NCLT allows govt to freeze Gensol Engineering accounts in fraud probe

NCLT says Gensol moved funds meant for specific purposes to related parties, violating corporate governance norms under the Companies Act, 2013

The Ahmedabad bench of National Company Law Tribunal (NCLT) on Wednesday permitted the central government to freeze the bank accounts and lockers of Gensol Engineering Ltd, its 10 subsidiaries, and several individuals after multiple investigations revealed major financial irregularities, The Economic Times reported.

 

In an order on Wednesday, the NCLT said the companies had diverted funds—raised for specific purposes—to related parties, a serious violation of the Companies Act, 2013.

 

“The funds, raised for specified purposes by the companies, were illicitly transferred to various related parties, in gross violation of the provisions of the Companies Act, 2013,” the NCLT said, as reported by Live Mint.

 

Widespread impact of fraud allegations

 

The tribunal noted that “the pattern of illegal fund diversion, asset misstatement, and share price manipulation has caused irreparable harm to public shareholders, creditors, and other stakeholders".

 

The court’s order is based on findings by the Ministry of Corporate Affairs (MCA), the Securities and Exchange Board of India (Sebi), and the Serious Fraud Investigation Office (SFIO). The MCA had sought 10 urgent actions in the case, which the tribunal has approved. 

 

The court said Gensol Engineering and related parties “have committed grave violations of corporate governance norms", including “diversion of company funds by the promoters and allegations of manipulating financial statements and illegal alienation of assets".

 

The NCLT concluded that the MCA, Sebi, and SFIO findings “prima facie support the petitioner’s claims of systemic fraud involving substantial public interest,” and accordingly granted interim relief. The next hearing is scheduled for June 3.

 

Personal liability for directors

 

The MCA has invoked Section 339 of the Companies Act, which could make company directors and officers personally responsible for debts if fraud is proven.

 

The tribunal also directed the Reserve Bank of India (RBI) and the Indian Banks’ Association to freeze the bank accounts and lockers of those under investigation.

 

Further, the court barred the individuals and companies from selling, mortgaging, or transferring properties, securities, or valuables.

 

Insolvency and past enforcement actions

 

Earlier this month, state-owned Indian Renewable Energy Development Agency (Ireda) initiated insolvency proceedings against Gensol over a loan default of ₹510 crore. Ireda has also approached the Economic Offences Wing (EoW) of the Delhi Police.

 

The matter gained wider attention after Sebi, on April 15, barred Gensol’s founders from trading in the stock market or holding leadership roles in any listed company. Sebi also ordered a forensic audit of the company.

 

Sebi’s investigation revealed that the Gensol promoters, Anmol and Puneet Jaggi, had allegedly used loans from Power Finance Corporation (PFC) and Ireda for personal expenses.