BluSmart breakdown - how Uber's EV rival in India collapsed

The fortunes of India's BluSmart, a popular electric ride hailing service and once a formidable rival to Uber, have quickly unravelled, with the company halting new cab bookings.

The brand, which still has India's largest all electric ride-hailing fleet of more than 8,000 cars, set high service standards, including well maintained cars and polite drivers.

Quality was BluSmart's biggest selling point as it took on bigger rivals - marred by badly maintained taxis, rude drivers and frequent cancellations – by offering a significantly more premium product that cost only a little more.

The possibility of its closure has led to hundreds taking to social media to express anger and sadness.

"As a frequent BluSmart user, the news of the service shutting down hits hard. Another service one got used to, lost to mismanagement," one user said on X.

Although many people said they had already received a refund of their money saved in BluSmart's digital wallet, some expressed anxiety about being asked to wait for 90 days.

So, what went wrong with a start-up that once raised millions of dollars in funding from marquee global investors and found a spot on every major clean-tech awards list since it launched in 2019?

The decision to halt services in the three cities it served - Bengaluru, Mumbai and Delhi - came after Indian market regulator, the Securities and Exchange Board of India (Sebi), alleged that BluSmart's founders Anmol Singh Jaggi and Puneet Singh Jaggi were diverting loans from another firm they owned to buy luxury apartments and golf equipment. The loans were meant to help BluSmart lease new cars.

BluSmart has not responded to the BBC's questions.

The problem appears to be with both gross financial mismanagement alleged by the regulator and also the way in which BluSmart business model was structured.

Unlike traditional cab aggregators who lease their vehicles from individual drivers, BluSmart leased its fleet from companies - in particular from one firm called Gensol Engineering Limited (GEL), a stock market listed solar energy and EV leasing firm which is also run by the Jaggis.

Last month, credit ratings agencies CARE Ratings and ICRA downgraded the investment rating of GEL after they found that BluSmart had defaulted on its payments to the company.

ICRA also said it had received feedback from GEL's lenders about delays in servicing debt and alleged that it had falsified records regarding its loans obligations, which raised concerns about the company's corporate governance and liquidity position.

With its funding crunch seemingly intensifying, GEL has reportedly been in the market to sell some 3,000 electric vehicles it had bought to lease to BluSmart, upending latter's ride-hailing business entirely.

The promoters of GEL and BluSmart publicly denied allegations made by the ratings agencies, but they were damning enough for India's market regulator to launch its own inquiry which found that the company's problems ran much deeper than just loan defaults.

"What has been witnessed in the present matter is a complete breakdown of internal controls and corporate governance norms in Gensol, a listed company," Sebi said in its order. "The company's funds were routed to related parties and used for unconnected expenses, as if the company's funds were promoters' piggy bank."

The regulator further said that while the alleged "fund diversion" primarily occurred in the context of electric vehicle (EV) purchases intended for leasing to BluSmart, the risk it has created is "neither isolated nor contained".

This is partly because the cars leased to BluSmart by GEL were financed by state lenders like the Indian Renewable Energy Development Agency Ltd (IREDA), who could now potentially be staring at huge losses.

The founders have now resigned from its board following an order from Sebi. The regulator has also barred the promoters from any activity in the stock market. All of this follows a mass exodus of BluSmart senior leadership, including of its chief executive officer and chief technology officer last month.

The saga has also led to millions of dollars of investor money being wiped out, with the share price of GEL crashing some 90% in the last year.

The independent directors have a "fiduciary responsibility, they need to be answerable", said Dr Aniruddha Malpani, an activist angel investor.

Anil Singhvi who runs a corporate governance advisory firm, told the BBC the incident raised serious questions about continuing lapses of governance at Indian start-ups, where founders have often been caught "bungling".

While BluSmart is "collateral damage", he said, there were question marks about how sustainable its business model was, given continuing losses, growing competition and slowing consumer spending in India that would have led to the defaults.

For now GEL has said it is working to stabilise its operations following the revelations and will appoint a forensic auditor to examine the accounts of the company and its related entities. It is not clear whether BluSmart's cab services will restart.