Mumbai: The markets regulator on Tuesday barred Gautam Thapar, former chairman of CG Power and Industrial Solutions Ltd, and three former officials of the company from the securities market, after a preliminary probe found them guilty of various irregularities.
The Securities and Exchange Board of India (Sebi) also asked BSE to appoint an independent auditor to conduct a forensic audit of the books of CG Power beginning 2015-16 and report in six months.
In its late evening order, Sebi said Thapar, former chief financial officer V.R. Venkatesh, former director of finance Madhav Acharya and former director B. Hariharan were found to be prima facie guilty of misusing the company’s assets to facilitate loans for certain third parties; round-tripping of funds; concealing payment details; and unfairly extending interest-free loans to promoter group entities.
These actions were designed to siphon off the company’s money and led to losses for its shareholders, amounting to a fraud on public investors, Sebi said.
The preliminary probe indicated a “serious misstatement of accounts and diversion of funds" from CG Power and its subsidiaries, the 32-page order by Sebi whole-time member G. Mahalingam said.
The four individuals used CG Power’s assets as collateral to help third parties obtain loans without authorization from the board, the order said. It said these individuals used different accounting heads to conceal payments made by CG Power, and entered into dubious transactions for reducing the liability of the promoter-affiliated companies towards CG Power.
Thapar group firms Avantha Holdings Ltd, Acton Global Pvt. Ltd and Solaris Industrial Chemicals Ltd were also directed by Sebi to retain funds and assets worth ₹2,185.93 crore to repay outstanding liabilities to CG Power.
On 20 August, the board of CG Power said the company will restate accounts after discovering “significant accounting irregularities" and governance lapses, sending its shares plunging by the maximum daily limit of 20%.
Thapar and Venkatesh were removed as CG Power directors on 30 August. The company’s board is considering selling non-core assets and exploring various fundraising avenues to deleverage the company and optimize its operations.
Sebi also directed CG Power to recover the money extended to the four individuals or to other Thapar group firms.
“The aforesaid transactions are prima facie designed to divert/siphon off money from the listed company... Some of the outgoing fund transfers do not appear to be supported by any comprehensible underlying transactions raising doubts on the bona fides and leaving gaps between various transactions. These acts on the part of the noticees have resulted in the shareholders of CG Power losing the value of their shareholding which amounts to a ‘fraud’ on its public investors," said the order.
CG Power shares fell from a high of ₹92.75 at the start of January 2018 to ₹8.65 on 26 August.
In his reply, Thapar denied the findings of the preliminary probe, arguing the report is not accurate and does not consider the fact that the transactions were authorized by the risk and audit committee of the firm and the board.
The liabilities of CG Power and the group may have been understated by thousands of crores of rupees in FY17 and FY18, the report said.