CG Power case: SEBI bans Gautam Thapar, 3 others from capital markets for fund diversion; orders forensic audit

New Delhi: Market regulator SEBI on Tuesday barred CG Power and Industrial Solution’s ex-chairman Gautam Thapar and three other former officials from capital markets for ‘serious’ misstatement of accounts as well as diversion of funds, and ordered forensic audit of the company. Besides Thapar, the other officials facing ban are CG Power’s ex-CFO V R Venkatesh and former directors — Madhav Acharya and B Hariharan. Also, the regulator has asked the BSE to appoint an independent auditor for conducting a detailed forensic audit of the books of accounts of CG Power from the financial year 2015–16 onwards till date to verify wrongful diversion of the company’s funds, misrepresentation of financials and manipulation of books of accounts. The independent auditor has been asked to submit a report to Securities and Exchange Board of India (SEBI) within six months. [caption id=“attachment_4056979” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] The order comes after SEBI, suo moto, had taken note of certain news articles published last month in relation to suspected ‘fraud’ at CG Power. The regulator conducted an investigation to ascertain whether there were any violations of the provisions of securities laws by the company and its directors or promoters, during the period 2016–2019. SEBI prima facie noted that the chairman along with certain directors, employees of CG Power and related entities, had perpetrated certain irregularities. 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 due authorisation from the board of CG Power. They allegedly routed transactions through subsidiaries, promoter-affiliated companies and other connected parties for ultimate benefit of companies related to promoter Group. Further, they allegedly used different accounting heads for concealing payments made by CG Power, allegedly facilitated interest-free advances to promoter-affiliated companies and allegedly entered into dubious transactions for reducing the liability of the promoter-affiliated firms towards CG Power/ Group companies. SEBI said the transactions are prima facie “designed to divert/siphon off money from the listed company, which rightfully belongs to its shareholders”. “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,” Sebi said in its 32-page order. Further, the regulator noted that the funds diverted from CG Power were fraudulently transferred to its promoter company — Avantha Holdings and entities related/connected with the company — Avantha International, Acton, Ballarpur International, Mirabelle and Solaris, without the knowledge of the firm and without any approval from its board. These entities received a total of Rs 1,223.80 crore and are prima facie liable for the manipulation in respect of the financials of CG Power. Accordingly, SEBI has restrained Thapar, Venkatesh, Acharya and Hariharan “from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities in any manner whatsoever, either directly or indirectly, till further orders”. Also, they have been restrained from being associated with any intermediary registered with Sebi or any listed entity till further orders. Further, the regulator has directed CG Power to take all necessary steps to recover the amounts due to the company. Avantha Holdings, Acton Global and Solaris Industrial Chemicals have been directed to retain funds/other assets to the extent of receivables shown as outstanding to CG Power. CG Power’s board, last month, had sacked Thapar as its chairman after an investigation unearthed a multi-crore financial scam in the firm.