In a major action against the Gensol Engineering Limited (GEL) and its promoters, market regulator Securities and Exchange Board of India (SEBI) has removed the promoter brothers Anmol Singh Jaggi, Puneet Singh Jaggi from holding the post of directorship in the company or any key post. GEL and Jaggi brothers have been barred from accessing the market. In an interim order SEBI whole time member Ashwani Bhatia also directed GEL to put stock split on hold. On Saturday, company had announced stock split in the 1:10 ratio.
SEBI will also appoint a forensic auditor to examine books of accounts of GEL and its related parties. Forensic auditor to submit report within 6 months of appointment. Moneycontrol had reported on April 4 that SEBI investigation looms over company. SEBI grew suspicious after rating agencies downgraded companies’ loans to junk category and one of the rating agencies suspected submission of fake loan servicing documents. In its interim order SEBI has given the full details of its findings so far.
Fund Diversion And Misutilisation Of Funds
SEBI alleged, prima facie findings have shown mis-utilization and diversion of funds of GEL in a fraudulent manner by its promoter directors, Anmol Singh Jaggi and Puneet Singh Jaggi, who are also the direct beneficiaries of the diverted funds. SEBI in its interim order, said, that the company has attempted to mislead SEBI, the rating agencies, the lenders and the investors by submitting forged Conduct Letters purportedly issued by its lenders.
Related Party Transactions But No Disclosure
SEBI order noted that, promoters and their related parties and relatives benefitted from the funds of GEL, a listed company, through layered transactions, such transactions qualified to be related party transactions. Such transactions were required to be disclosed as per the disclosure norms, which GEL has allegedly failed to do.
Company’s Funds Used As Promoters ‘Piggybank’
SEBI order noted “What has been witnessed in the present matter is a complete breakdown of internal controls and corporate governance norms in Gensol, a listed company. The promoters were running a listed public company as if it were a propriety firm. The Company’s funds were routed to related parties and used for unconnected expenses, as if the Company’s funds were promoters’ piggybank”. Order further noted, “the result of these transactions would mean that the diversions mentioned above would, at some time, need to be written off from the Company’s books, ultimately resulting in losses to the investors of the Company”.
Stock Split A Trap For Investors?
As per the SEBI order, the promoter holding in the GEL has already come down substantially and there is a risk of the promoters further off-loading the shares on gullible investors. Thus, investors need to be made aware of the alleged wrong doings detailed above through regulatory action. At the same time, allowing promoters to remain at the helm of affairs as directors or Key Managerial Person in the company is likely to do further damage to the interests of the Company. SEBI also suspects that recently announced stock split of shares by GEL in the ratio of 1:10, was likely to attract more retail investors to the scrip.
Fake Loan Conduct Letters And NOCs
SEBI had received complained in June 2024, relating to manipulation of share price and diversion of funds from GEL and thereafter, started examining the matter. But the sudden down grade of loan instruments by rating agencies ICRA and CARE Rating on March 3, accelerated the investigation. SEBI called for information from the rating agencies regarding the downgrade of GEL. Rating agencies informed SEBI that when they sought term loan statements, GEL provided the statements of all lenders except those of Indian Renewable Energy Development Agency Ltd. (IREDA) and Power Finance Corporation (PFC). GEL shared only Conduct Letters issued by IREDA and PFC, which stated that GEL was regular in its debt servicing. But upon seeking confirmation from IREDA and PFC about the issuance of the Conduct Letters and NOCs, both the lenders categorically denied having issued such letters. This was a trigger for rating agencies and SEBI.
First Default In December 2024
SEBI later called for detailed information from IREDA and PFC regarding the debt servicing status of loans sanctioned to GEL along with the loan sanction letters and account statements. On reviewing the information submitted by the lenders, SEBI found multiple instances of default by the GEL in servicing their loans. The first instance of default occurred on December 31, 2024 but GEL continued to submit statements to the rating agencies that, there was no delay or default in servicing any loans.
Funds Not Used For Purchasing EVs As Planned
SEBI noted that out of Rs 977.75 Crore availed by the GEL from IREDA and PFC as term loans, Rs 663.89 Cr was for purchasing 6,400 EVs. But GEL procured only 4,704 EVs, as against the 6,400 EVs for which it had secured funding. The same was confirmed by Go-Auto Private Limited (Go-Auto), the supplier of the EVs, which confirmed to SEBI that it sold 4,704 EVs to the GEL for a total consideration of Rs 567.73 Crore. As per SEBI order the required additional margin of 20 per cent for purchase of EVs or an amount of Rs 262.13 Cr remains unaccounted even after passing of one year of the last tranche of the financing. Bank statement analysis showed that it had transferred Rs. 775 Cr to Go-Auto against which it has obtained delivery of 4,704 EVs costing Rs 567.73 Crore.
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