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The Securities and Exchange Board of India (SEBI) has taken decisive action against Gensol Engineering and its founder-promoters, Anmol Singh Jaggi and Puneet Singh Jaggi, following an investigation into alleged fund diversions and governance lapses. The regulatory body has barred the Jaggi brothers from participating in the securities markets until further notice and prohibited them from holding key executive positions within Gensol Engineering. This move comes in response to a complaint received in June 2024, alleging manipulation of the company's share price and the diversion of funds to cover the personal expenses of Anmol Singh Jaggi and his brother Puneet. The SEBI probe uncovered a series of transactions that raised serious concerns about the management of Gensol Engineering and the use of company funds. A timeline of events pieced together by SEBI reveals a pattern of financial misappropriation that has significantly eroded investor confidence and led to a sharp decline in the company's share price. In 2022, Gensol Engineering secured a loan of ₹71.41 crore from IREDA and simultaneously transferred ₹26 crore from its own account. These funds, totaling ₹97 crore, were then channeled to Go-Auto, a car dealership firm with ties to the company. Subsequently, Go-Auto transferred ₹50 crore to Capbridge Ventures, a firm controlled by Anmol Singh Jaggi. The investigation further revealed that Capbridge Ventures received ₹70 crore in fiscal year 2023 from Go-Auto, including the ₹50 crore received on October 3, 2022. A portion of these funds was allegedly used to acquire an apartment in the prestigious 'The Camellias' complex in DLF, indicating a direct personal benefit derived from the diverted funds. The SEBI order highlights specific instances of lavish spending that raise serious questions about the use of company resources. These include payments of ₹26 lakh to TaylorMade for a golf set, ₹3 lakh to MakeMyTrip for personal travel, ₹9.95 lakh to an ICICI Bank credit card for personal usage, ₹17.28 lakh to Titan Company, ₹10.36 lakh to Kamco Chew Food Pvt Ltd Spa, ₹8 lakh to Mayo Design, and ₹23 lakh to ICICI Securities for personal purposes. These expenditures, detailed in SEBI's interim order, suggest a disregard for corporate governance principles and a blatant disregard for the interests of shareholders.
SEBI's interim order is scathing in its assessment of the Jaggis' conduct. The regulator stated that the preliminary findings demonstrate a "mis-utilisation and diversion of funds of the company (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.” Furthermore, SEBI accused Gensol Engineering of attempting to mislead the regulator, credit rating agencies (CRAs), lenders, and investors by submitting forged conduct letters purportedly issued by its lenders. This alleged attempt to deceive stakeholders further exacerbates the severity of the allegations and underscores the potential for systemic failings within the company's governance structure. The regulator has alleged that GEL, Anmol, and Puneet Jaggi have violated provisions under the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) rules, which are designed to protect investors from market manipulation and fraudulent activities. SEBI blasted the Jaggis for “running a listed public company as if it were a propriety firm” and noted that GEL's funds seemed to have been routed towards unconnected expenses “as if the company's funds were promoters' piggy banks”. This strong language reflects the regulator's deep concern about the apparent lack of ethical oversight and the potential for further financial mismanagement. The ramifications of these alleged diversions extend beyond the immediate financial impact. SEBI emphasizes that the diversions will ultimately need to be written off from Gensol's books, leading to losses for the company's investors. This highlights the potential for long-term damage to the company's financial health and its ability to attract future investment.
In response to the unfolding financial irregularities, Gensol Engineering shares have experienced a dramatic decline. The stock, which had already been in a downward spiral for the past 1.5 months due to allegations of mismanagement, misappropriation of funds, and credit rating downgrades, suffered another 5% drop on April 16. The company's share price has plummeted by approximately 80% during this period, with Gensol Engineering stock frequently hitting the lower circuit on trading days in March and April. From its all-time high of ₹1,126 per share in June 2024, the stock's decline has resulted in a staggering ₹3,830 crore loss for investors. Recognizing the potential for further harm to retail investors, SEBI intervened by halting the company's proposed 1:10 stock split. The regulator stated that the stock split may not be in the best interest of investors at this stage, citing concerns about a sharp decline in promoter holding and the risk of further reduction, which could trap “gullible investors.” This decision reflects SEBI's commitment to protecting vulnerable investors from potential market manipulation and ensuring a level playing field in the securities market. Experts like Kranthi Bathini of Wealthmills Securities have cautioned that small-cap and mid-cap stocks like Gensol Engineering often carry inherent execution and corporate governance risks. He suggests that retail investors should consider exiting Gensol Engineering shares if they have the opportunity, given the current circumstances. This advice underscores the importance of conducting thorough due diligence and assessing the risks associated with investing in smaller companies. The Gensol Engineering case serves as a stark reminder of the importance of robust corporate governance practices and the need for vigilant oversight of company management. It also highlights the critical role that regulatory bodies like SEBI play in protecting investors and maintaining the integrity of the financial markets. The outcome of SEBI's investigation will have significant implications for Gensol Engineering, its management, and its shareholders, and will likely influence future regulatory actions and investor sentiment in the small-cap and mid-cap sectors.