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The Economic Offences Wing (EOW) of Mumbai Police is probing Rahul Yadav for allegedly bungling Rs 288 crore of investor money in his property startup, which sank within three years of starting, and transferring some funds to a firm where his wife is a co-owner.
Naukri.com's owner Info Edge -- which invested Rs 276 crore in six tranches for about 60 cent stake in Yadav's 4B Network Pvt Ltd (also known as Broker Network) and gave another Rs 12 crore as loan -- has filed a complaint with the EoW, alleging cheating, according to officials involved in the probe and former employees of the company.
The complaint, a copy of which has been reviewed by PTI, lists out suspicious transactions, including loans to certain ex-employees when staff was not even paid salary, an exorbitant security deposit paid for office space being allegedly re-routed to another family-owned startup where Yadav's wife Karishma is the CEO, and vendors supposedly moving payments received from 4B to other firms of the family.
It accused 4B of making 'false and incorrect' representations to first induce Info Edge into investing an aggregate of Rs 288 crore and then taking away the money through 'illegal and circuitous transactions'.
While Yadav refused to comment, citing an arbitration with Info Edge over the dispute, sources close to his almost defunct firm denied any siphoning off of funds and termed the suspicious deals as 'related-party transactions'.
While claiming that most of the Rs 276 crore was used in the payment of salaries of 2,500 employees hired in the startup, they blamed Info Edge's 'slow approval process' for all problems at 4B Network.
The centre of disagreement with Info Edge was instant brokerage or invoice financing, they said.
This is the second complaint filed with the EoW. In August, a vendor had filed a Rs 10 crore fraud complaint against Yadav and senior company official Sanjay Saini.
Yadav, who was in 2015 ignominiously fired from the board of his previous venture Housing.com after repeatedly clashing with investors, founded 4B Network in November 2020 to provide an app-based platform for real estate agents to interact and exchange leads. The company was to earn a percentage of the commission brokerages earned on successful deals.
Former employees said that he had while still being employed by Anarock, in January 2019 founded Kult Cosmetic Pvt Ltd with his wife Karishma and brother-in-law Devesh Kumar Singh.
He and Danishchand Merchant of RY Advisory LLP provided the bulk of funding - Rs 22 crore in FY20 and Rs 50 crore by FY22 - for this venture.
After being pursued by Yadav and his co-founder Pratik Choudhary, Info Edge in January 2021 committed to investing Rs 50 crore in 4B Network in January 2021 and six tranches over 21 months invested a total of Rs 276 crore.
4B Network reported a jump in revenue for the fiscal year 2021 as well as the following six months, but a significant portion was either reversed later or never collected, employees said.
Sources close to the company said this was due to technical reasons.
At this point, Info Edge while making the final Rs 90 crore payment, sought details of monthly expenditure and cash outflows, setting up escrow accounts for cash management and updated due diligence.
Its instructions were, however, disregarded, leading to a steady rise in cash outflow with no apparent commercial benefit.
Sources close to the company said Info Edge and its auditor Deloitte were allowed due diligence till November 2022 and MIS till January 2023.
Employees said 4B Network sought Rs 100 crore debt and insisted on additional preference capital of Rs 40 crore from Info Edge as security cover. Info Edge did not agree to it.
Thereafter, Yadav stopped cooperating, insisting that due diligence could take a back seat while infusing Rs 40 crore capital and agreeing to the debt proposal was a priority, they said.
By December 2022, 4B Network had a cash crunch to pay salaries and vendors. As the majority owner, Info Edge was approached by employees as well as vendors for clearing dues.
Info Edge in the following month agreed to infuse a Rs 12 crore loan to safeguard its investment. This was meant to clear salary dues, vendor payments, and hive-off of invoice financing business.
But a significant portion of the Rs 12 crore was transferred to a company called 4B Real Tech - a company under the control of Yadav's associates and Samir Dalvi, Director of Aceusers P Ltd (an entity founded by Yadav and his wife Karishma).
Sources close to 4B Network, however, said the fund transfer was with the full knowledge of Info Edge. It was on the insistence of Info Edge that employees of invoice financing business be transferred into a new unit that 4B Real Tech was selected.
As the government website for registration of new companies was facing technical glitches, 4B Real Tech was chosen, they claimed.
With no real return coming, Info Edge had to take an impairment on its investment in 4B Network.
Subsequently, Yadav in February-April 2023 brought a proposal from a 'friend' in Dubai to invest Rs 20 crore on a Rs 50 crore valuation of 4B Network, which would be effectively edged out the company's 60 per cent owner Info Edge.
Employees said when Info Edge insisted on know-your-customer (KYC) of funding source and completion of outstanding due diligence, the proposal vanished.
Sources close to 4B, however, said the investor couldn't travel to India and was willing to provide KYC and other verification over a 'zoom' call.
But employees said the deal fell because Info Edge insisted on knowing the source of the funds fearing Yadav or his associates may be re-routing part of Rs 276 crore investment and edging out the investor.
Interestingly, Yadav invested Rs 26 crore in Kult App Pvt Ltd through his RY Holding between March 2022 and November 2022, employees said.
He also started a liquor delivery startup in the US in November 2021, with his brother-in-law Devesh Kumar Singh as the CEO.
Sources said Yadav was only the front and the money belonged to the family and his friends. They didn't, however, say why someone would not invest in his or her own name.