Kotak Vs BharatPe’s Ashneer Grover: SEBI Asks Bank To Furnish IPO Financing Details

Market regulator SEBI has reportedly initiated an investigation into Kotak Wealth — the wealth management arm of Kotak. The move comes shortly after the controversial call happened among BharatPe cofounder Ashneer Grover, wife Madhuri Grover and the bank over the financing of Nykaa’s IPO.

According to Mint, SEBI has asked Kotak Wealth to furnish details of the IPO financing debacle with Grover. SEBI is reportedly seeking a response from Kotak Wealth on why Kotak’s relationship managers were making guarantees on the allotment.

The markets regulator wants to ascertain whether there was any conflict of interest. This is further in line with Kotak starting an internal investigation on its relationship managers, to know if there was any violation of the ethical code of conduct or any instance of misselling.

Grover, cofounder and managing director of the fintech unicorn BharatPe and a noted angel investor, sent a legal notice to Kotak Mahindra Bank accusing the bank of failing to secure financing and allocation of shares in the hugely successful Nykaa IPO.

Grover and his wife Madhuri Grover are seeking damages for Kotak Mahindra Bank’s inability to provide financing worth INR 500 Cr to subscribe to shares in the Nykaa IPO.

The legal notice has surfaced a week after a leaked audio clip in which Grover is heard hurling abuses and threats to one of the bank’s relationship managers.

The clip was earlier dismissed as fake by Grover, but Kotak Mahindra Bank’s response appeared to authenticate it.

Overpromising Or Innocent Mistake?

IPO financing is a contract between an investor and a financier, under which the investor proposes to borrow money to buy during a public offer. While the financier blocks the loan amount, it is debited once shares are allotted.

But disagreements over the lack of funding or allotment are fairly common.

According to the Grovers, while Kotak had informed them that the Nykaa IPO subscription formalities were done, soon after the financing was declined due to “erratic FII movements” and “very high lending rates”.

The duo alleged that Kotak’s refusal to provide IPO financing crippled their ability to participate in the Nykaa IPO. It deprived them of a business or investment opportunity, despite knowing about the plans more than a month before the IPO.

The bank is said to have made repeated representations regarding its ability to provide IPO financing. “Had Kotak informed our clients at the very beginning that it would be unable to provide IPO financing for the Nykaa IPO, our clients would have approached other financiers who were ready and willing to provide IPO financing to our clients for this IPO,” the legal notice sent by Grovers to Kotak Bank reportedly said.

Soon after the notice to Kotak, the reply which authenticated Grover’s misdemeanour with the Kotak employee, he went on voluntary leave. While the reason is unknown, it further sparked controversy as to whether it was a voluntary or board action.

The controversy sparked since it has been typical of boards to silently oust high-level employees of companies when the company’s reputation is at stake.

For instance, in 2018, ICICI Bank CEO Chanda Kochhar was asked to go on indefinite leave during an independent enquiry into alleged cases of impropriety involving her. The decision to ask Kochhar to go on leave was taken by the bank’s board after much public pressure.

Thus, while Grover’s letter indicates that Kotak was at fault, Kotak’s investigation has not resulted in a consequential insight, yet.