The list of shenanigans at CG Power and Industrial Solutions, the beleaguered power systems maker, is mind-boggling.
The internal investigation launched by the board had unearthed several multi-crore transactions that point towards alleged fund diversion, mismanagement, unauthorised advances and corporate guarantees to promoter affiliate companies and connected parties.
The company, which had restated its FY18 numbers, saw its consolidated receivables balances from various subsidiaries, promoter affiliate companies and connected parties jump from Rs 131 crore to Rs 2,657 crore. Advances to related and unrelated parties of the company may have been potentially understated by Rs 1,990.36 crore, as on March 31, 2018.
The company in its investor presentation listed 24 discrepancies or fraudulent transactions. These include two instances of sale of company properties in Nashik (Rs 200 crore ) and Kanjurmarg (Rs 190 crore). Both the transactions, which include flow of funds between the company and 'connected/related party,' are now under scrutiny.
Both the transactions were not approved by the board.
It is still not clear whether these connected parties have any relation to the promoter or top officials of the company.
The investigation also revealed the company had sanctioned a credit facility to the promoter group on back of post-dated cheques and comfort letter, without board’s knowledge. This disclosed contingent liability is said to be worth Rs 392 crore.
There were also cases of foreign borrowing worth $90 million at the subsidiary level in Singapore and Middle East were diverted and used for unauthorised purposes.
There were also cases of advances made to related parties to set up businesses and suppliers with no expertise, overseas payments to vendors and customers were routed through related parties, inappropriate recording of sales, offsetting receivables and liabilities have also come to light.
There was also Rs 519 crore write-off of receivables from promoter, promoter affiliate company and third parties, without sufficient documentation explaining the nature and purpose of these advances.
The company said it is taking a detailed review to assess the recoverability from related parties and the resultant net worth impact.
In addition it also said that it is trying to facilitate early completion of Phase 2 of forensic investigation to establish accountability and the end use of funds diverted.
Meanwhile, the management said they were trying streamline businesses, addressing liquidity challenges and monetise non-core assets to deleverage balance sheet.
Chairman sacked
The board has sacked Gautam Thapar, Chairman and promoter of CG Power, with immediate effect.
"In cognizance of the current situation being faced by the company and the recent developments, including disclosures dated August 19, 2019 made by the company, the Board of Directors…, passed by majority consent, have resolved to remove Gautam Thapar as the Chairman of the Board with immediate effect," CG Power said in a regulatory filing.
"This decision has been taken in the interests of the company and its stakeholders in discharge of the fiduciary responsibilities of the board," it added.
Thapar denied the allegations of misappropriation of funds.
"In the interests of all stake holders, including banks and financial institutions, I must say that NO FUNDS lent by banks nor any funds of CG have been misappropriated. The money has been applied with due Board approval. All inter-corporate transactions have been fully authorised by the Board," Thapar said.
"No promoter or promoter entity has derived any undue benefit. There is simply no fraud. Promoters who have paid back Rs 4,000 crore to lenders since 2015 do not cheat.I had no opportunity to participate in the ‘investigation’ nor the resulting 'report'. I leave it to the stakeholders to draw their own conclusions from this fact. I will reaffirm this at the Board meeting tomorrow, August 30, 2019," he said.
It was also reported that Ministry of Corporate Affairs and the market regulator SEBI have also took note of the case.
According to shareholding pattern as of June 2019, the promoter Avantha group helmed by Thapar has only 8,574 shares out of 62.6 crore shares of the company, representing almost zero percent stake. Vistra ITCL India is the largest shareholder with 21.63 percent stake, Yes Bank holds 12.79 percent, HDFC Trustee Company 9.18 percent, Aditya Birla Mutual Fund 8.94 percent, and Bharti (SBM) Holdings 8.30 percent.
Vistra ITCL is front of US private equity firm KKR.
Thapar lost almost all of his shares after lenders, invoked shares pledged by hims to borrow money.
For time being the board focus would be on cleaning up the balance sheet and normalise operations, before it could seek a strategic investor.
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