BharatPe's Ashneer Grover Faces All-Encompassing Review

BharatPe's board will undertake an all-encompassing review of business practices under co-founder Ashneer Grover, a person with direct knowledge of the matter told BloombergQuint on the condition of anonymity. The review is part of an independent audit being conducted after reports of alleged impropriety.

The review will cover payments, lending to merchants and allegations of related party transactions and inflated invoices, the person quoted above said.

In addition, BharatPe's acquisition of Payback India from American Express and ICICI Investments Strategic Fund, in June last year, will also come under review, said a second person familiar with the matter, who also spoke on the condition of anonymity. The first confirmed that this transaction may be part of the review.

BharatPe, through its legal firm Shardul Amarchand Mangaldas, has appointed Alvarez & Marsal to conduct the audit, the company said in a statement on Saturday.

Queries mailed to BharatPe on Sunday evening remained unanswered. Calls to Grover also went unanswered.

In an interview to Economic Times on Monday, Grover said that he is happy to participate in any investigation so long as it is fair and as per Indian law.

Any adverse findings in the audit could lead to Grover losing his shareholding in BharatPe.

According to the Articles of Association of Resilient Innovations Pvt., which owns the BharatPe brand, the board may buyback "restricted shares" of a founder at a price lower than the fair market value, under certain conditions. Such a buyback will need to be approved by a majority of BharatPe's investors, according to the AoA.

The AoA states that these restricted shares can be bought back if:

• The founder is charge-sheeted for any offence involving moral turpitude or fraud in relation to the affairs of the company.

• Gross negligence or wilful misconduct by the founder, as determined by a Big Four firm, which does not have any relation with the company.

• Material breach by the founder of any terms of his employment agreement.

• The founder is declared insolvent under applicable laws.

• Material breach related to non-compete or non-solicitation clauses of the shareholders' agreement.

• Transfer of shares by the founder in breach of the shareholders’ agreement.

The AoA also states that a founder will not be allowed to vote on issues related to him being involved in any of the above mentioned defaults.

Restricted shares are 75% of the outstanding shares held by the founders as of Sept. 5, 2019 and any shares issued to the founders in exercise of management pool on the Series E closing date. The founders are not allowed to transfer the restricted shares to anyone, except to a relative or a corporate body wholly-owned by the founders.

Grover holds over 9% equity in the company.

"As soon as the dust around the issue settles down — soon, I think — BharatPe's board and I will have a very amicable conversation and we will act in a manner which works best for us, individually and collectively," Grover said in his interview to Economic Times.

Grover has appointed Karanjawala & Co. as his legal representative, according to Ruby Singh Ahuja, a senior partner at the law firm. Ahuja declined to comment on any specific legal issue Grover is facing.

Grover and his wife Madhuri Jain Grover, who heads controls at BharatPe, have been sent on leave to ensure that the independent audit can be concluded without any interference.

"The board strongly believes in protecting interests of all stake holders, including customers, employees and partners. We request the media not to speculate until audit findings have been completed," BharatPe said in its statement.

Mint newspaper reported on Saturday that BharatPe will likely ask Grover to leave. The payments company denied this and clarified that it had "not terminated the services of any employee at this stage".

"The board remains committed to an independent and thorough audit process. No action has been taken or will be taken till the audit has been completed," the statement said.

Grover's conduct has been in focus since Jan. 6, when an audio recording surfaced on social media where he allegedly threatened a Kotak Group employee.

While Grover initially claimed that the audio is fake, it was later revealed that in October 2021, he had sent a legal notice to Uday Kotak, managing director and chief executive officer, Kotak Mahindra Bank and other senior management members for failing to provide financing to participate in the FSN E-Commerce Ventures Ltd. initial public offering.

The legal notice had sought damages to be paid to Grover and his wife, who had missed out on a profitable business investment for lack of financing. Kotak Group said that it had responded to the legal notice and had also placed its objections to Grover's use of inappropriate language against its employee. Kotak Group had stated that it was seeking legal recourse against Grover on this issue.