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Securities and Exchange Board of India (SEBI) building (Mint)
Securities and Exchange Board of India (SEBI) building (Mint)

Sebi notices to CG Power over diversion of funds

While the company has sought permission from the market regulator to share the report with statutory auditor, it has also initiated recovery from former directors and KMPs to the tune of 3,200 crore

MUMBAI : The Securities and Exchange Board of India (Sebi) has sent notices to CG Power and Industrial Solutions Ltd after a forensic audit confirmed that funds were diverted from the company. The forensic audit commissioned by BSE was given to the company for comments on 4 September, the company said in a stock exchange filing on Tuesday.

“According to notices sent by Sebi, certain directors, employees of CG Power and related entities had perpetrated financial irregularities in the company. These include use of certain assets of the company as collateral, including being co-borrower and/or guarantor, for enabling third parties to obtain loans without authorization," said a person familiar with the matter.

The resolution of these allegations is important for the company as its current liabilities exceeded its current assets by 2,798.98 crore, as of 30 June. The company is in the process of implementing a debt resolution plan and entered into a securities subscription agreement with Murugappa Group company Tube Investments India Ltd for an infusion of 800 crore into CG Power.

Sebi in September 2019 had passed an interim order against certain officials of the promoter group and directors of CG Power, including former chairman Gautam Thapar, former chief financial officer V.R. Venkatesh and former directors Madhav Acharya and B. Hariharan. Sebi had held that certain transactions are prima facie “designed to divert/siphon off money from CG Power, which rightly fully belonged to its shareholders".

Thapar and the three other officials have been refuting these allegations as they say that Sebi’s interim actions were based on a biased report commissioned by the company.

In March 2020, Sebi passed a confirmatory order refusing to lift the capital market ban imposed on Thapar and the three others but allowed them to liquidate up to 25% of the value of securities held by them in the company.

“Pursuant to the interim order of Sebi, BSE had appointed a forensic auditor to verify the books of accounts, wrongful diversion/siphoning of company’s funds and other related matters for period 2015-16 till the date of the interim order. The forensic auditor completed its audit and has submitted its report to Sebi. The company has received the copy of the report from Sebi on 4 September 2020," said CG Power in the exchange filing.

“The company has also received follow up notices from Sebi in relation to investigation initiated by them and the company has provided the required information," it said.

The statutory auditor of CG Power, SRBC and Co. Llp, in its report for June quarter earnings said that it is unable to determine the potential impact of non-compliance with laws. The so-called fund diversion is being probed by Sebi, the Serious Fraud and Investigation Office and the Enforcement Directorate. The income tax department has also issued notices and is seeking explanations from the company.

“CG Power is also seeking permission from Sebi to share the report with statutory auditor," it said.

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