GENtlemen, SOLve This Mess You've Created

India’s startup ecosystem is increasingly plagued by characters reminiscent of “Buntees and Bublees”—smooth-talking founders who exploit investor trust, regulatory gaps, and media buzz. Their antics not only undermine confidence in the system but also prompt stricter oversight that hampers genuine entrepreneurs.

The cycle continues: each such instance is followed by tighter rules, and each rule is outsmarted by the next example.

The BluSmart-Gensol saga is a recent, troubling example of this pattern. It exposes layers of financial misconduct, poor corporate governance, and regulatory lapses—specifically misused funds, related party dealings, and oversights by lenders and investors.

It’s hard not to recall Farukh Sheikh’s character from the movie Katha, who wins admiration with charm, reaps rewards, flirts with the boss's wife, wins over a friend’s love of life, and disappears when reality hits. All the pomp and show around today’s founders of some companies is purposely and deliberately created to get what they or their companies don’t deserve, i.e., public monies from investors, funds and government, awards or accolades, easy terms, highly talented staff at peanut equivalent salaries, unyielding ESOPs, tax holidays, etc.

The glitz convinces even seasoned players to skip due diligence in fear of missing the ‘next big thing.’ People often rush or ignore due diligence processes. Defaults and delays are overlooked. Warnings are buried.

SEBI launched an investigation into Gensol after allegations of share price manipulation and fund diversion surfaced. But is this enough? Along with this, RBI or the government must also enquire of PFC and IREDA: if out of 6,400 EVs that were promised to be bought, only 4,704 EVs were bought, why were questions not raised about the end use, and where did the balance of Rs. 262.13 crores go? Loans were being given from 2021-22 till 2024 in tranches. What about the fake letters that SEBI unearthed?

In the movie, Shahid and the team borrowed from the bank, took the money and bought palatial houses, had lavish parties and had a whale of a time. Something similar transpired in Gurugram, which, by the way, has way worse jails than New York jails in the movie.

A few examples of misappropriation of funds given by SEBI:

• IREDA Loan: Gensol received Rs 71.39 crore from IREDA in 2022 and transferred Rs 26.06 crore as promoter contribution. In October 2022, Rs 93.88 crore was transferred to Go-Auto, which transferred back Rs 50 crore to Capbridge, a related party, which in turn transferred Rs 42.94 crore to DLF towards the purchase of a luxury apartment.

• IREDA Loan: Gensol received Rs 43.68 crore from IREDA in 2023 and added Rs 13.13 crore. On the same day, Rs 54.62 crore was transferred to Go-Auto. The next day, Go-Auto transferred Rs 40 crore to Wellray Solar, who made several transfers, including Rs 5.60 crore to another related party, Matrix Gas and Renewables; Rs 29.50 crore back to Gensol; Rs 3.90 crore to Prescinto Technologies; and Rs 50 lakh to a stockbroker (Sharekhan Limited) for trading in Gensol's stock.

• PFC Loan: Gensol received Rs 117.47 crore from PFC in September 2023 and transferred Rs 29.37 crore from an internal account into a designated account. On Sept. 29, 2023, Rs 134.14 crore was transferred to another Gensol account and then the same amount to Go-Auto. On the same day, Go-Auto transferred Rs 96.69 crore to Gensol Consultant (Rs 46.65 crore) and Capbridge (Rs 50.04 crore). Capbridge then transferred Rs 40 crore to Gensol Ventures.

The Gensol and BluSmart case highlights a critical interplay between the promoters and related entities, which has significant implications for corporate governance. Gensol's promoter holding decreased from 70.72% in the financial year ending March 2020 to 35% as of March 2025, indicating a substantial dilution of the promoters' stake.

Even with a reduced stake, the promoters were able to exercise significant control over the company's financial decisions and run a listed company like a closely held company. Gensol made disclosures about receiving pre-orders for 30,000 EVs, but these were actually non-binding with no commitments or delivery schedules.

Gensol announced a strategic tie-up with Refex Green Mobility Ltd. for the transfer of electric four-wheelers, later withdrawn. Gensol disclosed a non-binding term sheet for the sale of its US subsidiary but could not provide a reasonable justification for this valuation.

Post-facto litigations are often prolonged and rarely bring much celebration. With SEBI now taking steps, there's hope for swift action against wrongdoing and doers.

What remains to be seen, however, is whether accountability will once again be limited to founders and business leaders or if other stakeholders—such as fund managers entrusted with public money, auditors, lenders, independent directors, etc.—will also be held to account for their actions or inactions at relevant times.

Akshat Pande is a managing partner at Alpha Partners.

Disclaimer: The views expressed here are those of the authors and do not necessarily represent the views of NDTV Profit or its editorial team.