Beyond the Hype - The Gensol/Blu-Smart SEBI Order

The note below is based on the reading of SEBI’s interim order dated April 15, 2025.

SEBI regulates the Indian securities market, and is responsible for preventing fraudulent practices relating to the securities market. In layman’s terms, the securities law prohibits activities such as using any manipulative fraudulent scheme while issuing or dealing with a listed scheme. In particular, you cannot spread fake news to influence investors into buying securities.[1] And, if you have used your company to transfer funds to a relative or another company you own/have shares in (also known as “related parties”),[2] you have to disclose it to SEBI.[3] The penalty for fraudulent activities could range from INR 25 crores to three times the amount of profit you make from such activities (whichever is higher).[4]

Gensol Engineering Ltd. (Gensol) seemed to have finally hit the jackpot. The balance sheets, available publicly, showed an estimated 1000% increase in net profits between 2022 till date, and the number of shareholders were skyrocketing. The company’s founders, the Jaggi brothers, had recently launched Blu-Smart Mobility Pvt. Ltd (Blu-Smart), which held equal promise of exponential growth. To the world, it appeared that Gensol was investing heavily in the EV marketspace. It had announced that it had received 30,000 pre-orders for electric vehicles (EVs). It had also informed exchanges that it was going to take over another EV company along with nearly 3000 EVs.

To support Blu-Smart EV expansion, two public sector organisations – IREDA and Power Finance Corporation (PFC) – lent a total of INR 977.75 crores out of which INR 663.89 crores was to be spent for purchasing 6,400 EVs. These loans were due between 2024 and 2025.

The cracks began appearing when Blu-Smart and Gensol began to default on their loan payments. Credit rating agencies downgraded Gensol to “D” grade. Gensol kept assuring the credit rating agencies that it was paying its debts on time. It produced two letters, supposedly from IREDA and PFC, which stated that Gensol was regularly repaying its debts. Those letters turned out to be fabricated, and the SEBI stepped in.

Many claims made by Gensol in recent years turned out to be lies. The supposed 30,000 EV pre-orders were, in fact, non-binding MOUs (i.e. not an actual promise to buy an EV car). Gensol’s manufacturing site was nearly empty and used little electricity in the last year, indicating that there was no significant production of EVs. And most importantly, the IREDA and PFC loans had only been used to purchase 73% of the target number of EVs.

SEBI called for statements and bank records and determined that, on the face of things, Gensol and its promoters (the Jaggi brothers) did not use its IREDA and PFC loans for the intended purpose. Gensol would make significant payments to a company called Go-Auto. This dealer was, in fact, a “conduit”. Go-Auto would pay the money it received from Gensol to Gensol’s related party companies (i.e. other companies in which the Jaggi brothers were promoters). From there, the money would circulate numerous times, sometimes landing in the hands of relatives, and often being used for extravagant purchases (including the well-publicized DLF Camellias apartment). The SEBI passed an interim order restricting the Jaggi brothers from holding positions of directors in Gensol, or dealing with any securities, until further orders.

It is important to note that this is an interim order and not a final determination of the facts. The books of accounts of Gensol and the related parties will undergo a forensic audit. An interim order, as the name suggests, grants temporary relief based on a “prima facie” case (i.e. a case which, on the face of things, appears to be a case of fraudulent practices). Given the nature of this case, the Indian  securities law alone isn’t at play - and  it is possible that other affected parties may initiate proceedings before other courts and tribunals.

[1] See Regulations 4(f), 4(k) and 4(r), SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market)  Regulations, 2003.

[2] Section 2(76), Companies Act, 2013.

[3] Regulations 2(zc) and 4, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

[4] See, for instance, Section 15HA, Securities and Exchange Board of India Act, 1992.