BharatPe-Ashneer Grover SHA Saga: What actually happened and the lessons for founders

BharatPe’s shareholders agreement is not a public document, and neither Treelife nor anyone outside the parties has seen it. What is on the record is narrow: part of Ashneer Grover’s holding was classified as restricted shares, and the agreement carried an arbitration clause referring disputes to the Singapore International Arbitration Centre (SIAC). Those two features sit in almost every Indian venture-backed SHA, alongside the reverse vesting, leaver and drag mechanics that usually travel with them. What made the Ashneer Grover dispute unusual was not the drafting. It was watching that class of clause get tested in four separate forums, over roughly three years, in full public view. This article reconstructs, from publicly available records, what each side did, where the courts, the National Company Law Tribunal and SIAC landed, and what the dispute closed on. The goal is not to relitigate anything. It is to set out which contractual language tends to decide outcomes of this kind, so the next SHA is drafted with this case in mind.

What clause let BharatPe claw back Ashneer Grover’s shares?

BharatPe stated publicly in May 2022 that it had initiated action to claw back Grover’s restricted shares “as per the shareholders’ agreement”. The agreement itself has never been published, so the precise trigger, the determination mechanism and the repurchase price formula are not in the public domain. What the record does show is that the company treated part of Grover’s holding as restricted, and that in late 2022 it commenced a SIAC arbitration concerning approximately 1.4 per cent of unvested shares out of a holding then reported at approximately 8.43 per cent. In market-standard Indian SHAs, that outcome is produced by a restricted share and reverse vesting construct with a for-cause or bad leaver trigger, which is the mechanism this article uses as the reference point. It should not be read as a description of what BharatPe’s actual document says.

How Ashneer Grover became a BharatPe shareholder in the first place

This is a different BharatPe dispute from the company’s trademark battle with PhonePe over the “Pe” suffix, covered separately in the PhonePe vs BharatPe trademark case study. This article deals only with the internal founder and shareholder dispute.

BharatPe (legally Resilient Innovations Private Limited) was incorporated on 20 March 2018 by Shashvat Nakrani and Bhavik Koladiya, holding 5,000 equity shares each, after the two had run the underlying business through a partnership firm, M/s EZY Services. On 2 July 2018, Grover acquired 3,192 shares, 2,447 from Nakrani and 745 from Koladiya, at ₹10 face value per share, a stated consideration of ₹31,920. Accounts of when he formally came on board differ: Nakrani’s plaint in the later suit states Grover was hired as CEO in May 2018, while BharatPe’s own pleading in its suit against the Grovers records that he was appointed a Director on 5 November 2018 and CEO on 12 December 2018 under an employment agreement of the same date. Press accounts describing him as joining as a third co-founder and board member in July 2018 track the share transfer date rather than the board appointment. This single fact, an intra-founder share transfer priced at face value rather than fair market value, is the seed of the second major legal dispute that ran alongside the main BharatPe versus Grover conflict.

The company’s shareholder documentation went through the layering typical of a fast-growing fintech. On the record before the Delhi High Court, sixteen agreements were executed between July 2018 and August 2021. A Shareholders’ Agreement was executed on 28 March 2019 among Resilient Innovations, Grover, Nakrani, other existing shareholders, Grace Software Holdings L.P., BEENEXT2 Pte Ltd, Sci Investments VI and Sequoia Capital India Trust. A Share Subscription Agreement and Shareholders’ Agreement dated 15 August 2019 added Redwood Trust, Ribbit Cayman IN Holdings V Ltd, Steadview Capital Mauritius Limited and ABG Capital. An Amended and Restated Shareholders’ Agreement dated 13 February 2020 brought in Coatue PE Asia 27 LLC and the Amplo funds. Further Amended and Restated Shareholders’ Agreements followed on 10 February 2021 and 4 August 2021, the last of which was the operative SHA by the time the dispute broke out. By 2022, BharatPe had unicorn status and a cap table with more than a dozen institutional shareholders, each a party to one or more of these agreements.

