Introduction
BluSmart entered India's urban-mobility market in 2019 with an all-electric fleet, no-surge pricing and a reputation for reliable service. Its rapid growth made the company a prominent example of climate-oriented enterprise. Its subsequent financial distress also exposed how startup structures, asset ownership and creditor claims can complicate insolvency under the IBC.
On April 30, 2023, 15 NCDs (Non-Convertible Debentures) were issued by BluSmart in favour of Catalyst, for the purpose of funding EV purchases and operations. This debt had a tenure of 24 months with repayments starting from April 30, 2023 onwards. The default originated when BluSmart failed to pay instalments that were due on March 21st, 2025 and April 30th, 2025. The total debt remaining to be paid for these two months was around Rs. 1. Crore including penalties.
A petition has been filed by Catalyst Trusteeship against BluSmart in the National Company Law Tribunal (NCLT), Ahmedabad but the company termed the situation as "temporary financial crunch" but this claim has been rejected by the presiding judicial members of NCLT validating the debt and default after examining bank records and statements. As a result, CIRP (Corporate Insolvency Resolution Process) proceeding has been initiated against the company, appointing NPV Insolvency Professionals Pvt. Ltd, New Delhi as IRP for further proceedings, managing assets and claims by the creditors.
Insolvency and Bankruptcy Code (IBC), 2016
The Insolvency and Bankruptcy Code (IBC), stands as a key pillar in the process insolvency resolution of partnership firms, corporate persons, and individuals in a time bound manner for maximizing the value of assets and balancing the interest of all investors, creditors, and stakeholders. Prior to the IBC, multiple legislations were responsible for the regulation of insolvency framework such as the Companies Act, 2013, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), 2002, the Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI Act), 1993, etc.
The Bankruptcy Legislative Reforms Committee, headed by T. K. Viswanathan, was constituted by the Ministry of Finance to draft a comprehensive bankruptcy framework, which ultimately culminated in the enactment of the Insolvency and Bankruptcy Code, 2016.
A separate insolvency resolution process has been provided by this Code for companies, individuals, and partnership firms. Either of the creditor or the debtor may initiate the process. For individuals, the process will have to be completed within 180 days whereas for companies, it may be extended by 90 days. For small companies, startups, and other companies (assets worth < Rs. Crore), the process will have to be completed within 90 days, provided with an extension of 45 days. The maximum time limit has been amended and increased to 330 days for the resolution process to be completed by the Insolvency and Bankruptcy Code (Amendment) Act, 2019.
The Insolvency and Bankruptcy Board of India has been established under this Code to regulate the companies, firms and individuals listed under it and to oversee the insolvency proceedings going on within the country. This Board consists a total of 10 members having representatives from the Reserve Bank of India (RBI), and the Ministry of Finance and Law.
For limited liability partnership firms and companies, the National Company Law Tribunal (NCLT) acts as an adjudicator, and for partnerships and individuals, the Debt Recovery Tribunal (DRT) acts as an adjudicator. These tribunals consist of licensed professionals and during the insolvency process, the assets of the debtor will also have to be controlled by these professionals.
A financial creditor, an operational creditor, or the corporate debtor may file an application for insolvency proceedings to NCLT. To consider the application a maximum time of 14 days will have to be given. If the claim is permitted then the adjudicating authority:
Declare a Moratorium
Cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims Appoint an interim resolution professional
BluSmart's Trial under the IBC, 2016
BluSmart's sister company Gensol Engineering Limited borrowed Rs. 977 Crore from Power Finance Corporation (PFC) and IREDA, and out of this fund it was agreed that Rs. 663 Crore will be used to purchase EVs for BluSmart. While accepting the loan, the company agreed on the commitment for a purchase of 6400 EVs, but acquired only 4704 vehicles, leaving around Rs. 260 Crore unaccounted. In response, both of these creditors filed complaints with the Economic Offences Wing against Gensol, alleging manipulation of debt servicing documents. BluSmart faces more than 200 creditor claims, collectively totalling around Rs. 500 Crores, ranging from Catalyst (Rs. 250 Crore), IREDA (Rs.
