BharatPe Vs Ashneer Grover: A Settlement Or Compromise?

Earlier today, fintech unicorn BharatPe claimed to have settled its two-year long legal dispute with former MD and cofounder Ashneer Grover. The company said Grover will no longer be associated with the company, and also added that Grover will not hold any shareholding in the company.

But there are a number of questions that have come up despite these claims by the company.

Before we get to those, it’s worth noting that shares belonging to Grover shall be partly transferred to the Resilient Growth Trust operated by the company, and partly to Grover’s family trust.

In response to the settlement, Grover released a media statement, and said, “I repose my faith in the management and board, who are doing great work in taking BharatPe forward in the right direction. I continue to remain aligned with the company’s growth and success.”

So, after two years of bad blood, public mudslinging, court battles and other dramatic claims, Grover and BharatPe seem to have come to a settlement at a curious time. For anyone who has followed the BharatPe and Grover saga from early 2022, these statements are not only surprising, but raise plenty of questions.

As for the family trust that will take charge of certain shares held by Ashneer Grover, this will be in the names of the Ashneer and Madhuri’s children and will not involve the duo.

The trust will be managed by a mutually-decided independent advisor, sources told Inc42. We do not know exactly how much equity will reside with this family trust.

But why exactly has this settlement come now? And when we consider the volley of allegations and accusations over the past two years, this settlement raises more questions than it answers.

BharatPe Vs Ashneer Grover: A Short Timeline

Before we delve deeper, here’s a timeline of the various cases involving BharatPe and Ashneer Grover:

• In January 2023, BharatPe filed a civil suit at the Delhi High Court against Ashneer Grover and his family members for alleged embezzlement of funds, and sought up to INR 88.67 Cr in damages.
• Then in May 2023,  the Economic Offences Wing (EOW) of the Delhi Police registered an FIR in a criminal cases alleging fraud to the tune of INR 81 Cr
• In addition, Ashneer Grover is facing lawsuits from BharatPe cofounders Bhavik Koladiya and Shashvat Nakrani, both of whom are looking to retrieve their shares in the company, that are said to be held by Grover

These are three separate matters and the settlement announced by BharatPe only pertains to the civil case mentioned above, at least for now. But that could soon change.

While the civil suit is now formally settled, incidentally, the EOW investigation has progressed significantly in recent weeks with two arrests.

The most recent arrest was Deepak Gupta, a relative of Ashneer and his wife Madhuri Jain Grover, who has been in custody for nearly two weeks and was supposed to appear in court on Monday, September 30 for a hearing.

Sources close to BharatPe claim that the agency was close to arresting Madhuri Jain Grover, who is the prime accused in the EOW case. But now that there is a settlement in the civil suit, it’s very likely that the criminal matter will also be resolved without any more arrests, sources added.

One might ask why a settlement in a civil case is material for the criminal case, but there are provisions in the Code of Criminal Procedure of the Indian Penal Code to allow such settlements even in criminal cases.

In legal speak, an out-of-court settlement in criminal cases is called compounding of offence, and such compounding can occur without permission of the courts in certain cases. However, the court’s permission is needed for compounding of offences under Sections 406, 408, 409, 420, 467, 120B and 201 of the Indian Penal Code.

These are the sections pertaining to criminal breach of trust, cheating and forgery, and the primary sections in the chargesheet filed by the EOW in the alleged fraud case filed by BharatPe against Madhuri Jain Grover, Ashneer and others in their family.

One must also understand the reasoning of the law. Compounding of criminal cases is only allowed when there is an individual victim involved and there is no harm to the public at large.

We do not yet know what view the court will take on the compounding. However, sources close to the company told Inc42 that if the Grovers appeal to the court to quash the EOW FIR, BharatPe will not object. Essentially, this means that the Grovers could soon be completely free of all issues related to BharatPe.

Will The EOW Case Be Dropped? 

