Medikabazaar's Financial Crisis: Investors Claim Damages Over Misreporting Allegations

Medikabazaar, a B2B medical supply startup, is currently facing a financial scandal involving allegations of fraud, financial mismanagement, and inflated revenues. The board has removed former CEO Vivek Tiwari amid these claims, leading to legal battles and investor disputes, including indemnity claims of ₹279 crore. Tiwari is contesting the allegations in multiple courts, denying any wrongdoing, while the controversy highlights governance issues in Indian startups.

The detailed investigations by firms like Uniqus India, Alvarez & Marsal, and Rashmikant & Partners revealed a pattern of gross negligence and breach of fiduciary duty by Tiwari, including financial fraud and deceptive accounting practices. Auditors PwC flagged numerous governance and revenue recognition inconsistencies before resigning, which triggered further scrutiny.

The fraud extended to inflated gross merchandise value (GMV) figures being passed off as sales, leading to misplaced investor valuations and even excess GST payments resulting from fictitious transactions. These revelations have led to severe investor backlash, legal claims, and an FIR from Delhi Police’s Economic Offences Wing accusing Vivek Tiwari of cheating and forgery, intensifying the crisis for the company.

Background and Rise of Medikabazaar

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Founded in 2014, Medikabazaar emerged as a leading B2B medical supply chain platform, connecting hospitals, clinics, and pharmacies across India with essential medical equipment and consumables. It operated through a digital procurement platform named Vizi and expanded its services into financing, logistics, and asset lifecycle management, eventually serving over 20,000 pincodes.

The company’s rapid growth attracted large-scale investments, raising over $190 million with marquee investors including Creaegis, HealthQuad, CDC Group, and Lighthouse India. Following a $65 million Series D round in 2022, Medikabazaar was valued at approximately $700 million, widely regarded as a near-unicorn in the Indian healthtech space.

However, a whistleblower criticism in December 2023 ignited a sequence of occasions that might divulge deep cracks in the business enterprise’s financial reporting, governance, and ethical foudation.

Financial Misreporting and Allegations

Inflated Revenue Reporting: The company reportedly overstated its FY23 revenue by over 50%. This was achieved by incorrectly recording Gross Merchandise Value (GMV)—the total value of all orders processed—as net sales revenue. This accounting practice artificially boosted the company's top-line figures, presenting an overly optimistic financial performance that misled investors and stakeholders.

Fake Sales and Phantom Inventory: Investigations revealed fraudulent entries in accounting software such as Tally and Prota, involving fictitious sales transactions with no real counterparties or economic substance. Phantom inventory and round-tripping of sales further distorted financial data, impacting profit and loss statements and tax payments.

Governance and Fiduciary Breaches: Former CEO and co-founder Vivek Tiwari was accused of gross negligence, misappropriation, and breach of fiduciary duty. The internal inquiry determined he was involved in malicious and fraudulent activities that caused irreparable harm to the company’s financial health and investor confidence.

Impact on Tax and Audit: Due to fictitious transactions, Medikabazaar paid excess Goods and Services Tax (GST) in FY23, resulting in a recorded loss of nearly ₹28 crore. Its statutory auditor PwC resigned after raising concerns about revenue recognition inconsistencies and governance lapses.

Medikabazaar's investors, including notable names such as Creaegis, CDC Group (now British International Investment), HealthQuad, and Ackermans & van Haaren, lodged an indemnity claim for ₹279 crore against the company over financial misreporting from previous fiscal years. The claim stems from findings that the company inflated its gross merchandise value (GMV) figures by over 50%, reporting GMV as sales revenue for FY23, which led to misleading financial statements and inflated valuation metrics.

The company's consolidated FY23 financial statements were restated to correct inflated revenues, unverified inventory, and false transactions. PwC, the statutory auditor, resigned after raising concerns about revenue recognition inconsistencies and governance issues during their audit. These accounting irregularities prompted investors to activate indemnity provisions common in venture capital agreements to seek compensation for damages caused by the misstatements.

How did inflated revenue impact Medikabazaar's valuation?

Medikabazaar's rapid ascent to a valuation of approximately $700 million was significantly influenced by its reported financial performance, which later came under intense scrutiny due to allegations of inflated revenue figures. The central issue rested on the company overstating its Gross Merchandise Value (GMV) by more than 50% in FY23, where gross order values were wrongly reported as net sales revenue. This practice artificially doubled the reported revenue to about $181 million, creating an appearance of much stronger financial health and growth than was genuinely the case.

The inflated revenue figures had a direct and substantial impact on investor perception and company valuation. Investors rely heavily on top-line growth as a critical metric for assessing startup potential, especially in high-growth sectors like healthtech. By presenting gross order values (GMV) as actual sales revenue, Medikabazaar painted an overly optimistic picture, which attracted larger investment rounds and drove the valuation upward. For instance, following the $65 million Series D funding round in 2022, the inflated figures helped cement the company's near-unicorn status with a valuation north of $700 million.

However, once forensic audits mandated by the board and investors, conducted by firms such as PwC, Uniqus India, Alvarez & Marsal, and Rashmikant & Partners, revealed these financial discrepancies, the fallout was severe. The audits uncovered not only revenue inflation but also fake sales, phantom inventory, and governance lapses, which collectively undermined the company’s credibility and financial integrity. Consequently, investor confidence plummeted, and key stakeholders, especially Series C investors, filed a ₹279 crore indemnity claim seeking damages for reliance on these misrepresented financials during fundraising.

