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    View: BharatPe startup financiers upping ante augurs well for corporate governance

    View: BharatPe startup financiers upping ante augurs well for corporate governance

    View: BharatPe startup financiers upping ante augurs well for corporate governance
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    By S Murlidharan   IST (Published)


    BharatPe controversy: Ousting of founder by other shareholders is uncommon. Founders do exit but not midstream. That under-the-cloud Ashneer Grover founder of Bharat Pe is seeking exit has raised eyebrows and raised question mark over his tearing hurry in dropping his baby like a hot potato

    A graduate of the Indian Institute of Technology, Delhi and the Indian Institute of Management, Ahmedabad, Ashneer Grover is a co-founder and the managing director of BharatPe. The firm caters to small merchants and convenience store owners by offering them QR codes that they can use to accept payments digitally through the United Payments Interface (UPI).
    Last year, it secured an in-principle approval from the Reserve Bank of India to establish a small finance bank with Centrum Financial Services Ltd. Incidentally it has got such a bank on the platter with the RBI entrusting the beleaguered PMC Bank to it. The fintech firm has a network covering 100 cities of India, and in June 2021 acquired multi-brand loyalty platform PAYBACK India from American Express and ICICI Investments Strategic Fund.
    The firm’s valuation scaled to almost $2.85 billion within four years of its launch and it raised more than $600 million in funding by selling stakes to top financial funds such as Sequoia Capital India, Insight Partners, Dragoneer Investment Group, Steadfast Capital and Tiger Global. Its competitors include payment platforms such as Paytm and PhonePe.
    It is against such an envious track record one has to analyze media reports saying Ashneer Grover is looking to exit the firm by unloading his 9.5 percent stake amid allegations of financial fraud against him and his wife, Madhuri Jain Grover.
    The alacrity with which Grover has offered to exit (at a reported expected price of Rs 4000 crore) is bound to raise eyebrows as it only shows his non-seriousness and lack of appetite for the long haul. Throwing in the towel by the founder so early in the day reveals in hindsight his desire to get rich quick. To be sure, it is not uncommon for founders to exit enticed by high valuations.
    Ramesh Chauhan of Parle did it long ago when he sold his soft drink brands Thums up, Limca etc. to Coca Cola for a fabulous price of Rs 180 crore with which he started Bisleri bottled mineral water. Kalyanaraman incidentally also of the IIT pedigree like Grover too bid adieu to good knight mosquito repellant long ago by selling his firm to Godrej for Rs 50 crore. But they both sold out after their brands became household names thus leaving in a blaze of glory whereas Grover seems to be either chickening out in the face of the possible damning indictment by PWC on charges of financial misdemeanors or to get rich quick or both.
    That quick money is what he is coveting became evident when he a few months ago slapped a notice on Kotak Mahindra Bank, his first employer, asking for a compensation of Rs 500 crore for its refusal to sanction him IPO finance to invest in the IPO of Nykaa. The amount represented in his view opportunity loss. Even he himself could not have been confident of his grounds when he sought to pit the bank in a legal battle. Now the reports of exiting Bharat Pe confirms the restlessness to lay his hands on big moolah. Normally Indian promoters bide their time till IPO when they ride piggyback on it through Offer For Sale (OFS) simultaneous platform. Be that as it may.
    Grover has been accused of routing the firm’s money through human resources (HR) consultants known to each other, and through his wife Madhuri’s brother, Shwetank Jain. Other, more serious accusations include inflating the value of transactions of various merchants through fake invoicing. Last year, the Directorate General of Goods and Services Tax Intelligence (DGGI) searched BharatPe’s premises and found invoices worth Rs 50 crore to non-existent vendors.
    BharatPe’s board is setting the stage to terminate Grover’s and his wife’s employment under “cause” provisions of the company’s Articles of Association (AoA) to buy back their shares at a fair market value. One of the definitions of “cause” is “gross negligence or willful misconduct by such founder, as determined by a Big 4 Firm. The Big 4 Firm PricewaterhouseCoopers (PwC) is currently investigating the alleged financial irregularities.
    While what its findings triggers remains in the realm speculations and possibilities, there are straws in the wind—the fabled foreign startup investors have started girding their loins at the first hint of mismanagement. This is just as well because anything obnoxious must be nipped in the bud instead of being allowed to fester and assume monstrous proportions. There is a lesson from this for Indian banks too the perennial victims of diversion of funds by wily promoters—ask your nominee director to exercise due diligence and vigilance to nip mischief in the bud.
    Technocrat promoters more often than not lack financial muscles to realize their business ambitions and hence rely on venture capitalists. It is as if the latter are sending the grim message that business ambitions are fine but not personal.
    — S. Murlidharan is a CA by qualification and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own.
    Read his other columns here
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