The BharatPe board’s decision to rope in accounting firm PwC for an independent audit is a step towards terminating the services of co-founder and managing director Ashneer Grover and his wife Madhuri Jain Grover, as their ouster can only happen after a report by a Big 4 audit firm indicts them, people familiar with the development told Moneycontrol.
“The share purchase agreement says the board can terminate the services of Ashneer and Madhuri but they need a certificate from one of the Big Four firms to say a fraud has happened and that is why PWC has been hired,” said one of the persons.
While the share purchase agreement is a private document, Moneycontrol accessed BharatPe’s 2021 articles of association (AoA) which briefly mentioned the role of one of the top four accounting firms when decisions like this were required to be taken.
“...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,” reads the AoA.
In an interaction with Moneycontrol last week, Grover also mentioned that the board was arm-twisting him into exiting the company.
This is the reason Deloitte, the statutory auditor that has been auditing BharatPe since 2019, has been kept at an arm’s distance for this exercise. However, it will continue to be the statutory auditor of the company till 2024.
This comes even as a management consultant and risk advisory firm Alvarez and Marsal is conducting a full-scale governance review. While BharatPe did not comment for this story, it had earlier confirmed to Moneycontrol that PwC was doing a governance review of the company.
“Such clauses are very common especially for companies where large global investors like Tiger Global invest. If you have to terminate the services of a founder, you need a Big Four report. The board cannot just gang up and throw away anybody,” said a compliance lawyer, requesting anonymity.
However, the situation is at a crucial juncture where the preliminary findings of Alvarez and Marsal point towards financial irregularities at the company even as Grover has denied all allegations along those lines.
Select screenshots of Alvarez and Marsal’s early reviews that were leaked on social media show inconsistencies in dealings with vendors and have flagged payments to vendors and consultants that are non-existent.
It states that a total expenditure of Rs 53.25 crore was made towards vendors that do not exist and the company incurred a loss of Rs 10.97 crore in these dealings.
The report also states that BharatPe claims to pay recruitment fees to consultants for the employees they recruit for the company. Although Alvarez and Marsal could confirm that some of the employees, as claimed to be hired through consultants, were brought on board, the said employees have revealed that they had no interaction with any consultants in the process and have no knowledge of their existence.
In three instances of payments made to these consultants, the report finds that Madhuri Grover herself received invoices for payments and forwarded them to the accounts team.
“The documents, if verified, are pretty damning and then it is a clear-cut case of siphoning off money which tantamount to fraud,” said the person cited in the first instance.
On the legal front, while Grover has a fair chance to get away if financial irregularities are proven, Madhuri Grover may land in trouble given that all the expenses have been authorised by her.
Jain acted as the head of controls at the $3-billion fintech company and was also sent on leave days after Grover was put on leave of absence.
Things have also turned tricky with the involvement of the Directorate General of GST Intelligence (DGGI) which as per the Alvarez report had conducted a search operation at BharatPe’s head office on October 21, 2021.
In response to payment remittance details sought by the DGGI, Deepak Jagdishram Gupta, Madhuri Grover’s brother-in-law, had said that the vendors on whom details are sought do not exist.
Instead of contesting the demand for service tax, BharatPe paid close to Rs 11 crore in dues along with penalties.
“The biggest problem that happened is the whole GST (goods and services tax) issue which is in the background. This means that the law enforcement already knows that BharatPe had booked expenses and they would have booked GST credit on these expenses, which is wrong, and then the company did not contest it and they paid GST and also penalty on it. That is a tacit admission that they had booked fake expenses in the books,” said an industry expert.
“The vendor payment for which they have taken GST credit is wrong. The next thing is that the income tax department would also look at it. The department would also know that the profits have been deflated. Even the Enforcement Directorate can come into the picture. They can ask where the money went. Was it laundered? Did it find its way to personal accounts?” he added.
Intriguingly, while social media users and publications including Moneycontrol have seen portions of the forensic report, the board hasn’t seen any report so far.
Veteran banker Rajnish Kumar, who is chairman of BharatPe, told Moneycontrol that the board will launch “corrective action” based on the outcome of an audit report by Alvarez and Marsal that examined corporate governance issues mainly concerning personal investments by co-founder Ashneer Grover. He said the board is yet to receive the report by Alvarez and Marsal.
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