Tighter norms, rising compliance failures driving scrutiny for startups

Anmol Singh Jaggi and Puneet Singh Jaggi, once hailed as rising stars in India's clean energy sector, are now facing serious regulatory action.

- UDISHA SRIVASTAV, AJINKYA KAWALE & PEERZADA ABRAR

The brothers, known for founding Gensol Engineering and BluSmart Mobility, have been barred by the Securities and Exchange Board of India (Sebi) from the securities market allegedly for diverting company funds for personal use.

The case highlights growing concerns around corporate governance in India's startup ecosystem, where rapid growth has often outpaced regulatory compliance.

As scrutiny intensifies across high-profile startups like BluSmart and Byju's, investors and regulators are calling for stricter oversight and stronger internal controls.

"Increased regulations and growing compliance failures in companies like Byju's, and BluSmart Mobility (Gensol) are leading to heightened scrutiny for startups," said Salman Waris, managing partner at TechLegis Advocates & Solicitors.

"This increased scrutiny has raised compliance costs, directly impacting startups' financial projections. While concerns over compliance and transparency are valid, it's the startups' tendency to cut corners that has created the current situation," added Waris.

Gensol Engineering provides engineering, procurement and construction (EPC) services in the renewable energy sector, with primary focus on solar power projects.

Gensol has grown impressively over the past few years, according to information available on the BSE website. On a standalone basis, sales of the company have grown from ₹61 crore in FY17 to ₹1,152 crore in FY24. The trailing 12-month data shows that its sales went up to ₹1,297 crore.

During the same period, operating profit went up from ₹2 crore to ₹209 crore and net profit from ₹2 crore to ₹80 crore.