130 Crore), and claims by other companies.
Section 7 of the IBC empowers a financial creditor to initiate CIRP against a debtor in default of at least Rs. Crore. In the present case, CIRP has been initiated against the company when Catalyst Trusteeship Limited filed a claim for Rs. 1. Crore as unpaid debt.
On 29 July, 2025, the CIRP process has been initiated against the company by the Ahmedabad bench of NCLT. Under Section 14 of the IBC, a moratorium has been imposed by the tribunal which issued public notices and directed the IRP to manage operations as a going concern pull together creditors and begin the resolution. A Committee of Creditors (CoC) has been formed under which IRP was directed to issue notices inviting all creditors to submit their claims.
A major hurdle in BluSmart's case is the complex group structure. A unified and consolidated valuation became difficult because the key assets of the company were held in its subsidiaries such as Tech, Charge, Fleet, and Premium Fleet. As per the IBC jurisprudence, when assets are held by subsidiaries, they typically fall outside the scope of the parent's company insolvency procedure unless explicitly included through legal merging, giving rise of difficulties for the creditors to recovers the outstanding debts efficiently. The company's aim of making different subsidiaries helped it in raising finances, managing operations, and most importantly attracting investors.
But unfortunately, this complex structure act as a barrier in the insolvency resolution procedure. This segregation not only delays the resolution but also creates uncertainty about how much percentage will the creditor get from the assets of the company.
Policy Recommendations
The BluSmart insolvency demonstrates the urgent need for group-insolvency reform in India. One of the IBC's objectives is to preserve the enterprise value, which has been disturbed when startups and companies operate across multiple legal entities, treating each company in separation. Creditors and investors may face the problem of diminished and unserved recoveries, and without a legislative or judicial innovation, the probability of rescuing BluSmart as a sustainable business ceases to exist.
The minimum threshold set under Section 7 of IBC for filing petitions and the resolution process to be initiated is Rs. Crore of default which is too less for new startups with irregular cash flows. In the case of BluSmart, the company was paying the debts from past 1 year and 10 months but could not pay the dues for last two months giving rise to a default of Rs. 1. Crore and initiation of CIRP proceeding. This default is just a bit above the minimum threshold limit. The minimum threshold limit should be increased so that these kinds of situations could be prevented arising out of temporary liquidity mismatches.
BluSmart's fleet was operated in the EVs and sustainable mobility sector, which aligns with India's commitment under various treaties and conventions such as achieving Net Zero by 2070, Paris Agreement, achieving Sustainable Development Goals etc. This type of companies which promotes green and environment sustainable startups should be termed as public interest enterprises under the IBC with a goal of achieving larger public interest.
Existing IBC provisions are best suited for traditional bank lending, whereas BluSmart was working on layered financing, which was not well suited for current IBC provisions. The rules under the IBC shall be amended so that each of the creditors have a right to claim over the assets of the debtor, avoiding the situation where only one category of creditors have interests in the proceedings.
Conclusion
The initiation of CIRP against BluSmart illustrates the evolving challenges in applying the Insolvency and Bankruptcy Code, 2016. Undoubtedly, the country's credit ecosystem has been strengthened by the enactment of IBC ensuring time bound resolutions, empowering creditors, and investors, but some of its goals are yet to be achieved because of its rigid framework.
The position of financial creditors plays a complicating role under IBC. In the Committee of Creditors, their voting power often outweighs the voice of operational creditors and equity investors, many of whom play a pivotal role in growth of startups. In the present case of BluSmart, this hierarchy may result in conclusions that prioritize short term recoveries over long term sustainability.
Infrastructure related to their charging and maintenance are often leased and not owned directly by the company which gave rise to the situation of recovering of assets. This structural gap opens the eyes about how the IBC is designed with asset heavy traditional businesses and firms in mind but does not accommodate the working models of modern, asset light, and innovation driven startups and enterprises.
Taken together, these difficulties support targeted reform of the Insolvency and Bankruptcy Code. The BluSmart case shows that creditor protection must remain central, but should operate with a clearer understanding of group structures, leased assets and regulated sectors. Insolvency law will retain legitimacy only if it can preserve value while responding to new business models.
Primary materials
Key primary materials: Insolvency and Bankruptcy Code, 2016; IBBI legal framework.