The board of BharatPe is "setting the stage" for terminating the employment of its co-founder and managing director Ashneer Grover and buying back certain restricted shares, according to The Indian Express.
Restricted shares are special shares given to a company's management or employees that cannot be traded until certain conditions, such as a vesting period, have been met. They are an effective way to retain employees.
This comes after an independent preliminary probe brought to light two instances of fraud at the $3 billion merchant-focused fintech startup, in which Grover and his wife, Madhuri, are reportedly involved.
The board has now appointed PwC (PricewaterhouseCoopers), one of the 'big four' accounting and audit firms, to investigate further, the report mentions.
BharatPe will mostly likely leverage provisions in the company’s Articles of Association (AoA) to buy back certain restricted shares held by Grover at less than fair market value (FMV), sources told the publication.
AoA is a sort of rule book that defines the company's purpose, and lays down regulations for how it will be managed. In BharatPe's case, it reportedly allows the company to buy back a founder’s restricted shares if they have been terminated for “cause”.
"Cause", in this case, includes "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," according to the AoA, viewed by The Indian Express.
Grover owns 9.5 percent stake in BharatPe. The AoA reportedly defines restricted shares as 75 percent of the shares held by founders on 5 September 2019 (end of the Series C fundraising round), and follow-on shares issued at the closing of Series E funding round.
PwC was reportedly hired by BharatPe in January to investigate deeper into aspects, such as accounting, approval processes, expenses, and hiring, building on the preliminary probe.
'Recruitment Fraud, Payments to Fictitious Vendors'
Alvarez and Marsal, a management consultant and risk advisory firm, was roped in to conduct the preliminary audit of BharatPe's internal processes and systems.
Two instances of alleged fraud were uncovered – irregularities in recruitment and payment to non-existent vendors, Mint reported.
After reviewing invoices, it was found that the company was recruiting staff, then paying a network of HR consultants that had nothing to do with the hiring, according to the report. The firms appeared to be linked to each other, as well as to Madhuri Grover, and were all reportedly based in Panipat, where she is originally from.
In multiple instances, Madhuri Grover appeared to have directly received the invoices created by her brother Shwetank Jain, which she forwarded to the accounts team for payment.
The investigation also found that nearly Rs 51 crore was paid to 30 vendors who appeared fictitious.
When these payments were caught by the Directorate General of GST Intelligence (DGGI), the company didn't contest, but instead paid close to Rs 11 crore in dues along with penalties, the report says.
Deepak Jagdishram Gupta, who is responsible for procurements at the company and is Madhuri’s brother-in-law, seems to have handled this matter.
Ashneer Grover and his wife have both gone on leave, after an audio clip went viral in which he allegedly threatened and hurled abuses at a Kotak Mahindra Bank employee for failing to secure shares during Nykaa's IPO.
Grover initially called it a "fake audio by some scamster trying to extort funds," but later deleted his tweet. The bank said that it was exploring legal action against him for using inappropriate language against its staff.
The controversy has put a spotlight on BharatPe and its troubled history.
Grover has roped in New Delhi-based law firm Karanjawala & Co to safeguard his position in the company amid mounting pressure on him to quit permanently, sources told The Economic Times.
(With inputs from The Indian Express, Mint, and The Economic Times.)