SUMMARY
Section 264(4) of the Companies Act empowers the RoC to conduct an inquiry into any company after MCA approval
The RoC can summon GoMechanic’s board of directors and even inspect the company’s premises
The development comes a few days after the NCLT issued a notice to the Sequoia India-backed startup
The Registrar of Companies (RoC) is reportedly seeking to look into the books of beleaguered after-sales service startup GoMechanic amid allegations of financial irregularities at the startup.
Incidentally, Section 264(4) of the Companies Act empowers the RoC to conduct an inquiry into any company once the Ministry of Corporate Affairs directs it to do the same, sources cited in an ET report said.
The development around RoC comes a few days after the National Company Law Tribunal (NCLT) issued a notice to GoMechanic after an operational creditor, DigiRovers, filed an insolvency plea against the company.
“After last month’s disclosure made by one of the cofounders, 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,” a person close to the development was cited as saying.
The said person added that once the order comes through, the RoC can summon GoMechanic’s board of directors and even inspect the premises while conducting the inquiry into the affairs of the company.
Another official cited by the publication also noted that the case was fit for a class-action lawsuit to be filed by the investors against GoMechanic. While there has been no indication that the investor group might do that, Sequoia has ordered a forensic audit of GoMechanic’s books.
The disclosure referred to above was GoMechanic founder Amit Bhasin’s LinkedIn post in January 2023, admitting to financial reporting errors at the startup he founded with three of his friends in 2016. The post also announced GoMechanic laying off 70% of its staff to cut costs.
“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 said in a LinkedIn post on January 17.
GoMechanic was in talks with SoftBank and Malaysia-based Khazanah Nasional to raise up to $80 Mn in funding. However, things at the after-sales service startup unravelled rapidly after the round fell through due to alleged financial irregularities.
The development at GoMechanic also comes as the limited partners in the funds used to invest in the startup are grilling VCs over the capitulation. Sources close to a SEBI-registered AIF with SIDBI’s backing have told Inc42 that the regulatory body has questioned some VCs that had backed GoMechanic in the past.
