Death of the sustainability poster child: What does it teach us?

Economic Times

17-05-2025

Agencies
On the face of it, this was a startup that was at the right place at the right time. And no one could have anticipated the headlines that have greeted us lately.
The year 2019 can be recalled for two events that today give rise to interlinked questions about green ventures in the Indian transportation sector. 2019 was the year when Blu Smart was launched. It was also the year that the government rolled out the National Mission on Transformative Mobility and Battery Storage.
BluSmart started in January 2019 with an exciting green mandate, prepared to take on the duopoly that Uber-Ola firmly commandeered in India's top three megacities. Here was a cab service that used electric vehicles while the customers had transparency and surety, largely due to their fixed pricing model. It caught attention and grew into a cab service with its own loyal customers that demonstrated a preference towards its pocket-friendly, reliable rides. At the height of its success, Blu Smart managed close to 10,000 electric vehicles utilising about 6300 charging points across the three cities of Delhi NCR, Bengaluru, and Mumbai. Here was an aspiring environment-friendly startup that resonated with its urban commuters as an attractive alternative, one which did not pollute the air they breathed. And it wasn't just the environmentally-conscious commuters who flocked towards the service. The business model with its zero-cancellation policy, friendly drivers, and clean vehicles filled the market gap.
Around the same time, the Indian Government rolled out the National Mission on Transformative Mobility & Battery Storage. It contained two phases of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) scheme. FAME, in its first phase, subsidised prices and incentives for electric vehicles and their infrastructure. Green companies could avail a reduction in GST (5% to 12%), exemption from permit requirements and a reduction in costs under its second phase. Bring in this mix, the Delhi EV policy in 2020, with many such other incentives, such as favourable tariffs and a pollution cess.
On the face of it, this was a startup that was at the right place at the right time. And no one could have anticipated the headlines that have greeted us lately. Except that there were signs. In 2024, there was the introduction of surge-pricing. There also lurked in the shadows whispers of mismanagement and lack of corporate governance. These problems lingered beneath the surface for years and culminated in a SEBI investigation after significant defaults on payment by the company. The fairytale came to an abrupt halt with services suspended, employees suddenly jobless, and customers uncertain of whether they will get back the money in their wallet option. The reasons were plenty. Gensol Engineering, the entity where BluSmart leased its cabs, had been facing its own liquidation crisis, heavily impacting the former's operations. But the final nail in the coffin of public opinion was the co-founders diverting funds towards luxury real-estate and other personal indulgences from a loan intended for purchasing more vehicles for the fleet. BluSmart's abrupt closure was brought on by alleged violations of SEBI's anti-fraud (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and potential breaches of corporate governance under the Companies Act, 2013. Investigations revealed that funds previously earmarked for EV fleet expansion were diverted for personal use by the co-founders, seemingly a case of criminal misappropriation. Additionally, the company's abrupt shutdown left partners like Gensol Engineering stranded, triggering contractual disputes and worsening liquidity crises. SEBI's scrutiny highlighted misleading disclosures to investors, possibly violating green bond compliance if the company raised sustainable financing.
The BluSmart tragedy raises significant questions about the future of electric vehicles in India. A startup that was taken as a poster child by those keen to demonstrate the ease and viability of the green transportation sector has instead done the opposite. BluSmart's misuse of FAME-II subsidies and Delhi's EV incentives raised questions about oversight in green funding, with this collapse being seen as one that could prompt stricter due diligence for EV startups seeking subsidies or green investments and thus slowing sectoral growth. Startups starting out with the same kind of vision will have greater difficulty attracting investors. The EV system will, in the future, invite reduced investor trust and therefore hinder adoption. The mismanagement and irresponsibility of the startup spell caution for others geared towards bringing about a better future for the planet. Lofty goals for the environment and consumer-friendly policies mean little if the basic tenets of corporate governance and financial management are brushed aside. It is time that the policy framework around EVs is not just focused on infrastructure and subsidies, but also introduces checks to prevent advantages being taken for corporate greed and the propensity to misuse enabling policies for short-sighted negligence. The time is ripe for a specialised statutory body to be formed to monitor the utilisation of subsidies and other SOPs offered to companies in the clean energy space. BluSmart may then go down in case studies as a benchmark for how not to scale green ventures—highlighting the need for stronger audits, transparent governance, and regular scrutiny to prevent similar collapses. Talish Ray is an advocate and Managing Partner at TRS Law Offices. Tejaswini Singh contributed to this article as a researcher.