Ola Electric’s Vendor Insolvency Case Raises Governance Questions For Investors

The NCLT case is significant, not only because it involves critical operational partners, but also due to how Ola Electric initially disclosed its relationship with Rosmerta.

In February 2025, Ola Electric, in a filing to stock exchanges, announced that it was renegotiating contracts with its vehicle registration agencies, including Rosmerta Digital Services and Shimnit India, stating that the process would lead to a temporary dip in vehicle registrations on the government’s VAHAN portal. However, the company did not mention any pending dues or financial disputes with Rosmerta at the time.

Now, with Rosmerta pursuing insolvency proceedings over non-payment, legal experts believe Ola may have withheld material information from investors. According to Bloomberg, Rosmerta is seeking to clear outstanding dues of Rs 24.5 crore, in payments.

“Ongoing disputes with vendors like Rosmerta that affect vehicle deliveries and revenue require disclosure under SEBI (Securities and Exchange Board of India) regulations. The February 19 filing must include these disputes if they materially impact the company’s operations or finances,” said Raheel Patel, partner at Ahmedabad-based law firm Gandhi Law Associates which deals with corporate, insolvency law and others.

The Core reached out to Ola Electric seeking comments on the story over email, but the company declined to comment on the story. However, Ola Electric had disclosed to exchanges on March 15th that it “strongly disputes” the claims made by Rosmerta, and that the firm will take “all necessary and appropriate steps to protect its interests and object to the allegations in the aforesaid matter”.

Ola’s In Real Trouble

Under India’s Insolvency and Bankruptcy Code (IBC), 2016, vendors like Rosmerta qualify as operational creditors, allowing them to initiate insolvency proceedings against companies that fail to clear dues. Sonam Chandwani, managing partner at KS Legal & Associates who has a history of advising companies on insolvency matters said that if Ola Electric does not respond within 10 days, the NCLT may admit the case, imposing a moratorium on claims and appoint an Interim Resolution Professional (IRP) to oversee the resolution process. If no resolution plan is approved, the company could face liquidation.

As a listed company, Ola Electric is subject to strict financial disclosure norms under Securities and Exchange Board of India (SEBI) regulations. Legal experts said Ola’s February disclosure did not sufficiently cover its financial obligations to key vendors — a potential violation of SEBI’s Listing Obligations and Disclosure Requirements (LODR) regulations. Also, Mint reported last week that due to Ola’s renegotiations with these third parties, vehicle deliveries to users were delayed by 20-45 days from 5-7 days.

Chandwani explained that if Ola Electric’s failure to pay Rosmerta and other vendors contributed to delays in vehicle deliveries, it could be argued that this was a material event requiring prior disclosure. By omitting this information, the company may have failed to meet its disclosure obligations under Regulation 30(4).

“If SEBI finds that Ola Electric failed to disclose major operational challenges, it could take regulatory actions like issuing show-cause notices, imposing fines, or requiring corrective measures,” Chandwani added.

While Ola Electric Mobility Ltd is not automatically liable for its subsidiary’s debts, liability could extend to the parent entity if creditors prove that the listed company had issued financial guarantees, engaged in fund diversion, or misused control over the subsidiary, Chandwani further explained.

Dependence On Rosmerta

Ola Electric’s dependence on third-party registration agencies like Rosmerta stems from its direct-to-consumer (D2C) sales model, which bypasses traditional dealerships. Unlike Honda, Yamaha, or Triumph, which register vehicles in-house via direct RTO integration, Ola relied on Rosmerta to handle vehicle registration across multiple states.

However, in September 2024, Ola Electric announced a shift in strategy, unveiling a "Network Partner Program" to "bolster sales and service operations" by adding 10,000 sales partners by the end of 2025. As of the latest available data, 625 partners have already been onboarded.

But industry insiders said Ola should have moved to in-house registrations much earlier, given its growing dealership network.

“We have an in-house registration system in terms that the RTO provides the portal to us directly, we have an RTO guy working for it, he directly does the process for registration,” said a senior employee at a Triumph dealership in Mumbai, who spoke to The Core on the condition of anonymity.

The dealer also questioned Ola’s decision to continue outsourcing registration despite expanding its dealership network. The person also explained that Ola’s push towards dealerships is inevitable if it wants to scale its sales and service network efficiently. This is also because working with dealerships reduces the burden of vehicle registrations, as dealerships handle it independently.

Transition To Dealerships Inevitable

Industry experts believe Ola Electric’s D2C model is unsustainable in the long run, as automobile companies cannot scale without local dealership partners who understand regional market conditions and customer preferences.

“Most (automobile) brands themselves do not operate the public point interaction such as dealerships especially when expanding in small towns. Because such SME dealerships always have active sales and marketing people on the ground in that specific local area,” added the Triumph dealership employee quoted above.

He further explained that big brands like Honda and Yamaha rigorously vet dealerships before granting sales rights, ensuring that dealers have the required experience, infrastructure, and regulatory clearances. Ola’s shift towards dealerships is expected to eventually reduce its dependence on third-party registration agencies, streamlining the vehicle registration process.

Risks Loom

Legal and financial analysts warned that Ola’s investor credibility is at stake. While Ola Electric Mobility Ltd. may not be directly liable for its subsidiary’s insolvency, the case could shake investor confidence and make future fundraising difficult.

“A subsidiary's insolvency doesn't directly block the parent company from raising capital or taking on debt, but it may increase perceived risk for lenders and investors. This could lead to tougher lending terms, higher interest rates, or a decreased willingness to invest, indicating worries about the group’s financial health,” said Patel.

Investors typically view vendor disputes and insolvency petitions as warning signs, as they suggest cash flow problems or governance lapses. SEBI, as part of its market oversight, could initiate further scrutiny of Ola Electric’s financial disclosures, adding more pressure on the company ahead of its anticipated public offering.

Chandwani of KS Legal also explained that insolvency petitions against a subsidiary often lead investors to question the parent company’s financial stability and governance. Also If SEBI finds inconsistencies in Ola Electric’s past disclosures, it could intensify concerns about corporate transparency, further eroding investor trust.

“SEBI typically views subsidiary insolvencies as potential corporate governance red flags. Investors could question whether the parent company engaged in financial mismanagement or failed to disclose deteriorating business conditions in a timely manner. If the subsidiary was a key contributor to revenue or production, SEBI may seek further clarifications on the financial relationship between the two entities,” Chandwani said.

She also explained that if the company is found to have deliberately concealed operational challenges, investors also have an option to file complaints, leading to further enforcement action under the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003.

With insolvency proceedings looming and regulatory concerns mounting, Ola Electric now faces a critical test — not just in resolving vendor disputes, but in rebuilding investor trust and ensuring its financial and operational transparency meets regulatory standards.

Ola Electric’s stock has been on a volatile trajectory, hitting a record low on Monday after tumbling over 7% to close at Rs 46.90, slipping below the Rs 50 mark for the first time since its listing. However, on Tuesday, the stock rebounded sharply, surging 10.01% to an intraday high of Rs 51.63 on the National Stock Exchange (NSE). Despite this recovery, Ola Electric’s current market capitalisation stands at Rs 23,112.75 crore, significantly lower than its Rs 66,000 crore valuation after its listing in August 2024.