How founder shareholding actually gets structured

A founder who buys or receives shares directly from a co-founder, rather than through a fresh company allotment, is buying an asset that will ordinarily be subject to whatever restricted share and vesting mechanics the SHA imposes on founder shareholding generally. The transfer price between founders, often face value, has no bearing on the reverse vesting schedule or clawback triggers that attach to those shares once the SHA is executed. Founders frequently assume a paid transfer between individuals sits outside the SHA’s vesting net. It does not, once the shares are brought within the defined “founder shares” category.

The corporate governance review that ended Grover’s tenure

The dispute became public in January 2022, when reports surfaced of an audio clip attributed to Grover involving abusive language directed at a Kotak Mahindra Bank representative over a Nykaa IPO share allocation. Grover initially described the clip as fake in a social media post that he later deleted. On 19 January 2022, the board agreed to Grover’s own request for a leave of absence until the end of March 2022. Madhuri Jain Grover, then Head of Controls and Grover’s wife, was separately sent on leave and her services were terminated in February 2022. The board commissioned a review involving Alvarez & Marsal, Shardul Amarchand Mangaldas & Co and PwC.

The review’s findings, as later summarised in BharatPe’s own public statements, alleged extensive misappropriation of company funds through inflated or fabricated vendor invoices. Those allegations were denied by Grover and his family members throughout, and no court or tribunal ever ruled on them. On 1 March 2022, Grover ceased to be managing director and a director of the company. He described this as a resignation, delivered by email with immediate effect; BharatPe and subsequent agency reporting have described him as having been removed by the board. A BharatPe spokesperson said at the time that the resignation arrived minutes after the board circulated the agenda for a meeting that included submission of the PwC report on his conduct. In his resignation email, Grover disputed the findings and criticised the founder-investor relationship in Indian venture capital, a comment widely reported at the time.

In May 2022, BharatPe announced that, based on the reports by Alvarez & Marsal, Shardul Amarchand Mangaldas and PwC, its board had recommended a set of measures including clawing back Grover’s restricted shares under the SHA and terminating several employees connected to the flagged vendors, alongside a new code of conduct and a new vendor procurement policy.

This is the point at which a for-cause clawback clause moves from a contractual provision to an active enforcement action. For a company to invoke such a clause unilaterally, market-standard drafting generally requires three things: a defined “cause” trigger tied to gross misconduct or breach of fiduciary duty, a board-level rather than shareholder-level determination mechanism, and a share repurchase or forfeiture price formula that does not require the departing founder’s consent. Whether BharatPe’s SHA contained all three is not something the public record establishes.

A bad leaver definition drafted that broadly is worth pressure-testing against founder vesting and lock-in clauses before you sign.

The Nakrani-Grover share transfer dispute: a second, entirely separate case

While BharatPe’s clawback proceeded, a second dispute emerged over the 2,447 shares Grover had acquired from Nakrani in 2018. In 2023, Nakrani filed a civil suit in the Delhi High Court, CS(COMM) 166/2023, seeking a declaration that the oral agreement of 2 July 2018 stood rescinded and that the Form SH-4 executed under it was void, because, he claimed, Grover had never actually paid the ₹24,470 consideration. Nakrani sought an interim injunction restraining Grover from selling, transferring or creating any third-party rights over those shares, which after a share split and bonus issue stood at 27,627 shares. A separate suit was filed by Bhavik Koladiya in respect of the 745 shares transferred by him, in which Grover had given an undertaking not to deal with those shares pending disposal.

Grover’s defence turned substantially on documentation: Form SH-4 (the statutory share transfer form under Section 56 of the Companies Act, 2013) had been executed and recorded the consideration as received, BharatPe’s board had passed a resolution on 2 July 2018 approving the transfer, and BharatPe’s register of members had listed Grover as the shareholder of record since 2018. Grover maintained the consideration had been paid in cash at the time; Nakrani maintained it never was.

