The Registrar of Companies (RoC) has sought an examination of the books of GoMechanic's holding entity, Targetone Innovations Pvt Ltd, following allegations of financial irregularities and corporate governance issues levelled against the startup, according to a report published in The Economic Times (ET).
According to the Companies Act, Section 264 (4), the RoC has the authority to conduct an inquiry into the affairs of a company in line with the directions from the Ministry of Corporate Affairs (MCA).
Last week, the National Company Law Tribunal (NCLT) issued a notice to GoMechanic over an insolvency plea filed against the company, the report said.
The plea has been filed by an operational creditor, Digirovers Solutions Pvt. Ltd., and was heard on February 15. The next hearing is scheduled for February 27, when the company has to file its response in the matter, ET reported.
"After last month’s disclosure made by one of the co-founders, 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," the report said, quoting a person aware of the matter.
"Once the order comes through, the RoC can summon the company’s board and even inspect the premises while conducting the inquiry into the affairs of the company," the report added.
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"This is a fit case for a class action to be filed by the investors. However, so far, there hasn’t been any move by them except for one of them conducting a forensic audit," the report added, quoting an official concerned with the matter.
A class action allows a large number of claimants with a common grievance against a company to file a lawsuit against it.
In January, GoMechanic Founder Amit Bhasin admitted to financial reporting errors at the startup and stated that the cash-strapped company would lay off roughly 70% of its workforce while also having its accounts audited by a third party, ET added in its report.
"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 had said in a LinkedIn post on January 17.