Inc42 contacted Ashneer Grover, BharatPe and Rajnish Kumar for their comments on the matter. BharatPe pointed to its statement on the settlement and did not offer any further clarification on why this settlement was reached at this point in time.

Rajnish Kumar did not respond to Inc42’s phone calls or text messages about the allegations raised by Ashneer Grover and why the board decided to settle the matter.

In response to a series of questions on the settlement, Ashneer Grover said, “Sir – I have nothing to share with you. Other that [sic] I am in London with my wife for a week and will be attending Diljit’s concert (yay ! Got the passes). All of us are bound by confidentiality.”

Grover and his wife Madhuri Jain Grover were allowed to travel to the UK by the Delhi High Court on the condition that the duo submit original share certificates and original title deeds of their properties. The permit is from September 28 – October 7, 2024, so the Grovers will likely be back in India next week.

In the meanwhile, what remains to be seen is how the EOW criminal case will play out. The final verdict in this matter is very likely to come next week, when the Grovers return to India after their court-mandated deadline.

Another Corporate Governance Lapse? 

The settlement is good news for BharatPe, which was stuck in an untenable position in light of multiple legal battles and was carrying the baggage of the former cofounder’s alleged actions for the past two years.

As the company stated, its focus now is on going towards profitability. BharatPe launched a B2C fintech super app recently, and it will undoubtedly look to acquire new users en masse now that it has seemingly moved on from the Ashneer Grover saga.

But there are quite a few concerns raised by others in the startup ecosystem. Many are asking, for example, whether a founder can simply defraud a company as BharatPe had alleged, and in return relinquish their equity to settle the matter.

“Ashneer has given up his equity here so the company does benefit from this to a certain extent, but there is an on-paper cash loss of INR 80 Cr-odd and reputation damage that cannot be fixed with a settlement. If anything, this raises even more questions about whether BharatPe did the right thing by settling this issue,” according to a Delhi-based corporate law practitioner.

How much equity did Ashneer Grover let go of? According to those close to the company, Grover held 8.5% stake in the company, whereas his family trust will now only have 4% stake.

This could further reduce if Grover settles his case with Bhavik Koladiya, another cofounder of BharatPe, who has claimed that his shares were being held by Grover but have not been transferred back.

All in all, given BharatPe’s valuation of $2.7 Bn, the company managed to claw back close to $108 Mn in equity value, which is significantly more than the INR 82 Cr ($10 Mn) loss caused by the alleged fraud. Sources claim that even if the company’s valuation falls in the future, the company has more than recouped its losses.

However, the lawyer quoted above questioned whether the board is doing the right thing for BharatPe in the long run. “This affects the reputation of those on the board and it’s not just about recouping losses. The likes of Rajnish Kumar and others on the BharatPe board were accused by Ashneer Grover of conducting business improperly. So we have to ask whether the board has something to hide by letting this go?”

Incidentally, Ashneer Grover had made allegations against BharatPe chairman and former SBI chairman Rajnish Kumar in a letter addressed to the Reserve Bank of India (RBI) earlier this year. Grover claimed Kumar allocated equity shares worth hundreds of crores to himself after joining the board.

He also alleged that Kumar drew a salary of INR 1.5 Cr per year, 3X higher than the amount he was being paid when he joined the BharatPe board in October 2021.

So what happens to all these allegations? Do they simply vanish with the settlement, many are asking.  “This means I can simply relinquish my shares and repay a company with equity after committing fraud and embezzling money. Not sure this is what we want founders to learn from the BharatPe case, especially after two years of course correction on the corporate governance front,” says a veteran investor.

The end of BharatPe’s fight with Ashneer Grover shows that corporate governance is a tricky subject to navigate for startups and their boards.

Two years ago, the company was blamed for lapses not only in relation to onboarding of non-existing vendors but also allowing key personnel to operate without enough checks and balances. And now, corporate governance questions are being raised around BharatPe arguably setting the wrong example for startups dealing with cases of fraud. So the question we are left with is: was this a settlement or a compromise?