Explained | Luxury apartment, golf set: How BluSmart promoters diverted loan funds over Rs 260 cr

India's markets regulator Securities and Exchange Board of India (SEBI) on Tuesday barred Gensol Engineering's founders from holding key positions in the company after allegedly defaulting on debt repayment related to electric vehicle purchases for ride-hailing startup BluSmart.

In an interim order, the Securities and Exchange Board of India (SEBI) also restrained Gensol's founders, Anmol Singh Jaggi and Puneet Singh Jaggi, from participating in the securities market until further orders.

Here is everything you need to know about the case.

What did SEBI say?

SEBI has revealed in its interim order that Gensol Engineering's promoters treated the listed company as a proprietary firm, diverting corporate funds to buy a high-end apartment in The Camellias, DLF Gurgaon, splurging on a luxury golf set, paying off credit cards, and transferring money to close relatives.

At the core of Sebi's findings is an alarming pattern of fund diversion by Anmol Singh Jaggi and Puneet Singh Jaggi pointing to governance failures within the company.

Misutilisation of term loans

According to SEBI, the company secured a total of Rs 977.75 crore in loans, of which Rs 663.89 crore was meant specifically for the purchase of 6,400 electric vehicles (EVs). EVs were procured by the company and subsequently leased to BluSmart, a related party.

However, in a response submitted to Sebi in February, Gensol admitted that it had procured only 4,704 EVs till date -- far less than 6,400 for which it had received funding. This was corroborated by Go-Auto Private Limited, the EV supplier, which confirmed delivering 4,704 units to the company for a total consideration of Rs 567.73 crore.

Given that Gensol was also required to provide an additional 20 per cent equity contribution, the total expected outlay for the EVs was around Rs 829.86 crore. By that calculation, Rs 262.13 crore remains unaccounted for.

Jaggi brothers used the company as 'personal piggy bank'

To trace the end-use of the funds, SEBI analysed bank statements of both Gensol and Go-Auto. The regulator found that in many instances, funds transferred to Go-Auto ostensibly for EV purchases were routed back to Gensol or to entities linked to Anmol and Puneet either directly or indirectly.

Sebi's analysis revealed that some of these funds were used for purposes entirely unrelated to the sanctioned loans. These included personal expenses of the promoters, such as the purchase of a luxury apartment, transfers to relatives, and investments benefiting private entities owned by the promoters.

One of the revelations by SEBI was the use of Rs 42.94 crore, routed through Anmol Singh Jaggi's Capbridge Ventures, to finance a luxury apartment in DLF Camellias. Additionally, Rs 50 lakh was allegedly invested in Ashneer Grover's startup Third Unicorn, with other funds covering personal travel and leisure.

The financial trail continues with Rs 6.20 crore allegedly diverted to Anmol's mother, Jasminder Kaur, while his wife, Mugdha Kaur Jaggi, received Rs 2.98 crore. Further, extravagant personal spending included Rs 26 lakh on a golf set and Rs 3 lakh spent through MakeMyTrip for travel.

Further, analysis of the bank statements of Puneet prima facie also revealed that funds were transferred to other related parties, family members or utilised as personal expenses.

Puneet diverted Rs 1.13 crore to his spouse Shalmali Kaur Jaggi, Rs 87.52 lakh to his mother and funds were also used for credit card payments.

SEBI noted that the promoters were running the company like their personal piggy bank, routing funds to related parties and spending without regard for shareholder interest.

How did the order affect BluSmart?

Several passengers across Delhi-NCR, Bangalore and Mumbai were unable to book cabs through ride hailing app BluSmart on Wednesday.

BluSmart, co-founded by Anmol Singh Jaggi, who is also the promoter of Gensol Engineering, provides electric car services in Delhi-NCR, Bangalore and Mumbai.

Multiple attempts to book BluSmart rides have failed since the evening, according to various customers.

Shares of Gensol Engineering also tumbled 5 per cent to hit the lower circuit limit on Wednesday.

The stock dropped 4.99 per cent to Rs 123.65 -- the lower circuit limit -- on the BSE.

On the NSE, shares of the firm tanked 5 per cent to Rs 122.68 -- the lowest trading permissible limit for the day.

Further probe and Gensol's reaction

Gensol Engineering on Wednesday said the company will fully cooperate with the forensic audit to be conducted at the behest of the Securities and Exchange Board of India (Sebi).

As directed in the interim order, Sebi will appoint a forensic auditor to thoroughly examine the books of accounts of the company and its related entities, Gensol Engineering said in an exchange filing.

"Gensol will fully cooperate with the forensic audit to be conducted at the behest of Sebi," it added.

The company further said that complying with Sebi's directions in the interim order, Anmol Singh Jaggi and Puneet Singh Jaggi (promoters of the company) have restrained from holding the position of a director or a Key Managerial Personnel in Gensol until further orders.

They are no longer participating in the management of the company as per Sebi's instructions, effective immediately.

(With inputs from agencies)