Exclusive: RoC seeks to examine GoMechanic’s books after allegations of financial irregularities

Section 264(4) of the Companies Act empowers the RoC to conduct an inquiry into the affairs of a company once directed by the ministry of corporate affairs, these sources added.

Last week, the National Company Law Tribunal (NCLT) issued a notice to Sequoia-backed beleaguered automobile after-sales service startup over an insolvency plea filed against the company.

The plea, filed by an operational creditor, Digirovers Solutions Pvt Ltd, was heard on February 15. It will next be heard on February 27, when the company has to file its say in the matter, court filing reviewed by ET showed.

“After last month’s disclosure made by one of the co-founders, the RoC started studying their filings. There are certain financial irregularities and corporate governance issues that require a thorough investigation… hence a proposal has been sent to the ministry to conduct an investigation,” said a person privy to the development. “Once the order comes through, the RoC can summon the company’s board and even inspect the premises while conducting the inquiry into the affairs of the company.”

ETtech

Discover the stories of your interest

An email sent to GoMechanic did not elicit a response until press time.

“This is a fit case for a class suit to be filed by the investors. However, so far, there hasn’t been any move by them except one of them conducting a forensic audit,” the official added.

Also read | How GoMechanic unravelled after SoftBank-Khazanah funding round collapsed

A class action allows a number of claimants with a common grievance against a company to file a lawsuit against it.

In January, GoMechanic founder Amit Bhasin admitted to financial reporting errors at the startup and stated that the cash-strapped company will lay off roughly 70% of its workforce while also having its accounts audited by a third party.

“Our passion to survive the intrinsic challenges of this sector and manage capital, took the better of us and we made grave errors in judgment as we followed growth at all costs, particularly in regard to financial reporting, which we deeply regret,” Bhasin had said in a LinkedIn post on January 17.

ETtech

The Gurgaon-based company was founded in 2016 by four friends including Kushal Karwa and Amit Bhasin.

ET had earlier reported that the startup was in talks to raise $75-80 million in a funding round led by SoftBank and Malaysian sovereign fund Khazanah Nasional, but the deal was called off due to alleged accounting irregularities.

According to a Bloomberg report, a due diligence conducted by EY for prospective GoMechanic investors allegedly found that the firm had inflated revenue. The report added that, EY’s research alleged that about 60 of the more than 1,000 GoMechanic service centres may have violated accounting norms to overstate revenues and divert funds, the people said, asking not to be identified discussing sensitive information.

Also read | How GoMechanic founders floated new business as trouble mounted at car servicing startup

(Graphics & illustrations by Rahul Awasthi)