The rise and fall of BluSmart, India's first all-electric ride-hailing service, is a cautionary tale of ambition, disruption, and alleged financial impropriety. Founded in June 2019, BluSmart quickly gained popularity as a refreshing alternative to the dominant app-based duopoly, promising reliable service, clean vehicles, and salaried drivers. Its commitment to emission-free transportation resonated with consumers, and the company's growth was fueled by investments from prominent figures and firms, including BP Ventures and celebrities like Deepika Padukone and Mahendra Singh Dhoni.

However, the seemingly perfect facade crumbled when the Securities and Exchange Board of India (SEBI) uncovered evidence of fund diversion and fraudulent activities involving BluSmart's promoters, Anmol and Puneet Singh Jaggi. The allegations, which include stock price manipulation, have sent shockwaves through India's markets, startup ecosystem, and clean energy sector.

BluSmart's troubles had been brewing for some time. Failed attempts to raise $50 million earlier in the year led to salary delays, and daily ride numbers plummeted from a peak of 25,000-30,000 to less than half that figure. Furthermore, key executives, including the CEO of fleets business, CTO, and CBO, departed from the company.

A significant aspect of the controversy revolves around the relationship between BluSmart and Gensol Engineering, a solar EPC contractor and EV lessor. While Gensol didn't directly own BluSmart, it owned a large portion of the electric vehicles used by the ride-hailing service. This arrangement raised concerns about potential cost shifting and financial opacity.

SEBI's investigation was triggered by a complaint regarding share price manipulation and fund diversion at Gensol Engineering. The regulator's scrutiny revealed a dramatic surge in the company's operating profit, coupled with a corresponding increase in borrowings and a decrease in the promoters' holdings. Red flags were raised when credit rating agencies discovered that Gensol had provided forged letters to conceal delays in debt servicing.

The investigation uncovered a significant discrepancy in the use of a Rs 978 crore loan obtained for EV purchases. A sum of Rs 262 crore was allegedly diverted through a dealer, Go Auto, and funneled back to the company or entities linked to the promoters. These funds were reportedly used for personal expenses, including the purchase of a luxury apartment, an expensive golf set, and investments in other ventures.

SEBI also found that Gensol had misled investors through incorrect disclosures, such as claiming to have received orders for 30,000 EVs based on non-binding memoranda of understanding. The regulator further questioned the valuation of a US subsidiary and discovered irregularities at the company's Pune facility.

Legal experts have criticized SEBI for not addressing the accountability of auditors, independent directors, and stock exchanges in the Gensol case, particularly regarding related-party transactions. The regulator's decision to suspend the stock split has also been questioned, as it may harm the company and its investors.

The Gensol scam has broader implications for state-run NBFCs, Power Finance Corp (PFC) and Indian Renewable Energy Development Agency Ltd (IREDA), which extended substantial loans to the company. These NBFCs now face potential losses due to the fund diversion allegations. Current guidelines may compel them to make substantial provisions for these defaulting loans.

The downfall of BluSmart has sparked disappointment among users who valued its reliable and high-quality service. As investigations continue, the episode serves as a reminder of the importance of regulatory oversight, corporate governance, and investor due diligence in the rapidly evolving landscape of India's startup and clean energy sectors.