SEBI Interim Order Against Gensol Engineering Ltd: A Deep Dive into Corporate Governance Failures

Introduction

This memorandum offers a comprehensive legal and factual analysis of the interim order dated April 15, 2025, issued by the Securities and Exchange Board of India (“SEBI”) against Gensol Engineering Limited (“Gensol” or “the Company”), its promoter-directors Mr. Anmol Singh Jaggi and Mr. Puneet Singh Jaggi, and several related parties. The order reveals significant violations involving diversion of institutional funds, circular financing schemes, undisclosed related-party transactions, falsified disclosures to stock exchanges, and manipulation of the securities market.

FACTUAL MATRIX AND DETAILED FINDINGS

A. Diversion and Misutilization of Institutional Borrowings

Gensol and its subsidiary Gensol EV Lease Pvt. Ltd. availed institutional loans totaling ₹171.30 Crores from IREDA and PFC for acquiring electric vehicles (EVs). SEBI’s investigation discovered only ₹567.73 Crores worth of EVs (4,704 vehicles) were delivered against ₹775 Crores paid to Go-Auto Pvt. Ltd., showing a diversion of ₹207.27 Crores.

Table 1: EV Procurement Fund Trail

B. Role of Wellray Solar Industries as a Conduit

Wellray Solar Industries Pvt. Ltd., a former promoter-controlled entity, received ₹424.14 Crores, of which ₹382.84 Crores were forwarded to promoters, public shareholders, and others.

Outflows from Wellray:

• ₹246.07 Cr to related parties

• ₹40.70 Cr to Sharekhan Ltd. (broker)

• ₹5.17 Cr to public shareholders

• ₹90.90 Cr to others

  • ₹25.76 Cr to Mr. Anmol Singh Jaggi

  • ₹13.55 Cr to Mr. Puneet Singh Jaggi

These transactions violated SEBI (LODR) Regulations, 2015 due to non-disclosure.

C. Preferential Allotment and Circular Financing

Gensol Ventures Pvt. Ltd. subscribed to 97,445 shares for ₹10.09 Cr. The source of this capital was traced back to Gensol itself via Wellray and promoter accounts:

Flow of Funds: Gensol → Wellray → Promoters → Gensol Ventures → Preferential Allotment

This violates Section 67 of the Companies Act, 2013, which prohibits financial assistance for purchasing own shares.

D. Manipulative Trading Practices

Wellray executed disproportionate trading in Gensol’s shares using funds from Gensol, Matrix Gas, Gosolar Ventures, and the promoters themselves:

Chart: Funding to Wellray (₹ Cr)

• Gensol Engineering Ltd.: 40.70

• Matrix Gas & Renewable: 46.00

• Gosolar Ventures: 5.65

• Anmol & Puneet Jaggi: 620

• Others: 2.80

This violates SEBI (PFUTP) Regulations, 2003 (Regulations 3 & 4).

E. Fabricated and Misleading Disclosures

Gensol misled investors by:

• Claiming 30,000 EV pre-orders with no valid contracts

• Overvaluing a non-operational US subsidiary at ₹350 Cr

• Falsely claiming manufacturing activity

Violates Regulation 4(2)(f) of PFUTP and SEBI (LODR) Regulations.

LEGAL FRAMEWORK AND VIOLATIONS

• SEBI Act, 1992 – Section 12A: Prohibits fraudulent acts

• SEBI (PFUTP) Regulations, 2003: Reg. 3 & 4: Prohibit manipulative practices

• Companies Act, 2013 – Section 67: Prohibits financial assistance for own shares

• SEBI (LODR) Regulations, 2015: Reg. 4 & 48: Mandatory disclosures

SEBI’S INTERIM DIRECTIONS

Purpose and Significance:

• Protect investors

• Prevent further manipulation

• Maintain market discipline

• Ensure transparency

CORPORATE GOVERNANCE RED FLAGS

CORPORATE GOVERNANCE FAILURE AT GENSOL

1. Promoter Dominance

Promoters treated Gensol as a personal entity. Violated fiduciary duties under law.

2. Weak Internal Controls

• No oversight over fund flows

• Manipulated accounting records

• Ignored related-party disclosure norms

3. Board Ineffectiveness

• Conflicted board failed to act

• Lacked independence and oversight

4. Non-Compliance with Disclosure Norms

• Misleading announcements

• Concealed related-party transactions

• Forged conduct letters to SEBI

5. Misuse of Borrowed Funds

• Breached loan covenants

• Eroded lender trust

6. Investor Harm & Market Risk

• Shareholder value erosion

• Retail investor misled by stock split announcements

LEGAL & REGULATORY IMPLICATIONS

• Violations of SEBI Act, PFUTP Regulations

• Breach of Companies Act (Section 188, 166, 129)

• Breach of SEBI LODR Regulations

CONCLUSION

SEBI’s findings reveal a scheme of financial misconduct, corporate governance breakdown, and serious fraud led by Gensol’s promoters. The interim directions — including bans, trading restrictions, and forensic audit — are necessary to restore trust and ensure accountability.

Future Actions May Include:

• Disgorgement of unlawful gains

• Criminal prosecution

• Permanent debarment of promoters

SEBI Exposes Massive Fraud at Gensol Engineering Ltd

Interim Order: 15 April 2025
Promoters allegedly diverted ₹100s of crores, misled investors & manipulated stock prices!

₹207 Cr gap in EV loan usage
Circular funding via promoter entities
₹424 Cr sent to Wellray, rerouted to personal accounts
False claims of 30,000 EV orders & non-existent factory
Stock manipulation via brokers
Fake disclosures & related party violations

⚖️ SEBI Action:

• Promoters banned as directors

• Trading restricted

• Stock split suspended

• Forensic audit ordered

📟 Full Order:
https://www.sebi.gov.in/enforcement/orders/apr-2025/interim-order-in-the-matter-of-gensol-engineering-limited_93458.html

Regards,
Momin Juris Law
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