Sensors are the foundational components of any smart machine system and are invaluable in all modern technologies. Consequently, faults and errors in sensors can have a significant negative impact on the setup. Intelligent, lightweight, and accurate fault diagnosis and mitigation lie at the crux of modern industries. This study aimed to conceptualize a germane solution in the domain of fault detection, focusing on Hall-effect rotary encoders. Position monitoring through rotary encoders is essential to the safety and seamless functioning of industrial equipment such as lifts and hoists, and commercial systems such as automobiles. This work used multi-strategy learners to accurately diagnose quadrature and offset faults in Hall-effect rotary encoders. The obtained dataset was then run through a lightweight ensemble classifier to train a robust fault detection model. The complete mechanism was simulated through interconnected models simulated in a MATLAB Simulink™ environment. In real time, the developed fault detection algorithm was embedded in an FPGA controller and tested with a 1 kW PMSM drive system. The resulting system is computationally inexpensive and achieves an accuracy of 95.8%, making it a feasible solution for industrial implementation.