SAT Denies Stay on SEBI’s Interim Ban Order Against Gensol Engineering

The Securities Appellate Tribunal (SAT) recently refused to stay an interim order issued by the Securities and Exchange Board of India (SEBI) against Gensol Engineering Ltd (GEL) and its promoters, Anmol Singh Jaggi and Puneet Singh Jaggi. This order bars the company and its promoters from accessing the securities market due to allegations of fund diversion, forgery, and misleading disclosures. The SAT directed Gensol to file a response to SEBI's interim order and instructed the market regulator to pass a final order within four weeks.

In April 2024, SEBI issued an interim order suspending Gensol Engineering and its promoters from participating in the securities market, pending further orders. SEBI’s investigation was triggered by a complaint filed in June 2024 regarding alleged share price manipulation and fund diversion from GEL. The investigation revealed that the Jaggi brothers had allegedly diverted Rs 262 crore, which had been loaned by government-owned financial institutions to procure 1,700 electric cars, for personal indulgences and related-party transactions.

As part of the interim measures, SEBI also debarred Anmol and Puneet Singh Jaggi from holding directorial or key managerial roles in Gensol, and instructed the company to suspend the stock split it had announced. Additionally, SEBI found that GEL had misled its investors by claiming that it had secured pre-orders for 30,000 electric vehicles (EVs) during the Bharat Mobility Global Expo in January. SEBI’s interim order described the promoters’ actions as fraudulent, stating that funds were misused and diverted for personal gain. The regulator emphasized that the promoters were direct beneficiaries of the diverted funds, making the case a matter of serious concern.

In response, Gensol Engineering filed an appeal before SAT, arguing that the SEBI order was illegal, unjustified, and unwarranted. The company contested that SEBI's interim action failed to meet the legal criteria required for issuing such directions without a proper hearing. GEL also pointed out that the SEBI order did not demonstrate any urgent need for the measures, as the investigation stemmed from a complaint received nearly 10 months earlier. Moreover, GEL accused SEBI of misusing its powers under Sections 11 and 11B of the SEBI Act.

Gensol further argued that SEBI relied on “selective” and “biased” facts, which presented a skewed narrative and ignored the explanations provided by the company. The company claimed that SEBI had failed to consider the business context behind the transactions and instead focused on a narrow set of facts that painted a misleading picture of the situation.

The matter is now under further scrutiny, with Gensol having to respond to the interim order and SEBI being tasked with issuing a final ruling within the next four weeks. This case highlights the increasing scrutiny on corporate governance and the financial operations of companies, especially in relation to the stock market, and the importance of transparency and compliance in business practices.

The investigation and the legal proceedings against GEL and its promoters underscore the growing regulatory vigilance in India, particularly concerning financial misconduct, investor protection, and the integrity of the securities market. This case is expected to have broader implications for corporate governance and financial regulations in the country.