Why is Sequoia Capital-backed Zoomcar not settling vendor dues?

Why is Sequoia Capital-backed Zoomcar not settling vendor dues?
Photo Credit: VCCircle
22 Feb, 2021

At a time when social media and online consumer complaint portals are flooded with daily refund grievances against Zoomcar, TechCircle has learned that the self-drive car rental app operator has also failed to clear vendor dues.

On-demand chauffeur service app operators DriveU and DriverShaab are among the vendors exploring legal action against Zoomcar over pending payments since the lockdown-ridden days of 2020, founders of the affected startups told TechCircle.

The two vendors help Zoomcar with vehicle pick up and drop services.

Bengaluru-based DriveU has filed a Civil Miscellaneous Petition (CMP) in the Karnataka High Court for outstanding dues amounting to Rs 50 lakh, co-founder Ashok Shastry said. The matter is posted for hearing in the ongoing week.

Read: On-demand chauffeur service app DriveU puts pedal to the metal on B2B

“When the collection agency visited their office in Domlur in December, the security guard there told them he doesn't work for Zoomcar, but rather for the building owner that has seized all assets inside that office due to them not paying rent since March 2020,” Shastry said.

Both Zoomcar and its investor Sequoia Capital declined TechCircle’s request for comment on the matter.

Kolkata-based DriverShaab, a Zoomcar vendor since 2019, stopped offering its services to Zoomcar in June 18, 2020, after pending dues snowballed to Rs 17 lakh. Founder Avijit Das said Zoomcar told him that the dues could be cleared only by December 2020, sans any interest amount. In January 2021, Zoomcar paid a lump sum, and brought down its credit balance with DriverShaab to Rs 1 lakh. 

Das is clueless about why Zoomcar has now stopped responding to all reminder correspondence of the remaining payment balance, he said. “Currently, my lawyer is progressing to file a case against them... They haven't filed anything yet. I prefer settling it out of court. It’ll be cost-effective then. Also it's not a good thing for a startup like us.”

Having burnt several rupees in introducing Zoomcar to the eastern India market in 2019, and having to cover employee costs in 2020 at a time when Covid-19 ate up business, Das’ DriverShaab was unable to pay its goods and services tax (GST). In August, its GST registration was cancelled. Subsequently, it could not sign on new contracts from players such as CarDekho due to the compliance requirements.

Having entered Kolkata in late 2019 with DriverShaab, Zoomcar upped its revenues in the city by 120%, Das said. From three to four cars a day, business for Zoomcar zoomed to 50-60 cars a day in six months, he added.

Having sold most of its vehicles in the city amid pandemic, Zoomcar has currently reduced its fleet by about 60% in the city, Das said. 

Zoomcar India, a domestic subsidiary of the Colorado-based eponymous parent holding, reported losses of Rs 424 crore in FY20, versus Rs 201 crore in FY19. Revenue for the period increased 10.5% to Rs 294.6 crore.

Founded in 2012 by Greg Moran and David Back, the company last raised an undisclosed amount from venture capital firm Sequoia Capital India in December 2020, as per VCCEdge data. In January 2020, it raised $100 million from Sony Corporation. Ford Motor Company, Mahindra & Mahindra, Nokia Growth Partners, Silicon Valley Bank, InnoVen Capital, and Trifecta Capital are among the company’s other investors.