SAT rejects interim relief for Gensol amid Sebi probe on alleged fund misuse

The Securities Appellate Tribunal (SAT) has refused to grant interim relief to Gensol Engineering Ltd as the company faces an investigation by the Securities and Exchange Board of India (Sebi) over allegations of fund misuse and misleading disclosures.

In its order on Wednesday, SAT declined to stay Sebi’s earlier action from 15 April, but instructed Gensol to submit its reply to Sebi’s show-cause notice within two weeks. Sebi is expected to issue a confirmatory order four weeks after the company’s hearing.

Back on 15 April, Sebi had barred Gensol’s founder-promoters, Anmol Singh Jaggi and Puneet Jaggi, from accessing the securities market and holding executive roles at the company, alleging they had diverted funds and misused loan proceeds. Gensol challenged the order, arguing that Sebi presented a misleading and damaging narrative that severely impacted the company’s reputation and business.

Gensol’s Legal Options

Legal experts note that while SAT has denied interim relief, Gensol still has options to challenge the case.

“Though interim relief was not granted, Gensol can contest the confirmatory order once issued by Sebi, and may even approach the Supreme Court under specific circumstances,” said Saiyam Chaturvedi, partner at DMD Advocates.

However, others believe the Supreme Court is unlikely to intervene at this stage.

“Now that SAT has provided an opportunity for a hearing and directed Sebi to pass a confirmatory order within four weeks, the Supreme Court may refrain from stepping in since the principles of natural justice have been followed,” noted Chirag M. Shah, a senior securities lawyer.

A Governance Reset?

Legal experts also suggested that Gensol focus on improving governance.

“The company should approach the Ministry of Corporate Affairs (MCA) and cooperate with proceedings before the National Company Law Tribunal (NCLT) to appoint new directors,” said Akshaya Bhansali, partner at Mindspright Legal. “Swift action is needed to protect the funds provided by PFC, Ireda, and other investors from risks caused by the alleged mismanagement.”

Gensol’s Appeal: “Selective, Sensationalist”

In its appeal, Gensol criticized Sebi’s order as “selective and sensationalist,” claiming it caused irreparable harm without giving the company a chance to respond beforehand.

“The order cherry-picks facts to justify interim action, while ignoring crucial details,” the company said. It warned that the ruling not only damages Gensol’s reputation but could also harm shareholders and disrupt business operations.

Since Sebi’s action, Gensol’s stock price has plummeted by over 90%, and major clients like NTPC and JSW have either cancelled or threatened to cancel contracts, the company revealed.

“The intense negative media coverage in recent weeks has shattered the company’s image,” Gensol stated, adding that even a previously profitable business could now face insolvency.

Sebi’s Key Allegation

One of Sebi’s key accusations is that Gensol misused a ₹71.41 crore loan from IREDA by channeling funds to buy a luxury apartment through Capbridge LLP, a related party entity.

Gensol denied the allegation, pointing out that Sebi’s own order acknowledged that Capbridge repaid ₹47.50 crore to Go-Auto on 31 March 2023.

“The flat purchase by Capbridge was wrongly highlighted to stir a media frenzy,” the company argued. “Sebi ignored the fact that this transaction did not involve Gensol’s funds.”

The company also criticized Sebi for passing restrictive measures without giving it a chance to present its side. “These inaccuracies could have been avoided if Sebi had allowed Gensol to respond before imposing such sweeping restrictions,” it said.