Gurgaon luxury flat, over Rs 260 crore 'missing': The tale of Jaggi brothers, who diverted loans for BluSmart

BluSmart, an electric ride-hailing startup, has halted its services after India’s securities market regulator’s order against its promoters in an alleged loan misuse case. Seen as a rival to Uber, the popular cab service was operating in Delhi-National Capital Region, Mumbai and Bengaluru.

Without citing a reason, BluSmart said in an email to customers on Thursday (April 17), “We’ve decided to temporarily close bookings on the BluSmart app.” Referring to the customer funds blocked in digital wallets, the company said it will only “initiate a refund within the next 90 days if services do not resume before then,” reported Reuters.

Is BluSmart shutting down? We will explain.

BluSmart’s co-founders in trouble

The Securities and Exchange Board of India (Sebi) launched a probe on Tuesday (April 15) into Gensol Engineering, a solar energy company, which used to procure electric vehicles and lease them for BluSmart.

Gensol Engineering’s founders, Anmol Singh Jaggi and Puneet Singh Jaggi, are also promoters of EV cab service BluSmart.

Sebi barred the Jaggi brothers from the stock market over alleged financial mismanagement and misuse of funds while the agency investigates. The regulator also banned them from holding the position of a director or key managerial personnel in Gensol until further notice.

The regulator has accused the Jaggi brothers of diverting sizeable loan amounts for personal use. According to Sebi, they borrowed Rs 978 crore from public lenders – Indian Renewable Energy Development Agency (IREDA) and Power Finance Corporation (PFC) – between 2021 and 2024. Of this, Rs 664 crore was for purchasing 6,400 EVs to lease to BluSmart.

However, the company acquired only 4,704 vehicles for Rs 568 crore. Sebi has accused the Jaggi brothers of redirecting Rs 262 crore for personal use and related-party entities.

“Some of these funds were then used for purposes unrelated to the purpose/objective of the sanctioned term loans, which included (i) personal expenses of the promoter, including purchase of high-end real estate; (ii) benefit to the private promoter entities/transfer of funds to promoters’ close relatives; etc.,” the market regulator said.

Sebi also found that Gensol forged documents from IREDA and PFC to hide its loan default from credit rating agencies (CRAs). “The Company however continued to submit statements to the CRAs certifying there was no delay or default in servicing any loans (No Default Statements),” the order said.

Last month, credit ratings agencies CARE Ratings and ICRA downgraded Gensol after finding that BluSmart had defaulted on its payments to the company.

“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.”

Speaking to TechCrunch, Anmol Singh Jaggi said the company was “fully cooperating” with Sebi and is “putting together all the necessary documents and facts to clarify.”

“This is just an interim step, not a final decision, and I’m confident that once everything’s reviewed properly, our position will be clear. We’ve always believed in doing things responsibly, and that won’t change,” Jaggi said.

ALSO READ: Do Uber and Ola charge iPhone and Android users different fares for same trips?

What was the money spent on?

Luxury real estate, golf equipment, and foreign travel – this is what the Jaggi brothers allegedly spent the unaccounted funds on.

They used the money to buy a luxury apartment in Gurugram’s posh The Camellias for Rs 43 crore, a Rs 26-lakh worth premium golf set, on transfers worth over Rs 11 crore to their mothers and spouses, Rs 1.86 crore on foreign currency, and foreign trips.

“It can be noted from the above that funds availed by Gensol as loans for procuring EVs were, through layered transactions, partly utilised for buying a high-end apartment in The Camellias, DLF Gurgaon, in the name of a firm where the MD of Gensol and his brother are designated partners,” said the Sebi order.

What is BluSmart’s future?

BluSmart has shut its services, but it is uncertain whether they will resume anytime soon. The company still has the largest electric ride-hailing fleet of more than 8,000 cars in the country. It was founded in late 2018 as Gensol Mobility by Jaggi brothers and Punit Goyal.

As per an Economic Times (ET) report, BluSmart is planning to end its main business and begin operations as a fleet partner of Uber.

“BluSmart’s shareholders have approved a plan as per which it will begin a transition of the fleet from its platform to Uber over the next few weeks. This will be facilitated in phases starting with 700-800 cars to begin with,” a source said. “Once the transition is complete, BluSmart will wind up its own ride-hailing business. The timeline for this process is still being finalised.”

BluSmart will get a portion of the fares earned by its vehicles once they are listed on Uber, which will keep its commissions.

Amid the Gensol controversy and high cash burn at BluSmart, the ride-hailing cab service does not have the needed investment.

“BluSmart is looking for a $15-20 million infusion but how this plays out depends on the fleet transition, and whether certain performance conditions are met,” ET quoted a source as saying.

BluSmart’s operations were hit due to Gensol’s debt defaults, including closing down its Dubai service and reducing daily rides in India.

With inputs from agencies