Info Edge, Rahul Yadav’s 4B Networks to enter arbitration after startup fails to provide information for forensic audit

On June 1, Info Edge said it had appointed Deloitte to conduct a forensic audit into 4B Networks after the startup failed to disclose details of financial transactions and related-party activities sought by the investor.

Info Edge had written off its equity investment of Rs 276 crore in 4B Networks during the December 2022 quarter citing “excessive cash burn, prevailing liquidity issues and significant uncertainty towards funding options”.

Following 4B Networks’ failure to provide information for the audit, Info Edge’s subsidiary Allcheckdeals India Pvt Ltd (AIPL), which invested in the startup, issued a legal notice setting out various alleged contractual breaches committed by 4B Networks and Yadav, the company said in an exchange filing on July 26.

“In the aforesaid backdrop, AIPL filed a petition before the Hon’ble Delhi High Court for interim measures of protection under Section 9 of the A&C (Arbitration and Conciliation) Act, and subsequently under Section 37 of the A&C Act against 4B Networks, Mr. Rahul Yadav and Mr. Pratik Choudhary (i.e., a party to the shareholders’ agreement of 4B Networks),” it said.

On July 24, the Delhi High Court referred the matter into arbitration with the proceedings set to commence on August 14. In the order, the court appointed retired Delhi High Court judge, Justice Mukta Gupta, as the arbitrator.

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The court also ordered 4B Networks, Yadav and Choudhary to “not sell, transfer, alienate, encumber or otherwise create any third party rights or interest directly or indirectly in the assets and properties” of the company, whether tangible or intangible, till the disposal of the petition.Through AIPL, Info Edge had invested Rs 288 crore, including Rs 12 crore as debt financing, in 4B Networks. Founded in November 2020, 4B helps real estate developers and brokers communicate with each other and conduct business via the Broker Network Platform. It also helps brokers conduct site visits and provide home-loan-related services to clients.

While announcing the write-off of its investment in 4B Networks, Info Edge had said that 4B Networks was showing good growth, but given the startup’s rate of cash burn and the overall funding environment, which led to the investor following “the principles of conservatism”, it had decided to write off the investment.

In May, while declaring its results for the quarter ended March 31, Info Edge said it had also written off an investment of Rs 76.6 crore in Bizcrum Infotech, the parent company of B2B startup Bijnis, for similar reasons.