The recent developments surrounding Gensol Engineering Ltd have deeply shaken investor confidence in Dalal Street and cast serious doubts on the efficacy of its regulator, the Securities and Exchange Board of India (SEBI). A company once hailed as a blue-eyed star has suddenly been exposed as a bad actor, leaving investors reeling and bankrupt. This episode raises several pressing questions: Has the SME exchange become a playground for manipulation? Is there a proactive surveillance mechanism to detect and curb fraudulent activity? And, more importantly, is SEBI equipped to protect investors from the increasingly sophisticated schemes employed by some SME promoters?
Fraud Doesn’t Happen Overnight: SEBI often swoops in on fraudulent companies as though their crimes were committed in a single day. But orchestrating fake purchase orders, window-dressing financial statements, siphoning off company funds for stock market speculation, and securing fake certifications from lenders—these are not overnight activities. These actions point to long-term systemic failure in regulatory oversight. SEBI must explore new mechanisms to monitor listed companies’ financial health and create safeguards that protect innocent investors from abrupt regulatory actions.
The Gensol Case: Gensol has been accused of a range of serious offenses: diverting funds for personal use, inflating its order book with fake entries, speculating in stocks using company money, and artificially boosting its own share price. The company allegedly misled rating agencies with fake certifications from lenders. Media outlets and market analysts consistently hyped the stock at various price points, presenting it as a “multibagger” opportunity. Few could have anticipated the depth of the malpractices. Even the much-publicized EV manufacturing plant in Pune appears to have been more of a façade than a functioning enterprise. While Gensol is clearly at fault, the aggressive and sudden regulatory action has also raised eyebrows.
A Missed Opportunity to Protect Investors: Rather than crushing the company overnight, regulators could have pursued a more measured approach. SEBI might have imposed corrective actions, such as directing Gensol to transfer real estate assets to the company’s name, allowing for their monetization and use in core operations. Funds diverted into trading could have been repatriated, and a strict timeline for operationalizing the Pune plant could have been set. If buyers were willing to place orders for Gensol’s EVs, this should have been viewed like pre-launch bookings in real estate. Yes, any false disclosures regarding manufacturing activity should be penalized—but with balance and foresight.
An independent board member could have been appointed to oversee the turnaround process. These steps could have been taken quietly, preserving the company’s viability and shielding investors from severe losses. Instead, the entire episode played out publicly, inflicting collateral damage on thousands of shareholders.
SEBI’s Actions: Necessary or Harmful?: SEBI’s ex parte orders and sudden crackdowns often appear to disregard the fate of existing investors. Retail investors depend on publicly available information and analyst commentary—they cannot meet company promoters or inspect facilities. They rely on SEBI to act as a guardian, not an executioner. In acting hastily, the regulator risks undermining the very trust it is meant to uphold.
Investigating the Larger Crime: There’s more to the Gensol case than just corporate mismanagement. Forging letters from public-sector lenders like IREDA and PFC is a serious criminal offense. SEBI and other authorities must investigate whether these documents were fabricated by the company or arranged through insiders at the lending institutions. The matter demands a thorough inquiry, given its broader implications for public trust in financial institutions.
The Way Forward: SEBI must expand and empower its workforce to track the financial activities of listed companies in real time. The real estate regulator, RERA, has successfully implemented such monitoring mechanisms within its domain. SEBI, with its wider powers, superior tools, and technical capabilities, should be able to do the same—without resorting to actions that harm companies and investors alike.
Ultimately, the goal should be to prevent malpractice, rehabilitate viable companies, and protect the investor community. SEBI must evolve from being a reactive enforcer to a proactive protector.
