BharatPe investors may make stake sale painful for Ashneer Grover: Experts

BharatPe founder's demand for Rs 4,000-crore payout rests on shaky ground

Ashneer Grover, the embattled founder and managing director of fintech unicorn BharatPe, would find it difficult to sell his 9.5 per cent stake in the company amid the prevailing boardroom tussle, experts say. 

“Given the forensic audit that is going on, it seems like he will be fired with cause. So, investors will try to make it as painful as possible. Otherwise, founders will always try to create a nuisance and seek an exit after hitting a high valuation,” said a venture capital investor who does not want to be named.

Grover’s stake of 9.5 per cent in the company was worth Rs 1,915 crore based on the last funding round in August 2021 when BharatPe was valued at $2.8 billion. However, in a recent interview, the BharatPe founder said that he will leave the company only if he is paid Rs 4,000 crore, valuing the company at $6 billion.

“Based on my experience in such cases and what I am hearing, his exit will be pegged at not more than half the valuation of the previous round. Also, major investors always have the right to first refusal in any buyback, ” he added.

Meanwhile, the company has also appointed two firms – Alvarez & Marsal and PwC – for an audit of alleged financial irregularities. According to the company’s Articles of Association, any wilful misconduct or negligence by a founder, once determined by a Big Four firm that does not have a prior relation with the company, can be used to start a process to buy back the founder’s stale.

Suraj Malik, Senior Advisor, Private Clients at Burgeon Law who works with family offices, says that when such issues of payout draw out to a legal battle, then the courts will not have any stand on valuation. “I think the Rs 4,000-crore demand is just the start of the negotiation. In my opinion, the parties should amicably come to douse the fires and start anew unless one of them is hung on proving a point to another,” he says.

“In that case, it is unlikely that the investors will straightaway agree to his ask for an exit at a much higher valuation than the last round of funding. If you see the Tata-Mistry or similar other cases in joint ventures, the exiting party also does not give in easily and the issue often drags along,” he adds.

The AoAs also say that if the employment of a founder is terminated, his shares can be bought back by investors at a price lower than fair-market valuation.  “The restricted shares held by such  founder shall be: (x) bought back by the company at the lower of the FMV or the price paid  by the relevant Founder for acquisition of such Restricted Shares; or (y) transferred to an  employee welfare trust…” 

Last week, the boardroom tussle at BharatPe heated up after Grover withdrew his nomination for CEO Suhail Sameer as a director on the Board, co-founder Shashvat Nakrani has thrown his weight behind the CEO. 

“One of the cofounders’ (Nakrani) assertion that he has not given any consent or demand for such removal and that the CEO continued to enjoy his support is a move that is expected to complicate the push to oust Sameer as both the founders need to consent jointly to remove the CEO, as per our reading of the Articles of Association (AoAs),” says Salman Waris, Partner at Delhi-based law firm TechLegis.

According to the AoAs of the fintech unicorn, each founder has the right to be nominated as a director to the Board and may nominate another person as a director with the consent of. “Additionally, the founders shall have a right, acting  jointly, to nominate and maintain 2 (two) directors. Each director appointed pursuant to this Article 91.3.1 shall be referred to as a founder director,” it adds.

Although the AoAs clearly specify that the nominating shareholders can remove or substitute their directors, there is no straight answer on how a joint nomination of shareholders or founders can be removed.

“The CEO cannot be removed from the board on the sole demand of one founder. And any such removal can only be done jointly by both the co-founders since the CEO was a nominee of both the founders. So, one founder’s unilateral withdrawal is not technically valid under the law and this creates a deadlock situation,” explains Waris.

A lawyer, who does not want to be named as he is close to the developments, said that the Board will have to call a meeting to discuss the issue of Grover’s withdrawal of nomination. “The board will take up the mandate with the nominating shareholder saying why he has lost confidence in the particular director.”

“Sameer will also have to be asked whether he wants to resign or not. After that, the board will take a decision based on voting,” he added.