Peepul Capital accuses portfolio firm VSoft of fraud, files complaint

The Indian subsidiary of private equity firm Peepul Capital LLC has filed a police complaint against one of its investee companies Hyderabad-based VSoft Technologies alleging the software firm of fraud and money siphoning.

The complaint that was filed on August 27 alleged that the software firm entered into a wrongful related-party transaction with a staffing company, owned by one of the co-founders’ spouse.

The Economic Times first reported the development.

The genesis of the dispute goes back to 2013 when the private equity fund was initiating its put option exercise. “The fund wanted about $27 million on its investment against company’s offer of $18 million,” a person close to the development told VCCircle.

The fund invested around $8 million in 2007. “However, in 2012, the founders bought back Peepul Capital’s 35% stake in the company for an undisclosed amount,” said the person cited above requesting anonymity. “As of now, VSoft is fully owned by founders Murthy Veeraghanta and Shekar Viswanathan.”

As the differences between Peepul Capital and VSoft grew, the fund approached an arbitration court. Last year, the court directed VSoft to pay around $23 million to Peepul Capital. However, the software firm challenged the ruling and the case is yet to get decided.

In the complaint, the private equity firm told the police that it owns 77% of the voting rights of VSoft following automatic conversion of compulsorily convertible preference shares, but VSoft did not obtain the mandatory affirmative voting on related-party transactions.

In the complaint, Peepul Capital alleged that Veeraghanta and his wife Venkata Lakshmi Kameswari were diverting funds amounting to Rs 25 crore from VSoft to a company called Smart Staffing Source over the past three years.

“Investors always knew about the staffing solution firm but the dealing with the company was always at arm’s length,” said another person privy to the dispute.

Email queries sent and phone calls made to Peepul Capital and VSoft did not elicit any response.

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