SustainKart, which once claimed to have over 1,100 brands and 93,000 stock-keeping units (SKUs) on its platform, has shut down amid allegations of forgery against its founder Kanthi Dutt.
Investors have alleged that the eco-friendly products marketplace fudged revenue details and also misrepresented the company’s sales and seller data to investors during the past year. Dutt is said to have shown investors books with inflated sales and revenue, even as the company’s Goods and Services Tax (GST) filings indicated significantly lower income.
Inc42 has learnt that now a consortium of SustainKart’s investors have sent a legal notice to Dutt, demanding that the company return around $800K plus interest over alleged mismanagement, fraudulent financial reporting, and breach of fiduciary duty.
Plus, even as SustainKart is shutting down, Dutt’s other startup — fine jewellery brand Tritiyaa — is also caught in a similar situation.
In an FIR registered in Hyderabad, Tritiyaa cofounder Srija Tippala has also alleged that Dutt forged her credentials and ousted her as the director of the company, replacing her with his mother.
SustainKart may not match other ecommerce marketplaces for scale or funding history, but this is yet another instance of a startup faltering on its corporate governance responsibilities leading to a clash with investors.
From the infamous BharatPe vs Ashneer Grover drama to GoMechanic cheating its own investors, as well as the problems in funded startups such as Mojocare, Reshamandi and even the many issues at BYJU’s — there’s no dearth of similar stories in the Indian startup ecosystem. Even if SustainKart is much smaller than these examples.
While this has resulted in heightened investor scrutiny into claims by companies and even monthly income statements, instances such as SustainKart highlight how deep the rot is set.
Inc42 reached out to Dutt for comments about these allegations, however, the founder did not respond to our questions till the time of publishing. This story will be updated as and when we receive his response.
Meanwhile, investors have turned to the legal system to recover the funds invested in SustainKart, but what exactly led to SustainKart’s current unenviable condition?
The Curious Case Of Kanthi Dutt
Kanthi Dutt founded SustainKart in 2021 at a time when ecommerce was going through a D2C-led inflection point. The idea was to launch a marketplace that sold sustainable and eco-friendly products in a variety of categories, including fashion, home decor, food, and nutrition.
The company was later joined by celebrity fashion designer Shilpa Reddy, who was brought in as a cofounder. Incidentally, Reddy has publicly distanced herself from the startup in the aftermath of the allegations against Dutt.
Soon after its launch, SustainKart raised its $500K pre-seed funding round in 2022, which was led by India Accelerator’s ‘IA Growth Opportunities Fund I’ and some high net worth individuals (HNIs).
In 2023, IA invested a total of $294,780 via a compulsory convertible debenture subscription agreement (CCD).
One source close to SustainKart’s shareholders told Inc42, “Dutt came from a business family background, and the idea of bringing celebrities and launching private labels also sounded good, hence we invested.
How SustainKart Got Derailed
Besides running a marketplace, SustainKart had eyes on multiple private labels with celebrity partnerships. For instance, in 2021, Indian actor Keerthy Suresh launched the Bhoomitra brand in a partnership with SustainKart.
The company also claimed to have acquired home care brand FromVedas but the exact details of this deal are unknown. With the pre-seed round in its kitty, SustainKart went about scaling up.
After the first year of operations, the company was running short on funds, and this period coincided with the onset of the so-called funding winter.
Venture capital funds across stages and sizes were getting more and more cautious about investing in early stage companies, and the due diligence burden was high. Inc42 has delved into the issue of investors scrutinising the claims of founders and even going over financial statements with a fine-tooth comb to get the true financial picture.
It was in this environment that Dutt approached investors to raise another round for SustainKart, eyeing a fundraise of $1.5 Mn, according to people familiar with the matter.
Institutional investors Mudhra Ventures and India Accelerator were exploring an infusion into the company, with the latter looking to pour in an additional $400,000 in addition to the pre-seed investment. Incidentally, the company managed to raise the funds, and even got Indian actor Samantha Prabhu on its cap table.
“One of the conditions for the second round was that we would manage their accounts and GST filings through an accounting firm,” a source close to these investors added.
Further, investors stipulated that SustainKart would only get the first tranche once the company hands over its books and accounts to the shareholders.
Sources claim that Dutt dragged his feet on this matter and did not give shareholders access to the company’s books for several months, which was a red flag, according to one investor we spoke to.
Fudging Revenue And Sales
When investors finally got access, they realised that the company was not being forthright about its disclosures. According to investors that we spoke to, there were issues related to GST compliances, money transfers, and everything
“When we asked the founders about these issues, we never got a response or whatever they told us did not match with the records submitted to tax authorities,” he further adds.
Sources close to the shareholders alleged that Dutt inflated revenue figures for FY23 in a bid to secure funding. This is corroborated by emails between Dutt and the investors, copies of which have been reviewed by Inc42.
According to these emails, there was a difference of approximately INR 27 Lakh between what was shown on the books and what was shown to the auditors. “The management claimed that some sales were not booked correctly, while others were recorded correctly, but were outstanding due to pending collections,” one source added.
Plus, there was no clarity on which customers or vendors were involved in the pending receivables or payables. “The startup claims goods were sold, but it did not fully check that every customer’s balance matches the sales records,” another source told us.