This financial misreporting stalled further capital infusion plans. Talks to raise an additional $150–200 million were halted after the forensic audit findings became public. The inflated revenue figures had obscured the company's real operational performance and financial health, leading to heightened scrutiny and stricter due diligence by existing and potential investors.

Beyond valuation, the overstated revenues also had wider implications: the artificial inflation led to excess GST payments around ₹28 crore due to non-existent transactions, further compounding Medikabazaar's financial distress. These issues contributed to PwC’s resignation as statutory auditor, citing concerns over revenue recognition and internal controls, which further dented market confidence in the company.

What were the specific methods used for phantom inventory?

The forensic investigations into Medikabazaar’s financial misreporting revealed that phantom inventory was a critical component of the fraudulent practices. Phantom inventory refers to non-existent stock entries recorded in the company’s accounting and inventory systems to artificially inflate asset values and revenues. In Medikabazaar’s case, this tactic was central to manipulating financial statements and deceiving investors.

The audits carried out by Uniqus India, Alvarez & Marsal, and Rashmikant & Partners identified that the company employed sophisticated methods, including recording fake sales transactions within accounting software platforms such as Tally and Prota. These fictitious transactions had no real economic substance or counterparties and were part of a deliberate scheme to record non-existent orders and inventory (termed phantom inventory), which falsely inflated the Gross Merchandise Value (GMV) and revenue figures reported for FY22 and FY23.

The modus operandi involved repeatedly “round-tripping” the same inventory, essentially “selling” and returning goods multiple times through different entities or fake customer accounts. This round-tripping created illusionary sales volumes and inventory turnover, which translated to inflated top-line figures much higher than actual business operations supported. The phantom inventory and fake sales entries were used to mislead shareholders into believing the company’s operational scale and revenue growth were robust and legitimate.

Consequently, these fraudulent inventory and sales records also caused the firm to pay excess Goods and Services Tax (GST), as taxes were levied on these non-existent transactions. The company incurred a loss of about ₹28 crore due to this excess GST liability in FY23, further exacerbating the financial damage from the deceptive practices.

The investigations highlighted gross lapses in internal controls and governance that allowed such phantom inventory manipulation to go unchecked over multiple fiscal years. The absence of proper physical verification of inventory, missing asset records, and inadequate audit trails enabled false stock and revenue to be recorded without detection from internal or external auditors until the whistleblower complaint surfaced. These gaps ultimately led to PwC’s resignation as statutory auditor, as they raised concerns about revenue recognition and internal control deficiencies.

Investor Backlash and Legal Actions

The revelations led to a swift response from Medikabazaar's investors. Series C investors, including Creaegis, HealthQuad, and Ackermans & van Haaren, filed an indemnity claim of ₹279 crore against the company, citing financial misstatements during fundraising rounds. Furthermore, a group of shareholders representing 47.1% of the company's equity issued a special notice citing alleged fraud and breach of fiduciary duty.

Regulatory and Legal Proceedings

Vivek Tiwari is engaged in legal battles across multiple jurisdictions, including the Delhi High Court and the National Company Law Tribunal (NCLT). After his termination, Tiwari filed a lawsuit against Medikabazaar and some of its investors in the Delhi High Court. The Delhi High Court has directed the dispute between Medikabazaar and Vivek Tiwari to arbitration, acknowledging the arbitration clauses in the Shareholders Agreement (March 17, 2022) and the Employment Agreement (September 1, 2021).

The Economic Offences Wing (EOW) of the Delhi Police registered a First Information Report (FIR) against Vivek Tiwari, charging him with criminal breach of trust, cheating, forgery, and falsification of accounts. The FIR alleges that Tiwari and others siphoned off more than ₹100 crore through fraudulent means . Vivek Tiwari, who has been described as the "kingpin" behind the fraud, failed to appear before the EOW despite being summoned twice. His lawyers have sought anticipatory bail, but no relief has been granted yet.

Leadership Changes and Company Response

Following these revelations, Vivek Tiwari stepped down as CEO in August 2024 but initially remained on the board until his removal several months later. The company appointed Dinesh Lodha, formerly of Healthium Medtech and Samsung India, as the new CEO to navigate the turbulent recovery period.

While the company is contesting the indemnity claims and emphasizing that due legal processes have been followed, it has reportedly strengthened internal controls and governance frameworks in a bid to restore investor trust and operational stability. However, the lasting impact on Medikabazaar’s reputation and its ability to secure future funding remains uncertain.

Vivek Tiwari has emphatically denied all allegations of fraudulent conduct and intentional financial misrepresentation. He alleges that the accusations stem from a "meticulously orchestrated plot" by vested interests aiming to damage his reputation. Despite facing FIRs filed by the Economic Offences Wing accusing him of orchestrating a ₹100 crore scam involving fake sales and forgery, Tiwari maintains his innocence and is contesting the charges in multiple jurisdictions, including the Delhi High Court and the National Company Law Tribunal (NCLT).

Conclusion

The Medikabazaar fraud case is a cautionary tale of the perils that can accompany fast-paced startup success without commensurate governance controls. The inflated revenue reporting, fake sales, and breach of fiduciary duties reflect severe lapses at the leadership level that jeopardized investor trust and operational sustainability. While the ongoing investigations and legal processes will determine accountability and remediation, the case amplifies the urgent need for Indian startups to embed transparency, robust audit practices, and ethical management as foundational pillars.

Investors, entrepreneurs, and regulators must collectively strengthen oversight and promote a culture where growth does not come at the expense of integrity. Medikabazaar's journey from a promising unicorn prospect to a cautionary headline encapsulates this lesson, emphasizing that trust and clear governance remain the cornerstones of sustainable startup success in India’s dynamic economy.