The ministry of corporate affairs (MCA) on Monday said that it’s currently examining the interim order issued by the Securities and Exchange Board of India (SEBI) against Gensol Engineering, and will take appropriate steps as per the provisions of the Companies Act 2013. The ministry told agencies that “necessary action would be taken accordingly”.
Experts said that given the scale of fraud, MCA will first do a preliminary investigation before referring the matter to SFIO (Serious Fraud Investigation Office). “In this case, the MCA will look into related party transactions (RPTs), and diversion of funds. It’s going to analyse RPT disclosures in the financial statements, and the board report. The observations of the statutory and secretarial auditors will also be probed. If there are some lapses, the MCA might also refer the case to the National Financial Reporting Authority, the audit regulator.
The role of independent directors will also be carefully studied,” said G.P. Madaan, managing partner, Madaan Law Offices.
The Gensol‘s fraud caught the SEBI’s attention in 2024 when the markets regulator received a complaint relating to manipulation of share price and diversion of funds in the company.
SEBI called for information from credit rating agencies ICRA and CARE who had downgraded Gensol as certain documents shared by Gensol on its debt servicing track record were apparently falsified. During the probe, the ratings agencies told SEBI that when they sought term loan statements, Gensol provided statements of all lenders except those of IREDA and PFC. For these two lenders, Gensol shared conduct letters purportedly issued by IREDA and PFC which stated that Gensol was regular in its debt servicing. Upon seeking confirmation from IREDA and PFC, rating agencies were told that no such letters were issued by them.
On April 15 this year, SEBI issued an interim order that restrained the promoters of Gensol – Anmol Singh Jaggi and Puneet Singh Jaggi – from holding any key managerial positions in the company besides barring them from dealing in securities market over their alleged involvement in fraudulent activities. In its 29-page order, SEBI said that Gensol attempted to mislead SEBI, credit ratings agencies, lenders and investors by submitting forged conduct letters purportedly issued by its lenders.
SEBI investigation further revealed that the funds availed by Gensol as loans for procuring electric vehicles were, through layered transactions, partly utilised for buying a high-end apartment in The Camellias, DLF Gurgoan in the name of a firm where the MD of Gensol and his brother are designated partners. In addition, the diverted funds were used for personal luxury expenses such as golf set, travel and shopping.
“The prima facie findings have shown mis-utilisation and diversion of funds of the company in a fraudulent manner by its promoter directors who are also the direct beneficiaries of the diverted funds. 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,” SEBI order said.