More trouble brews at Club Factory as CFO resigns; legal notices from courier partners expected

Ecommerce app Club Factory’s troubles continue to mount. Over the past week, it has seen the departure of chief financial officer Ayush Singhal and two other managers. It has also appointed a law firm as it faces litigation from courier partners and sellers on account of non-payment of dues, multiple people privy to the developments told TechCircle.

Chinese firm Club Factory was among the 59 apps banned by the Ministry of Electronics and Information Technology (MeitY) on June 29, citing threats to national security. Soon after, Club Factory was raided by the Directorate General of Goods and Service Tax Intelligence wing for possible evasion of tax payments, where top officials, including CFO Singhal and former head of strategy Ashwin Rastogi, who quit in May, were questioned.  

Club Factory did not respond to specific queries on the departure of Singhal from the company.

Sources confirmed to TechCircle that Club Factory, on July 20, transferred nearly Rs 18 crore via its Citibank account to its China entity for “payment of royalties”. This is a clear violation of Reserve Bank of India (RBI) guidelines on regulation of payment aggregators and payment gateways, people cited above said.

Payment aggregators are entities that facilitate ecommerce sites and merchants to accept payments from customers, pooling and transferring the amount to merchants after a set period. RBI guidelines, dated March 17, 2020, specify that “payment aggregators shall submit the list of merchants acquired by them to the bank where they are maintaining the escrow account and update the same from time to time. The bank shall ensure that payments are made only to eligible merchants/purposes”.

Club Factory earlier informed its sellers on email that the ban had forced the firm to invoke force majeure and suspend settlement of their dues. Online sellers association All India Online Vendors Association (AIOVA) issued a notice to the company to clear its dues within 48 hours.

It is learnt that courier and delivery partners for the company, which include Delhivery, Ecom Express, Xpressbees and Gati, have also threatened Club Factory with legal action over non-payment of dues.

“There is no question of invoking force majeure as the company hasn’t settled its dues from pre-Covid times for delivered orders in February and March. We received only two installments of payments and resumed business with Club Factory in June, capping the number of shipments on the condition that dues will be settled. We are yet to receive payments for those,” a senior executive at a delivery company that works with Club Factory, said. He added that the company was considering taking Club Factory and its directors, including CEO Vincent Lou and co-founder Aaron Jialun Li, to court.

Additionally, it is learnt that Mumbai Customs Zone 3, which intercepted 32 consignments from Club Factory sent through air cargo for bogus invoicing and undervaluing the goods in December 2019, has issued a lookout notice for Li. Emailed queries sent to the concerned office did not elicit a response at the time of publishing.

Club Factory did not respond to specific queries on the same.