On 15 December 2023, Justice Sachin Datta of the Delhi High Court dismissed Nakrani’s injunction application. The court took the view, on a prima facie basis, that under Section 20 of the Sale of Goods Act, 1930, where there is an unconditional contract for the sale of specific goods in a deliverable state, property passes when the contract is made, and it is immaterial that the time of payment or delivery is postponed. It held that mere postponement of payment does not by itself dispel a completed sale, particularly where the plaintiff’s own legal notice dated 18 March 2023 admitted that receipt of consideration had been postponed. The court also relied on Sections 11, 19, 25, 46 and 47 of the Sale of Goods Act and on Maneckji Pestonji Bharucha v. Wadilal Sarabhai & Co., Howrah Trading Co. v. CIT (AIR 1959 SC 775), CIT v. Bharat Nidhi Ltd. and Arihant Udyog v. State of Rajasthan (2017) 8 SCC 220.

A further limb of the order is often overlooked and was arguably decisive. The court noted that in the parallel suit filed by the company against the Grovers, Nakrani had verified on affidavit, as authorised representative of the company, a pleading that Grover “became a shareholder of the Plaintiff by contributing a paltry sum of INR 31,920”. That contradiction, the court held, additionally disentitled him to interim relief.

The court directed Grover to give prior intimation before any further transfer of the disputed shares. In February 2024, a division bench of Justices Rajiv Shakdher and Amit Bansal disposed of Nakrani’s appeal without disturbing the single judge’s order, by consent of counsel, and directed that issues be framed and the suit expedited.

Direct answer: In the interim order of 15 December 2023, the Delhi High Court took the prima facie view that where a Form SH-4 is duly executed, records receipt of consideration, and the transferee’s name is entered in the company’s register of members following a board resolution, title will be treated as having passed, even where the transferor later disputes actual payment (Section 20, Sale of Goods Act, 1930). On that view, a subsequent payment dispute is a claim for recovery of money rather than a basis to unwind the transfer. Note the limits: this was an interlocutory order under Order XXXIX Rules 1 and 2, the court expressly recorded that its observations were made only for the purpose of deciding that application, and the suit itself was not decided on the merits.

Four forums, one set of facts: why this case never had a single verdict

Most Indian founder disputes resolve in one forum: arbitration if the SHA has a clause, or an NCLT oppression and mismanagement petition under Sections 241-242 of the Companies Act, 2013 if it does not. The BharatPe-Grover dispute ran in four simultaneously, and understanding why is itself the lesson.

This is the structural point most commentary on the saga misses. An SHA’s arbitration clause can only capture disputes that arise “under” or “in connection with” the agreement itself. A criminal prosecution runs independently of any arbitration agreement, and a private contract cannot displace it. On the civil side, the arbitrability of fraud allegations turns on A. Ayyasamy v. A. Paramasivam (2016) 10 SCC 386 and Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1: serious fraud that permeates the entire contract or carries a public flavour is non-arbitrable, while fraud simpliciter in a contractual dispute is arbitrable. Oppression and mismanagement claims under Sections 241-242 were held non-arbitrable in Vidya Drolia, and in Rakesh Malhotra v. Rajinder Kumar Malhotra (Bombay High Court, 2014) the court held that a genuine petition is non-arbitrable while expressly permitting a Section 8 reference where a petition is dressed up to defeat an arbitration clause. That leaves the SHA’s arbitration clause to capture only the contractual dispute, here the clawback and transfer of restricted shares, while the criminal, civil damages and oppression strands proceed independently. A founder or investor who assumes a well-drafted arbitration clause will consolidate every dispute arising from a fallout is working from a mistaken premise. It will consolidate only the subset the clause is legally capable of capturing.

The Shaadi.com-WestBridge dispute covers the enforceability question for Singapore-seated arbitration clauses in more depth, including the jurisdictional risk when Indian courts and a foreign-seated tribunal are asked to rule on the same SHA simultaneously.

The September 2024 settlement: how the shares actually moved

On 30 September 2024, BharatPe announced a definitive settlement agreement with Grover. Its structure, as publicly described by the parties and as reported at the time, is a useful template for how Indian founder-company settlements are typically papered once litigation fatigue sets in on both sides:

