MCA Initiates Probe Into Snapdeal Over Alleged Regulatory Violations, Non Compliance With Companies Act

As part of its investigation into more than 700 companies, which are alleged to be recipients of Chinese investments, the ministry of corporate affairs (MCA) has reportedly initiated a probe into ecommerce major Snapdeal for alleged regulatory violations and non compliance with the Companies Act.

As per Moneycontrol’s report, citing a government official, the investigation started after the Registrar of Companies (RoC) flagged certain irregularities in its report. 

In response to the investigation, a spokesperson for Snapdeal’s parent AceVector told Moneycontrol that the company received a request for information from the MCA in May. They assured that the company has fully cooperated with the authorities and confirmed that there are no Chinese investors in it. 

Notably, the MCA’s letter to AceVector directors Kunal Bahl, Rohit Kumar Bansal and key managerial personnel sought information regarding AceVector’s business, its authorised share capital and working results.

Besides, the ministry also asked them to provide among other copies of the minutes of its board and shareholders meetings held in the past five years, copies of statutory registers, secretarial records, financial statements and information, copies of income tax returns and assessments orders received by AceVector and its directors since incorporation, the report added.

Inc42 has reached out to the company for comments on the development. The story will be updated based on the response. 

The same matter was also under review by SEBI after AceVector filed a red herring prospectus for its subsidiary Unicommerce eSolutions Limited on July 30. 

This development follows another news report by Moneycontrol earlier this month saying that the ministry would likely remove as many as 400 Chinese companies across 17 Indian states in the next three months over incorporation and financial funds.

These companies include loan apps, online job companies, and mobile screen and battery manufacturing companies.

Amid the surging concerns around digital lending apps in India, the report further mentioned that MCA has been investigating loan apps operating in the country focused on predatory lending practices, fraud or violation of financial regulations.

Some of these companies which are accused of deploying aggressive tactics, excessively high interest rates, and unethical practices like harassment are found to have links to Chinese corporations, the report added.

It is pertinent to note that Section 248 of the Companies Act Companies act, 2013 provides an option of applying for the removal of the Company’s name from the Registrar.

This comes on the sidelines of AceVector’s subsidiary Unicommerce making a stellar debut on the exchanges today (August 13), opening significantly higher than the issue price. 

On the NSE, the stock is listed at INR 235 per share, a premium of 117.59% over its issue price of INR 108. Similarly, on the BSE, it is listed at INR 230, reflecting a 112.96% premium.

Founded by Bahl and Bansal in 2010, Snapdeal is an ecommerce major which earns revenue by rendering services and delivering products. A majority of its revenue comes from ancillary activities, including services for collection, fulfilment centres, packaging facilitation, courier facilitation, RTO/RPR fees, and closing fees and freight charges recovered from the customers.

Snapdeal’s parent entity AceVector saw its consolidated operating revenue decline 31% to INR 372 Cr in the financial year 2022-23 (FY23) from INR 539.6 Cr reported in the prior fiscal year.

However, it managed to lower its loss despite the decrease in sales revenue. Snapdeal’s net loss narrowed 44.7% to INR 282.2 Cr in FY23 from INR 510.3 Cr in the prior year.

The startup’s income from the sale of services fell 30.2% year-on-year (YoY) to INR 57.7 Cr during the year under review. Other operating revenue or income from ancillary activities declined 31.2% YoY to INR 314.2 Cr in FY23.