Sebi: Survey governance lapses | Photo credit: Hemanshi Kamani
On April 15, the Bag Board and Exchange of India (Sebi) issued a scathing provisional order in the matter of Gensol Engineering Limited (GEL).
GEL, a company dedicated to solar consulting, EPC services and the lease of electric vehicles (EV), initially was in the exchange of SME in 2019 and then updated the motherboard in 2023.
Sebi’s order has all the elements of a financial thriller-allegations of transaction of related parties without control, counterfeit records, excesses of promoters, alleged use of funds from the company for personal excesses and apparent contempt for any type of internal controls. Questions are being asked about management, directors and internal and legal auditors. More importantly, questions are being asked about whether Guardraails can be established to minimize the repetition of such events.
Sebi probe trigger
The trigger for Sebi’s investigation was a complaint filed to the regulator in June 2024 alleging the diversion of funds and manipulation of the price of gel shares.
In March 2025, care rating agencies and ICRA degraded Gel to “D” credit ratings citing delays in debt service and the presentation of counterfeit documents. Despite the liquuidity claims, ICRA discovered that Gel had submitted false records of debt service, including the letters made of lenders of IREDA and PFC.
After direct verification, these agencies confirmed that the breaches had occurred and the documents were not authentic. Sebi found the breaches of reimbursement of multiple loans per gel as of December 2024, including the main payments and interests to IREDA and PFC. The company continued to present “statements of breach” with qualification agencies and exchanges of values, even the duration of non -compliance periods, violating Sebi’s dissemination rules.
Between the FY22 and the FY24, Gel took advantage of term loans for a total of ₹ 977.75 million rupees, including ₹ 663.89 million rupees to acquire 6,400 EV. However, only 4,704 EV were obtained for value of ₹ 567.73 million rupees. The balance remained without accounting.
Sebi discovered that the funds meerate for the acquisition of EVs were transferred to Go Car Pvt. Ltd., the supplier, and from there routed to several related entities and individuals associated with gel promoters. A sum of ₹ 50 million g-car rupees was transferred to Capbridge Ventures LLP, which was then used to buy a luxury apartment in the Camellias de DLF project.
The funds supposedly were enrupted through a series of other related entities and, ultimately, were used for personal expenses, real estate and trade trade. In one case, ₹ 134.14 million rupees received, supposedly transferred was in multiple layers among group companies, avoiding the planned use. These funds often passed by multiple entities and returned to the creator, the possible, which indicates attempts to obscure fund paths.
Gel announced the reception of advance orders for 30,000 EV in January 2025. However, Sebi discovered that these were only memorandum or understanding without price or delivery terms.
Independent gel directors have resigned after the report was published. The Gel Debt Service coverage index, which was 4.69 in 2011-22, was reduced to a worrying 1.76 in 23-24. Its cash flow status was also a cause of concern: financial cash flows were used to invest in subsidiaries.
Some of the independent directors have been summoned saying that they raised questions about the high gel debt, but they were sure that the debt would be paid in due time. The work done by internal and legal auditors will be serious and questioned. From the information available from now on, it seems that if independent directors or auditors wanted to float red some of these transactions were made, therefore, the results were reported for any of the rooms such as June 2024. To do this, they would have had to decipher the network of intricate transactions of related parties that go in. Sebi’s report is only interim: we can expect a final report and also the tasks of shares of loan agencies and the Ministry of Corporate Affairs. NFRA will analyze the work done by the auditors. The guilty found must be penalized.
Related parties?
Most accounting accidents that have occurred in India can be traced to transactions with related parts. The pure convenience of Enterto in a related party transaction is also its greatest risk.
ICAI /MCA /SEBI must go out with some additional disseminations in the cash flow state, especially for transactions with related parts, including details of predetermined delays and values.
An audit of related parties transactions must be mandatory at least once in two years in certain kinds of companies.
The writer is a public accountant
Posted on April 20, 2025