• Grover exited BharatPe’s cap table entirely and undertook no further association with the company in any capacity.
• Certain of his shares were transferred to the Resilient Growth Trust, an entity described by the company as structured for its benefit, effectively completing the clawback BharatPe had initiated in 2022.
• His remaining shares were to be managed by his family trust. Inc42 reported at the time, citing sources, that this trust would be in the names of Grover’s and Madhuri Jain Grover’s children rather than the couple, and would be managed by a mutually decided independent advisor. Neither party confirmed the trust’s terms, its beneficiaries or the split between the two trusts publicly.
• Both sides agreed not to pursue the cases they had filed, covering BharatPe’s civil damages claim and its criminal complaint, and Grover’s claims against the company. No party admitted liability.
• Grover’s NCLT oppression petition was dismissed as withdrawn on 14/10/2024, and on 17/10/2024 he withdrew an application before the NCLAT seeking early hearing of that petition.
• On 11 November 2024 the Delhi High Court quashed the EOW FIR on the basis of the settlement, and cancelled the look out circular against Grover and Madhuri Jain Grover, directing release of documents held with the Registry including original property title deeds, an original share certificate for 5,660 Resilient Innovations shares and passports.

Grover confirmed the settlement publicly, stating that he reposed his faith in the management and board taking BharatPe forward. The structure, part clawback to a company-benefit trust and part family trust, is a settlement pattern that recurs in Indian founder exits where a straight cash buyout is commercially or reputationally difficult for either side. It lets the company complete the governance narrative it needs, with the founder holding no shares, no board seat and no further claim, while giving the departing founder a non-cash resolution that involves no admission on the underlying allegations.

What the settlement left unanswered

A settlement that closes civil and criminal proceedings without either side admitting fault is not the same as a resolved dispute, and founders reading this case for pattern-matching purposes should treat it that way. Three questions the September 2024 settlement did not answer are worth naming.

Why did the settlement land when it did. The settlement came within weeks of the Delhi Police Economic Offences Wing arresting Deepak Gupta, a relative of Grover’s wife named in the FIR, in a case the company itself had pushed to investigate. Neither party explained the timing publicly, and nothing about the strength of either side’s case can be inferred from it. As a general matter, parties settle multi-forum disputes for reasons unconnected to the merits: cost, management distraction, funding cycles, reputational exposure and the difficulty of running four proceedings at once. That is the pattern worth noting, not a reading of this particular decision.

What equity split the family trust actually carries. BharatPe’s statement confirmed that part of Grover’s shareholding moved to a company-benefit trust and part to a family trust, but neither party disclosed the ratio, the trust’s valuation or its terms, and the position on beneficiaries and the managing advisor rests on press reports citing sources rather than on any party statement. A settlement that leaves the economic split of a founder’s exit undisclosed is common in Indian private company settlements, since neither party is bound to file it publicly, but it also means outside observers, including future investors doing diligence on a cap table, cannot verify on what terms a clawback was applied.

Whether the underlying allegations were ever independently adjudicated. No court, arbitral tribunal or criminal court reached a final finding on whether Grover or his family members did anything BharatPe alleged. The Alvarez & Marsal, Shardul Amarchand Mangaldas and PwC review was commissioned by BharatPe’s own board, not by an independent tribunal, and the matter closed by settlement, withdrawal and quashing before any of the parallel proceedings reached a verdict on the merits. A quashing on the basis of compromise is not an acquittal and not a finding either way. For a founder or investor citing this case as a precedent, the accurate description is that the parties settled on commercial terms, not that a court or arbitrator found either side to have been in the right.

Grover exited the BharatPe cap table entirely after the settlement. He had earlier, in January 2023, co-founded Third Unicorn with his wife, Madhuri Jain Grover, and entrepreneur Aseem Ghavri, which launched a fantasy cricket product (CrickPe) and later a medical-financing app (ZeroPe) built with an NBFC lending partner. None of this bears on the SHA lessons above, but it is worth noting for anyone using this case as a full timeline rather than a clause study.

Direct answer: The BharatPe-Grover settlement closed the parties’ contractual, civil and criminal disputes without any independent finding on the underlying allegations. Founders and investors relying on this case as precedent should describe it as a negotiated exit, not an adjudicated one, since no tribunal or court ruled on whether any alleged misappropriation occurred.

Common mistakes that cost founders time and money

1. Treating a founder-to-founder share transfer as outside the SHA’s vesting net. Grover’s original 2,447 shares from Nakrani were a private, face-value transaction between individuals. Once shares of that kind fall within an SHA’s defined founder shareholding, they carry the same restricted-share and clawback exposure as directly allotted shares. Founders buying into a co-founder’s stake should confirm in writing whether the SHA’s vesting schedule attaches to the transferred shares from the date of the original grant or resets from the transfer date.

