Tiger Global-backed edtech startup Classplus, has been accused of cheating and breach of trust and is facing a lawsuit in Delhi High Court in what seems to be an acqui-hire deal gone awry.

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Chirag Kapil, founder of Saarthi Techpro, a live educational tournaments platform, and some aggrieved investors said they have filed a lawsuit and one police complaint against Classplus, accusing its founders, Mukul Rustagi and Bhaswat Agarwal, along with the Chief Financial Officer, Sankalp Aggarwal --- of “cheating, extortion, criminal breach of trust, mental harassment, defamation, theft of immovable property, misappropriation of funds” and more.

Saarthi has claimed that Classplus “duped” them after acquiring the company in November 2021. According to a statement issued by Saarthi, the founders first met each other in last 2021. In October, it is said that an acquisition proposal was put forward, which “seemed a bit complicated”.

The deal entailed transfer of business operations and employees from Saarthi to Classplus. Subsequently, this transition occurred swiftly, with Saarthi's co-founder, Chiraag Kapil, assuming a crucial executive role within Classplus, the statement added.

However, the startup claims that a few weeks post the acquisition, Kapil was unexpectedly terminated. Saarthi’s investors have also alleged that they did not receive their stipulated agreements or even the equity.

“It's highly unprofessional at ClassPlus' end to give false assurances to the acquired team and investors. The gravity of Classplus' conduct has left Saarthi with no recourse but to take resolute action. We believe that the ongoing proceedings in the Delhi High Court will serve as a window of transparency, taking out the dirt from the India's edtech system." a source close to Saarthi Techpro told CNBC-TV18.

Meanwhile, Classplus has refuted the allegations made by Saarthi and in a statement to CNBC-TV18 said, "Saarthi was a pre-revenue company when we conducted the deal. Both founders of the company got cash payouts from Classplus on day one of their journey with us. Chirag left in Aug 2022 while Saransh, the other co-founder, stayed for more than a year, till May 2023. There is no merit in the allegations made against us due to the same reasons and facts."

Saarthi has two institutional investors including Axilor Accelerator and Faad Network, with Kris Gopalakrishnan-backed Axilor being the largest. When CNBC-TV18 reached out to Axilor, the early-stage investor said they are not part of the lawsuit.

"Axilor is not actively involved in the affairs of Saarthi since its exit from the accelerator program. Axilor, as of the present date, is not involved in any litigation involving CLASSPLUS & SAARTHI." the company told CNBC-TV18.

The startup has raised a total funding of over $97,000 and is also backed by 10 angel investors including ---- Vinod Sood (investor in OYO), Paras Batra and Ayush Banka (Co-founders of Leaf), Rahul Dalmia (Polygon), Sricharan Iyengar (Founder of Topper TV), among others.

“It's appalling and completely unacceptable that Classplus has failed to honor its commitments to us investors. After numerous attempts to reach out, we've been met with nothing but silence, no money, and no settlement. This isn't just a breach of contract; it's a breach of trust, and it carries the stench of deliberate deception. We entered this agreement expecting professionalism and integrity, but what we've experienced is anything but. Rest assured, this matter is far from over, and we will take all necessary steps to ensure justice is served,” said Paras Batra of Leaf in a statement to CNBC-TV18.

Echoing Batra’s statement, his co-founder Ayush Banka added, “Classplus's failure to pay us (Saarthi's investors), despite numerous attempts to resolve the issue, is more than just negligence—it's a glaring sign of bad faith. We investors were left abandoned and deceived, and we demand immediate action. This isn't just business; it's a matter of principle, and we won't rest until it's rectified.”

According to the statement, both the companies had already started collaborative efforts by that point, working almost as a unified entity. However, in December 2021, when the term sheet was finally presented, the stipulated clauses diverged from the terms that had been previously discussed. The lawsuit also alleges that by February 2022, Classplus had access to Saarthi's proprietary information, workforce, intellectual property, and database, even prior to formalizing any official agreements.

Founded in 2018, Classplus is a mobile-first SaaS platform that allows educators to teach online as well as create and sell digital content to students beyond their immediate neighborhoods. In 2022, the platform claimed to have 100,000-plus teachers who are using the platform to teach over 25 million students across 3000-plus cities in India. Classplus has raised roughly $160 million from marquee global investors. Besides Tiger and Sequoia, its other backers include RTP Global, Blume Ventures, Spiral Ventures, Strive, Times Internet, and Chimera Ventures.

In February 2023, Classplus invested an undisclosed sum in test prep startup Abhinay Maths. This came shortly after the B2B edtech startup acquired a minority stake in another exam prep startup Testbook, wherein bought out the shares of Testbook investors Matrix Partners and Pivot Ventures.

For now, both Classplus and Saarthi have reportedly filed their responses in the Delhi High Court and the Court is supposed to hear the matter next in September.

First Published:Aug 9, 2023 7:02 PM IST