The National Company Law Tribunal (NCLT) has issued a notice to initiate insolvency proceedings against GoMechanic, the morning context reported quoting anonymous resources. 

The development comes after a Gurugram-based digital marketing company, DigiRovers filed a petition before the tribunal alleging that the automobile service start-up defaulted on payments worth over 1.25 crores in January 2023.

The National Company Law Tribunal is a quasi-judicial body in the country that adjudicates issues relating to Indian companies and start-ups.

Founded in 2016, the GoMechanic is backed by investors such as Sequoia Capital, Tiger Global Management, Orios Venture Partners, Brand Capital, Chiratae Ventures and Elina Investments. It has raised $62 million to date, having last raised $42 million in Series C funding led by Tiger Global in June 2021. 

Last year, the start-up was also in process of raising around $80 million in a Series D funding round led by SoftBank’s Vision Fund and Malaysian sovereign fund Khazanah Nasional. However, they later pulled out of the deal as due diligence (DD) highlighted lapses in the company's accounts and operations.

In January 2023, GoMechanic's co-founder Amit Bhasin accepted the "errors in judgment" through a LinkedIn post that announced let go of 70 per cent workforce.

He quoted "As entrepreneurs, we identify problems, come up with solutions, and explore every opportunity to grow those solutions to meet unmet needs. But in this instance, we got carried away. Our passion to survive the intrinsic challenges of this sector, and manage capital, took the better of us and we made errors in judgment as we followed growth at all costs, including in regard to financial reporting, which we deeply regret."

Ernst and Young (EY) conducted the audit as a third-party firm and brought to light several discrepancies which went unnoticed in previous audits conducted by other firms. 

For its first two years, the start-up's financials were audited by smaller firms. PwC did the audit in FY21 which reportedly raised some questions regarding the house's business activities and assets. However, that audit was followed up by KPMG in FY22 which did not find any irregularities and consequently, no qualifications were issued.

According to The Morning Context report, GoMechanic has recently held talks with several online used-car platforms like Spinny and Cars24, among others. Amongst them, Cars24 has reportedly decided against a deal, but talks are still being processed with another used-car platform 'CarTrade'. 

Previously in 2021, Ritesh Agarwal's hospitality start-up was also under the radar after Gurugram-based hotelier Rakesh K Yadav filed a plea with The National Company Law Tribunal (NCLAT) against one of its units. OYO reached an out-of-court settlement with Yadav but several other hoteliers approached the NCLT with claims against the company that was reportedly of more than Rs 200 crore.

The Ahmedabad bench of the NCLT had ordered the initiation of the corporate insolvency resolution proceedings against the start-up. However, OYO appealed against the NCLT order in NCLAT, and NCLAT granted a stay on the formation of the committee of creditors.

Later, NCLAT allowed OYO's withdrawal appeal and the NCLT order was set aside.