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US- and Hyderabad-based software company VSoft Technologies has been reportedly accused of fraud by private equity firm, Peepul Capital. Peepul Capital is also an investor in the former.
The complaint has been filed with the Hyderabad police and states “fraudulent and deceitful diversion of funds to a related party” as the cause. VSoft Technologies’ CEO and Chairman Murthy Veeraghanta has denied the charge.
Founded in 2004 as the Indian arm of the Atlanta-based VSoft Corporation, VSoft Technologies Pvt. Ltd caters to the Indian banking and financial institutions sector with technology products and platform-based BPO services in the core banking and payments domain.
According to an official statement, the complaint has been filed after the two entities decided to resolve the matter in Mauritius. The case was processed in an arbitration court in the country and the court ruled in favour of Peepul Capital in January 2015. VSoft was ordered to pay $23 Mn (INR 150 Cr) against the losses Peepul Capital had suffered, including its investment in VSoft Technologies.
Following that, VSoft appealed against the decision, and proceedings for the same are ongoing.
Founded in the year 2000, Peepul Capital is an India-focussed and sector-agnostic private equity firm with $700 Mn under its management. It has invested in companies including Medplus, Univercell, and Ecom Express.
Commenting on the allegations and court proceedings, VSoft’s CEO and Chairman, Murthy Veeraghanta said, “The allegations and their timing could damage the company’s efforts to grow the business and raise funds, apart from posing a risk to its efforts to obtain a licence to act as a small finance bank and for bill payments.”
What Has Happened So Far
When Peepul Capital accused VSoft with failing to meet the promises, including providing an exit route to be given to the investment firm, both parties had agreed to dissolve the agreement in May 2012. They had agreed to not change a few clauses and had signed a fresh agreement for shareholders.
Presently, in the complaint filed with the Hyderabad police, the equity firm claims that in accordance with the new agreement, it now has certain management and voting rights in VSoft whereby the latter would have to obtain a vote from Peepul Capital regarding decisions.
According to Peepul Capital, it holds 77% of the voting rights of VSoft after automatic conversion of compulsorily convertible preference shares within the new agreement, and VSoft did not obtain the mandatory affirmative vote on certain transactions from it.
Peepul Capital has also accused Veeraghanta and his wife Venkata Lakshmi Kameswari of diverting funds from VSoft Technologies to a company called Smart Staffing Source over the past three years. The amount of funds transferred is said to be $3.7 Mn (INR 25 Cr).
In response to the accusation, Veeraghanta has said that Smart Staffing was provided the money for data entry services offered to VSoft since 2009. He also said that this transaction had already been disclosed to the shareholders.
On not being able to provide the promised exit route to the equity firm, VSoft CEO blamed dull economy and unfavourable market conditions. In turn, he has accused Peepul Capital of “harassing” him with “false complaints” to the police and regulators. “The present complaint is clearly an attempt to derail the judicial process at the courts of the seat of arbitration, which is the appropriate forum to resolve the differences,” he added.
This development was first reported by ET.
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