The real reason BharatPe board brought in PwC
PremiumThe AoA of the three-year-old company has the provision for removing a founding member for a cause
MUMBAI : BharatPe’s articles of association (AoA) may play a key role in deciding the fate of Ashneer Grover, the fintech unicorn’s embattled co-founder.
The AoA of the three-year-old company has the provision for removing a founding member for a cause, and his equity can be bought back by the company at a fair market value, a person with direct knowledge of the matter said.
The provision can be invoked if the cause involves gross negligence or wilful misconduct as determined by a Big Four accounting firm. This is why the board has brought in PricewaterhouseCoopers to conduct a forensic audit of its accounts.
“The board and investors of BharatPe are banking on the AoA for an amicable solution for all stakeholders," the person said. “It has to be the company first, and its growth cannot be impacted. Much of the solution will depend on what the final (forensic audit) report throws up."
Managing director Grover, who is on temporary leave from the company, has demanded that investors of BharatPe buy out his 9.5% stake in the company for ₹4,000 crore if the board wants him to exit the company, a 5 February report by the Moneycontrol website said.
Queries sent to Grover and his law firm seeking his comments on BharatPe’s AoA were not answered.
As per the AoA, if the company terminates the employment of a founder for any of the causes, the “restricted shares" owned by the founder can be bought back, acquired or transferred. The cause can be a variety of triggers such as being charge-sheeted for crimes involving moral turpitude or fraud involving the company’s affairs or having material adverse effect to its business, if the criminal processes are not quashed by a court within a timeline. Then there are triggers such as the report of a Big Four firm presenting conclusive proof of gross negligence or wilful misconduct even unconnected with the affairs of the company; or if the founder breaches but does not cure within prescribed time the terms of his/her employment contract.
Shriram Subramanian, managing director, InGovern Research Services Ltd, said typically AoAs give more rights to investors than to founders.
“The board can remove the founder from the board of directors if they find a cause, which includes fraud, gross negligence, wilful misconduct or material breach. The founder’s shares can also be bought back or transferred out, should the board decide to do it after finding a cause," he added.
Mint had first reported on 4 February that a preliminary investigation by an external specialist highlighted two instances of alleged wrongdoing at BharatPe. The allegations of financial wrongdoing relate to irregularities in recruitment and paying non-existent vendors.
“The total alleged irregularities as per primary findings are so far assessed at ₹60 crore in basic sample size for these two irregularities. The final figure could potentially be higher," the person added.
The probes by PwC and Alvarez & Marsal perhaps aim to create a water-tight case on legal grounds, said Samir Jain, managing partner, PSL advocates and solicitors.
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“An accounting or forensics firm is better suited to look into allegations of siphoning of funds and financial mismanagement," said Samir Jain, managing partner, PSL Advocates and Solicitors.
“The AoA should ideally provide safeguards to the founder so that he obtains full economic value of the loss suffered should the termination be held wrongful or premature," said Pallav Shukla, Partner at Trilegal.
“The key here is to follow the prescribed process in order to minimise the chances of protracted litigation. Another point of concern will be the issues that might arise under the employment contract and the company’s policies of dealing with misconduct. It is important that the company be consistent, even handed and compliant with the internal and statutory processes," he added.
In public statements, Grover has, in turn, called for the removal of chief executive Suhail Sameer. But the removal of the CEO will require the consent of Grover’s co-founder, Shashvat Nakrani.
Priyanka Gawande contributed to the story.
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