Exclusive: Drivezy sues Yamaha for starting parallel biz, abandoning acquisition

Drivezy has alleged in court that the Japanese automobile giant Yamaha leveraged the Bengaluru firm’s confidential data to set up a competing business, while saying that it would buy the bike and car rental startup out. In a lawsuit filed before a Bengaluru Additional City Civil and Sessions Judge, the firm further alleged that Yamaha, which is also an investor in Drivezy, induced the firm to provide confidential information about its business.

Entrackr has reviewed a copy of the petition. Moto Business Service India Private Limited, one of the Yamaha subsidiaries sued by Drivezy, said in a statement, “MBSI states that these allegations are completely baseless, the law suit was initiated by Drivezy against MBSI, we wish to make no further comments on this.”

Drivezy declined to comment, saying that the matter was sub-judice. A Drivezy source told Entrackr that the startup also plans on suing Yamaha in Delaware, where its US entity is registered.

Yamaha said it was considering investing between $800,000 and $3 million in Drivezy for its Series C round (following a $2 million Series B investment), starting in late 2019, the suit said.

The multinational later signed a term sheet in January 2020 to lead a series C round with a $12 million investment in a $35 million round.

But as two waves of the COVID-19 pandemic in subsequent years crippled Drivezy’s business, Yamaha told the startup that it was now interested in an outright acquisition. Entrackr had reported talks of this acquisition last June.

By December 2021, Yamaha was proposing a prepackaged insolvency resolution process through which it would acquire Drivezy’s India and US assets through the bankruptcy route at the National Company Law Tribunal and through an assignment for the benefit of creditors (ABC) filing in Delaware.

As this process was underway over the months, Yamaha received copious amounts of confidential data from Drivezy. The startup hoped the data would be used to assess an eventual $35 million acquisition through the insolvency route.

As a part of this insolvency process, though, Yamaha said it would initially loan some money to Drivezy by way of purchasing its assets — as the company was anyway going to be acquired — and execute the insolvency process at a later stage. Yamaha then took full control of the assets, the lawsuit says, and started paying Drivezy employees’ salaries, even as the company expected to be merged into Yamaha’s global operations.

After settling a few debts with this cash infusion, though, the lawsuit says, a Yamaha executive said that the company’s management was having doubts about the insolvency acquisition process, and later demanded that the physical assets — like cars — be handed over to the company. “The physical assets were to remain with the Indian Company, which was the target of the acquisition, not its assets,” the lawsuit said, adding that a GST payment that Yamaha instructed be made for the sale of assets was only liable to be paid from a subsequent tranche of the loan infusion.

After Drivezy returned some of the asset-backed money to Yamaha and used the rest for paying salaries, server costs and auditors, “to the shock of the Plaintiff the Defendants surreptitiously behind the back of the Plaintiffs were engaging in activities competitive to the Plaintiff directly and indirectly using the Confidential Information of the Plaintiffs to set up a same/similar business as that of the Plaintiff while cutting out the Plaintiffs completely,” the lawsuit alleged.

Yamaha was investing in competitors of Drivezy: Rapido, Zypp and Royal Brothers. In doing so, the lawsuit alleged, the company was providing them with the confidential information that Drivezy had provided. Additionally, Yamaha was building its own tech platform similar to Drivezy through a Dubai entity, the lawsuit added.

As Yamaha applied for a license in Karnataka to start operations similar to Drivezy’s, the suit said, the startup tried to reach the automobile firm for clarification. When they didn’t hear back, Drivezy’s board approved the lawsuit. As a “counterblast,” the firm said, Yamaha told Drivezy that its stated intent to acquire the firm had lapsed, and it reneged on a $41,000 payment through the Startup Scale 360 incubator.

Drivezy further claimed that Yamaha’s initial $2 million was part of a “calculated criminal conspiracy” to gain access to the confidential data the company would need to set up a Drivezy-like business.

The startup has asked the court for an injunction to prevent Yamaha from setting up a similar business, and to stop the use of its confidential information in the course of its business.

Update (5:18pm): Added information on a January 2020 term sheet from Yamaha.