Sebi audit of CG Power points to collusion between company’s lenders and promoters2 min read . Updated: 15 Sep 2020, 07:22 AM IST
The audit noted that a large NBFC and 3 pvt banks knew of funds being siphoned off.
A forensic audit of CG Power and Industrials Solutions conducted by the Securities and Exchange Board of India (Sebi) has pointed to manipulations in the company’s books of accounts and a wider collusion between some of its lenders and the erstwhile management led by former chairman Gautam Thapar.
In an exchange filing on 8 September, CG Power informed the stock exchanges about the forensic audit but did not divulge details. The company also said that it had received a copy of the report from the market regulator on 4 September. In bulk of the problematic transactions, lenders to CG Power were aware of the lapses, according to the report by MSA Probe Consulting Pvt. Ltd, a copy of which was reviewed by Mint. Auditors and company officials, including the legal head and former managing director and chief executive as well as former board members were aware of the transactions, the report said.
Sebi had in September 2019 passed an interim order against certain officials of the erstwhile promoter group and directors of CG Power, including Thapar. Nine transactions were prima facie “designed to divert/siphon off" money from CG Power, Sebi held in the order. The total amount of fund diversion is to the tune of ₹3,000 crore. An email sent to CG Power on the main findings of the audit was not answered till press time. An email sent to the office of Thapar was also not answered.
The forensic audit noted that a large non-bank and three private banks were aware of funds being allegedly siphoned off from the firm through related-party transactions.
“It is clear that Blue Garden and Acton Global (both related entities) were created under the mutually decided transaction structure with the NBFC and their sole purpose as SPVs (special purpose vehicle) was to give effect to the proposed loan transaction," said MSA in the forensic audit.
The audit also names a private bank that had issued a long-term loan facility of ₹500 crore to Avantha Holdings Ltd (AHL), a promoter entity of CG Power. Post-dated cheques were issued for and on behalf of CG Power to the bank towards a loan of ₹500 crore commencing from May 2016. There was regular replacement after every three months with fresh cheques. “On one hand, the cheque replacement over the period was a regular affair and was in everybody’s knowledge. However, once the chain broke it, became an issue, which was also taken up by the board, which treated it as security given for the loan availed by AHL," said MSA in the forensic audit. In addition to lenders, forensic audit has also raised concerns on the conduct of the company’s statutory auditor, which seemingly turned a blind eye to instances of gross violations.