2. Assuming an arbitration clause consolidates every dispute arising from a fallout. As set out above, criminal proceedings run independently of any arbitration agreement, NCLT oppression claims are non-arbitrable, and the arbitrability of fraud allegations depends on where they sit on the Ayyasamy and Vidya Drolia spectrum. Founders should plan for parallel proceedings as the default scenario in any serious falling-out, not the exception.

3. Leaving the “cause” definition in a bad leaver clause vague. Where a for-cause trigger is broad enough to be satisfied by a board-commissioned audit, without requiring the founder’s consent or an external adjudicator’s ruling first, the company can act unilaterally. A founder signing an SHA with this kind of clause should push for an independent third-party determination, whether an arbitral tribunal or a named auditor, before a bad leaver clawback is triggered, rather than leaving the determination solely to the board. The negotiation language for this sits in event of default clauses in shareholders agreements.

4. Delaying payment on an intra-founder share transfer without documenting why. Nakrani’s interim application failed in part because his own legal notice acknowledged that payment had been postponed. Any founder deferring consideration on a share transfer, for tax planning, cash flow or otherwise, should record the deferral terms in writing at the time, not rely on an informal understanding that may later read as non-payment. Equally, any founder paying in cash should take a contemporaneous receipt.

5. Assuming a settlement ends every proceeding automatically. The September 2024 settlement covered the civil suit and the criminal complaint, but Grover still had to separately and formally withdraw the NCLT petition and the NCLAT application weeks later, and the parties had to move the High Court separately for quashing of the FIR, which came through on 11 November 2024. A settlement agreement drafted to cover “all disputes” is not self-executing across tribunals. Each forum requires its own withdrawal, consent filing or quashing petition.

Treelife’s practitioner note

The following are general drafting and dispute-management observations from Treelife’s SHA and transaction practice. They are not comments on the BharatPe dispute or on any person involved in it.

The pattern described above recurs in miniature more often than the headlines suggest. Series A and Series B founder exits regularly turn on a for-cause clawback clause invoked on the strength of an internal or board-commissioned audit, where the SHA requires no independent adjudication before the clawback takes effect.

A founder facing that can seek interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, including a stay on any share transfer or clawback pending arbitration, but two conditions apply and both are frequently missed. First, the SHA’s arbitration clause must be drafted broadly enough to cover the clawback dispute itself. Second, where the seat is outside India, Section 9 is available only through the proviso to Section 2(2), and only where the parties have not excluded the application of Part I by agreement, express or implied. An SHA that specifies a foreign seat and carves out Part I can leave an Indian founder with no Indian interim remedy at all.

A related misconception is that a family trust structure used in a settlement automatically shields shares from future creditor claims. A trust settled after a dispute has arisen can be challenged under Section 53 of the Transfer of Property Act, 1882 as a transfer made with intent to defeat or delay creditors, and in an insolvency context under Sections 43 and 49 of the Insolvency and Bankruptcy Code, 2016. The safer route is to negotiate the bad leaver and clawback mechanics before the round closes, rather than rely on a trust structure improvised at the settlement stage.

If your SHA’s clawback clause has never been reviewed against a live dispute scenario, the co-founder disputes and SHA guide walks through the buyout mechanics founders and investors should negotiate upfront.

Case study

The following is an illustrative composite drawn from Treelife engagements. Identifying details have been changed.

Situation: A Series B fintech company based in Bengaluru, backed by three institutional investors, faced a governance complaint against one of its two founders following an internal whistleblower report.

Challenge: The SHA’s bad leaver clause defined “cause” narrowly, limited to conviction for fraud, the board had no unilateral clawback power, and the founder in question held 40 per cent of the fully diluted cap table, enough to block a special resolution.

What Treelife did: Treelife advised the board to commission an independent forensic audit before taking any board action, structured a standstill arrangement with the founder pending the audit outcome, and negotiated a phased share buyback tied to audit findings rather than an immediate clawback.

