can only buy back the founder’s restricted shares.
The AoA defines restricted shares as 75% of the shares held by founders on September 5, 2019 (the closing date of the BharatPe’s Series C fundraising round), and follow-on shares issued at the closing of Series E funding round.
Queries sent to BharatPe and Grover did not receive a response.
Grover currently owns 9.5% stake in BharatPe, while his co-founder Shashwat Nakrani owns 7.8%. VC investor Sequoia Capital India is the largest shareholder in BharatPe with 19.6%, followed by Coatue at 12.4% and Ribbit Capital at 11%. In addition to these three, Tiger Global, Steadview Capital and Beenext have also backed BharatPe, and together these marquee investors hold 60.4% stake, as of August last year.
To activate the buyback clause, in addition to approval from the Board, consent of 51% of the investors is also needed.
All anomalies allegedly involve Ashneer Grover’s wife and the company’s head of controls, Madhuri Jain Grover. The initial findings of A&M’s independent audit came just weeks after the controversy involving Ashneer and Madhuri Grover erupted in the wake of a leaked audio clip, where the former was allegedly hurling abuses at a Kotak Mahindra Bank employee for presumably not being able to secure shares of e-commerce company Nykaa during its IPO.
Soon after that, on January 19, Ashneer Grover went on leave of absence till March-end, followed by Madhuri also going on leave from January 29.