There was yet another issue: One source alleged that SustainKart’s India entity did not issue shares to SustainKart USA in the pre-seed round. The company had failed to provide shares for the INR 1.49 Cr (about $177K) infused by investors in its initial $500K pre-seed round in 2021.
Since this pre-seed round was raised as a simple agreement for future equity (SAFE) notes, the company was obliged to convert them after it raised a follow-on round. But this conversion never happened, and SustainKart did not make any filings to reflect this conversion either.
“Because of this, Sustainkart is breaking the law by not issuing shares within the required 60 days,” one of our sources added.
Investors we spoke to added that according to India’s Foreign Exchange Management Act (FEMA), if a company doesn’t issue shares within 180 days, it has to return the money to the investors. This is a key issue at the heart of the legal notice sent to SustainKart.
SustainKart’s current status remains unclear, however, Inc42 found that the domain name has expired and is available for sale.
According to another source, the company has shut down, and Dutt is no longer associated with SustainKart in any capacity. In fact, on his LinkedIn profile, Dutt has erased any reference to SustainKart.
All indications are that the founder has moved on to Tritiyaa, which was founded in 2023. But here too, Dutt has courted controversy.
More Forgery Allegations Emerge
In June 2023, Dutt rolled out fine jewellery brand Tritiyaa and brought in actor Parineeti Chopra as an investor. Dutt continued to rely on celebrity investors to grab the limelight, but Tritiyaa has had a tough time in the market, trying to break through even as the likes of Melorra have had to cut back their ambitions.
It’s unclear who else has invested in Tritiyaa besides Chopra, but MCA filings indicate that the company allotted shares to two individuals — T Venkat Ramana Murty and Soujanya Jupalli — for INR 4 Cr. Inc42 was not able to ascertain the connection between these individuals and the jewellery company.
Meanwhile, Tritiyaa cofounder Tippala filed a police complaint earlier this year against Dutt, alleging forgery and cheating. The complaint, which has been registered as an FIR by the Jubilee Hills police station in Hyderabad, alleges that Dutt forged her signature on a resignation letter, and appointed his mother in Tippala’s place.
The FIR report claims that Tippala wasn’t aware of the developments, and only got knowledge of the change in her directorship through an RTI application. Tippala claims she invested more than INR 2.5 Cr in Tritiyaa in August 2023, and her sudden ouster from the company came just weeks after this contribution to the paid-in capital.
Inc42 has reached out to Tippala and the story will be updated based on her responses.
Another Test Of Founder-Investor Relationships
Notably, after the legal notice sent to SustainKart, investors are now planning to file a civil suit, and intend to file a complaint with the Economics Offences Wing (EOW) as well. This could mark the beginning of a protracted battle to hold Dutt accountable and get some financial remedy.
However, it can be a tough route as the majority of investment in the company came via the US entity of SustainKart. Registering a case in India could pose several complexities due to jurisdictional challenges.
Often, cross-border legal disputes involve navigating different legal systems, which can add significant delays and costs, according to experts that Inc42 has spoken to.
Since the primary funding for SustainKart came in the US, investors are likely to be forced into arbitration or seek alternate remedies under international agreements, adding an additional layer of procedural hurdles. Additionally, enforcing any ruling within India would likely require proving the enforceability of international judgments, a task that can be arduous without strong bilateral legal frameworks.
We have seen this in umpteen cases in the past, with the most recent example being the legal battle between Anupam Mittal-led Shaadi.com and the company’s early investor WestBridge Ventures.
The SustainKart saga once again underscores the precarious nature of investor-founder relationships, especially in early-stage startups where trust is paramount.
Emphasising on a robust due diligence process, 3one4 Capital founding partner Siddarth Pai stressed that “good compliance and governance is like good personal hygiene; nobody notices it if it’s done well. But its absence is unmistakable.”
He also added that even the most thorough VC might find it hard to sniff out fraud when there’s strong intent to commit it. “But steps like mandatory audits and asking for independent verification of accounting transactions can help,” Pai told Inc42.
For Indian investors, the SustainKart and Kanthi Dutt episode serves as a reminder of the heightened risks associated with early stage startups. In fact, founder background and history are top of the list when it comes to evaluation by early stage funds.
Seed investor Capital-A’s founder Ankit Kedia said his firm keeps a close watch on founder history and commitment to vision. “Red flags often surface when there’s a lack of transparency around past roles or unexplained exits,” Kedia added.
When founders like Dutt reportedly manipulate or misrepresent financials, it erodes investor confidence and can lead to substantial value loss for the comparatively smaller investors. While the impact might be smaller compared to larger firms in the SustainKart’s case, these lapses can significantly hurt smaller investors.
Investments in early-stage startups are often sourced from institutional investors alongside high-net-worth individuals (HNIs). HNIs typically rely on institutional investors’ due diligence; any lapses in this process can significantly impact their confidence.
Such incidents may trigger a chain reaction, discouraging HNIs from participating in early-stage funds and ultimately reducing overall funding within the country’s early-stage startup ecosystem.
[Edited By Nikhil Subramaniam]