Outcome: The dispute was resolved through a negotiated buyback within 5 months, at a valuation discount to the last round rather than a nominal clawback price, avoiding the multi-forum litigation pattern seen in the BharatPe case.

FAQ’s on BharatPe-Ashneer Grover SHA saga

Q: Are gains from a founder’s settlement share transfer taxable in India?
A: Generally yes. Where a founder transfers shares as part of a settlement, whether to a company-benefit trust or a family trust, the transfer is a taxable event for capital gains purposes unless it falls within one of the enumerated exclusions in Section 47 of the Income Tax Act, 1961. Those exclusions are exhaustive and a settlement transfer does not fall within them by default. The analysis does not stop at the transferor: where unquoted shares are transferred below fair market value, Section 50CA substitutes FMV as full value of consideration in the transferor’s hands, and Section 56(2)(x) can tax the recipient trust on the difference, with valuation under Rule 11UA. For transfers on or after 01/04/2026, the corresponding provision is Section 70 of the Income-tax Act, 2025, the successor to Section 47, whose clauses are substantially carried forward, re-lettered and modernised with some expanded coverage including certain foreign reorganisations and IFSC fund relocations; verify the clause-level position against the current text before relying on it. Either way, the outcome depends on whether the shares move for consideration, at nominal value or by way of gift, on the trust’s constitution and beneficiaries, and on the residential status of the parties. Treelife has not seen the BharatPe settlement documents and expresses no view on how that transaction was assessed.

Q: What does it typically cost to litigate a founder-company dispute across multiple forums?
A: The following are working estimates based on practice experience, not published figures. Costs scale sharply with the number of parallel proceedings. A single-forum arbitration or NCLT matter for a mid-sized dispute typically runs into ₹50 lakh to ₹1.5 crore in legal fees over 12 to 18 months. A dispute spanning civil suit, criminal defence, NCLT and international arbitration simultaneously, as in the BharatPe case, can run several times higher and take two to three years or longer.

Q: How long does a founder-company SHA dispute typically take to resolve?
A: Again as a working estimate, a negotiated settlement can close in 3 to 6 months once both sides commit to it. Contested litigation through to a final Delhi High Court judgment, absent settlement, typically takes 2 to 4 years at the trial court stage alone, with appeals adding further time, broadly consistent with the roughly three-year span of the BharatPe-Grover dispute.

Q: What documentation should a founder keep to prove a share transfer is complete?
A: The executed Form SH-4, the board resolution approving the transfer, evidence of consideration (bank transfer record or, where cash, a contemporaneous receipt), and confirmation of entry in the company’s register of members. In the Nakrani matter, the executed Form SH-4, the board resolution of 2 July 2018 and the register entry were all before the court and all told the same story, which is why the transferor failed at the interim stage. Independent proof of payment was the one thing missing on both sides, which is precisely why the payment question survived to trial.

Q: Can a Singapore-seated arbitration clause in an SHA be challenged on jurisdiction grounds by an Indian party?
A: Yes, and BharatPe’s case is a direct example. Grover challenged SIAC’s jurisdiction over the clawback dispute and separately applied for a stay pending his NCLT petition. SIAC dismissed both in March 2024, holding that it had jurisdiction to hear the company’s case. A well-drafted SHA arbitration clause should specify the seat, the institutional rules, and expressly state which categories of dispute, including clawback and share transfer matters, fall within its scope, to reduce the scope for a jurisdictional challenge.

Q: How should a family trust be structured for a departing founder’s shares?
A: The trust should be settled with an independent, professionally qualified trustee, name beneficiaries consistent with the commercial intent, and be documented before litigation is reasonably foreseeable, to reduce the risk of challenge under Section 53 of the Transfer of Property Act, 1882 or, in an insolvency context, Sections 43 and 49 of the Insolvency and Bankruptcy Code, 2016. The tax position of the settlor, the trustee and the beneficiaries should be worked out before the trust is settled, not after.

Q: Does DPIIT startup recognition change how a founder share clawback is treated?
A: No. DPIIT recognition under the Startup India framework affects tax exemptions and regulatory relaxations for the company. It has no bearing on the enforceability of a private contractual clawback clause in the SHA, which is governed by the Indian Contract Act, 1872 and the terms the parties negotiated.

