Gautam Thapar, the ousted chairman of CG Power and Industrial Solutions Ltd, has accused the company’s board of making selective disclosures to regulators with regard to instances of alleged financial irregularities.
In a legal notice served to the company on 10 September , which was reviewed by Mint, Thapar has sought from the board minutes and video recordings of meetings and emails between senior management and board members alleging misrepresentation of facts led by the company’s current management which is backed by CG Power’s investors and lenders including private equity giant KKR.
Emailed queries to CG Power and KKR remained unanswered until press time on Thursday.
Thapar was removed from CG Power’s chairmanship on 30 August after CG Power informed the stock exchanges on 20 August, it was in the midst of restating its earnings after discovering suspected fraudulent transactions.
CG Power, in exchange filings, had maintained that the total liabilities of the company and the group may have been understated by approximately ₹1,053.54 crore and ₹1,608.17 crore, respectively, as on 31 March 2018. The alleged irregularities are currently being looked into by the ministry of corporate affairs and the Securities and Exchange Board of India (Sebi).
In the legal notice, Thapar has specifically sought the minutes of meetings of the Nomination and Remuneration Committee and the Risk and Audit Committee (RAC), starting from financial year 2016 to date. Alongside, he has asked for copies of all correspondence between the operating personnel (including managing director and CEO and the RAC). In addition, Thapar, through his legal counsel, has also asked the company’s board to not initiate restatement of accounts in the NCLT without a prior 48 hours notice.
Lenders earlier this year invoked shares of CG Power’s promoter entities. On 30 June, the promoters did not own any stake in the company, as their entire pledged holding was invoked by various lenders. In May, private sector lender Yes Bank invoked certain pledges and holds a 12.79% stake in CG Power as of 30 June. Other major shareholders include HDFC Mutual Fund, Aditya Birla Sunlife, Franklin Templeton and Life Insurance Corp of India. In March, private equity firm KKR started proceedings to convert its loans into equity after the Thapar family defaulted on debt repayments, thus edging out control by the Thapar family. According to an Economic Times report dated 15 March, KKR, post-conversion, owned 10.8% in the firm.
The Thapar family held about 34.42% in CG Power till KKR’s conversion. According to the Economic Times report, the creditors had also asked the board of CG Power to remove B. Hariharan, director and group chief financial officer of Avantha Group as a promoter-nominee and appointed Narayan Seshadri, chairman and CEO of Tranzmute Capital & Management as an independent director.
Under Seshadri, the board has also formed an empowered operating sub-committee to drive operational governance in the company. The committee among other things also authorised the independent audit of the company’s books which unearthed the alleged fraud.
Incidentally, in May last year, KKR India Financial Services and Seshadri’s Tranzmute Capital announced the formation of a partnership to provide business management and transformation services to latent but high-potential businesses in India in addition to restructuring and turnaround services to stressed firms.
However, a person close to KKR said that Seshadri’s involvement with KKR was disclosed to the CG Power board in advance and therefore there was no conflict of interest on KKRs or Seshadri’s part with respect to the latter’s fiduciary responsibilities as an independent board member.
Mint had reported in October 2016 that KKR India head Sanjay Nayar and Narayan Seshadri along with another partner had joined hands to start a non-banking financial company (NBFC) named Epimoney Pvt. Ltd. As on 8 August, Nayar was a director in Epimoney in his personal capacity.