Q: What happens if a founder settlement later falls apart?
A: Each closed proceeding, whether a civil suit, criminal complaint or NCLT petition, would need to be revived through fresh filings, since a withdrawal, consent order or quashing order generally closes that specific matter. A well-drafted settlement agreement should include a specific default and revival mechanism, naming which proceedings can be reinstated and on what trigger, rather than relying on a general breach clause.

Q: How exposed are institutional investors when a founder dispute like this becomes public?
A: Investors sitting on the board during a public founder dispute face reputational and, in serious cases, potential director liability exposure if governance failures are found to have been visible earlier and unaddressed. Investors should insist on board-level financial controls and vendor approval matrices as SHA conditions precedent, not as post-facto fixes after a dispute surfaces.

Q: What happens to an ESOP holder’s options if the company is engaged in a public founder dispute?
A: ESOP holders are generally unaffected by a founder-level clawback dispute unless the ESOP plan is itself amended as part of the resolution. Vested options remain exercisable per the plan terms. A company in litigation should confirm with counsel that any funding freeze or investor standstill does not incidentally suspend ESOP liquidity events.

Q: Can an NRI or foreign-resident co-founder be subject to the same clawback mechanics?
A: Yes, with an added FEMA layer. Where clawed-back shares are to be transferred to an Indian trust or entity and the departing founder is a non-resident, the transfer must additionally comply with the pricing guidelines and reporting requirements under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, in addition to the SHA’s contractual mechanics.

Q: Is a board-only determination of “cause” enforceable, or does it need external adjudication?
A: A board-only determination is contractually enforceable if the SHA says so, but it carries higher litigation risk. Courts and tribunals give more weight to a cause determination made or reviewed by an independent forensic auditor or arbitral tribunal than to one made solely by a board that also stands to benefit from the clawback.

Q: What should investors negotiate differently in the SHA after this case?
A: Investors should push for (i) a clawback mechanism that survives even if the founder disputes the underlying facts, subject only to a fast-track independent review, (ii) an arbitration clause that expressly carves in restricted share and clawback disputes, and (iii) board-level vendor and related-party transaction approval thresholds low enough to catch inflated invoicing before it compounds over multiple years.

Regulatory references:

• Sale of Goods Act, 1930, Sections 11, 19, 20, 25, 46 and 47 (stipulations as to time, passing of property, reservation of right of disposal, unpaid seller’s rights and lien)
• Companies Act, 2013, Section 56 (transfer of shares, Form SH-4), Section 88 (register of members) and Sections 241-242 (oppression and mismanagement, NCLT jurisdiction)
• Companies (Share Capital and Debentures) Rules, 2014, Rule 11 (instrument of transfer)
• Companies (Management and Administration) Rules, 2014, Rules 3, 5 and 8 (register of members, timelines, authentication)
• Arbitration and Conciliation Act, 1996, Section 2(2) proviso (application of Part I to foreign-seated arbitrations), Section 8 (reference to arbitration), Section 9 (interim measures) and Section 34 (challenge to arbitral award)
• Indian Contract Act, 1872 (general enforceability of SHA and settlement terms)
• Transfer of Property Act, 1882, Section 53 (fraudulent transfer)
• Insolvency and Bankruptcy Code, 2016, Sections 43 and 49 (preferential transactions, transactions defrauding creditors)
• Income Tax Act, 1961, Sections 47, 50CA and 56(2)(x), read with Rule 11UA (law in force when the settlement was executed in September 2024)
• Income-tax Act, 2025, Section 70 (successor to Section 47, in force from 01/04/2026)
• Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (applicable where a non-resident founder’s shares are transferred)
• Shashvat Nakrani v. Ashneer Grover, CS(COMM) 166/2023, High Court of Delhi, order dated 15.12.2023 (Sachin Datta, J.), 2023/DHC/9040
• Howrah Trading Co. v. Commissioner of Income Tax, AIR 1959 SC 775
• Arihant Udyog v. State of Rajasthan, (2017) 8 SCC 220
• A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386
• Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1
• Rakesh Malhotra v. Rajinder Kumar Malhotra, High Court of Bombay, 2014

External sources:

• Ministry of Corporate Affairs
• Income Tax India
• Reserve Bank of India
• Startup India

Disclaimer and editorial note:

What this article is. This article is a compilation and summary of information that was already in the public domain at the time of writing. It has been assembled from orders of the High Court of Delhi, orders of the National Company Law Tribunal and the National Company Law Appellate Tribunal, public statements issued by the parties themselves, and contemporaneous reporting by Indian and international media. It is published for general educational and informational purposes only.

No Treelife view or opinion. Treelife Ventures Services Private Limited and its affiliates, partners and employees express no view, opinion, conclusion or judgment on any person, company, allegation, pleading, audit, order or proceeding referred to in this article. Nothing here is an assessment of the conduct of any party, of the merits of any claim or defence, or of the correctness of any decision. Where this article records what a party alleged, what a document stated or what a court held, it does so as a factual account of the public record and nothing more. Any statement of general drafting or dispute-management practice is exactly that, a general observation about how such agreements are commonly structured, and is not a comment on this dispute, on the parties to it, or on the terms of any agreement between them.

Not advice, no engagement. This article is not legal, tax, financial or investment advice and is not a substitute for advice on your own facts. Reading it, or acting on it, does not create a lawyer-client or advisor-client relationship with Treelife or any of its personnel. No liability is accepted for any action taken or not taken on the basis of anything contained here.

No finding of wrongdoing. The proceedings described were closed pursuant to a settlement recorded on 30 September 2024. The civil claim was not pursued, the NCLT petition was withdrawn on 14 October 2024, and the Delhi High Court quashed the EOW FIR on 11 November 2024 on the basis of that settlement. A quashing on the basis of compromise is not an acquittal and is not a finding on the merits. No court, arbitral tribunal or criminal court delivered a final finding on the merits of any allegation made by any party against any other party. Every allegation referred to in this article was denied by the person against whom it was made. References to allegations, complaints, audits, first information reports, claims and pleadings are references to what was alleged or claimed at the relevant time, and must not be read as a statement by Treelife that any allegation is true or that any person is guilty of, or liable for, anything. Treelife makes no such assertion and none should be inferred.

Documents not seen. Where this article refers to the terms of any shareholders agreement, share subscription agreement, employment agreement, settlement agreement or trust deed, it does so on the basis of what the parties, the court record and press reports have described, and of market-standard practice in comparable agreements. None of those documents is in the public domain. Treelife has not seen them, has not verified their contents, and makes no representation as to what any of them actually provides.

Interim orders. Observations recorded in an interlocutory order are made for the purpose of deciding that application only and do not determine the rights of the parties. Any legal proposition drawn in this article from such an order should be treated accordingly and verified against the final position before it is relied on.

Currency of information. The law, the facts and the status of any proceeding may have changed since publication. Positions stated here reflect the public record and the law as understood on the date last reviewed, and are not updated continuously.

Names and marks. Names of individuals, companies, firms and products are used solely to identify the persons and entities involved in publicly reported proceedings. All trade marks belong to their respective owners. No affiliation with, sponsorship by, or endorsement from any named person or entity is claimed or implied, and nothing here is intended to disparage any named person or entity.

Right of reply and corrections. Treelife corrects errors of fact promptly. If you are named in this article, or represent someone who is, and you believe anything here is inaccurate, incomplete, out of date or unfair, write to support@treelife.in with the specific line and the correction sought. We will review it and, where a correction is warranted, amend the article and record the amendment in the log below.

Corrections log. 11/09/206 Article reviewed against the primary court record and revised. Corrections made to the shareholders agreement chronology and parties, the characterisation of the January 2022 leave of absence, the amounts claimed in the civil suit and alleged in the criminal complaint, the status of the February 2024 appellate order, and the tax and arbitrability analysis. The outcome of the EOW FIR quashing petition of November 2024 was added.

Last reviewed on 11/09/2026.

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Pooja Savla

Principal Associate | Transactions | pooja.s@treelife.in

Specializes in transaction advisory, including mergers and acquisitions, investment structuring, and corporate legal matters. Combines a strong background in law and finance to drive seamless transactions and business growth.