The major financial irregularities and governance lapses that took place under CG Power and Industrial Solutions (CG) may have led the company to lose as much as Rs 3,000 crore, as per a report by The Economic Times that cited an investigation carried out by a law firm.
These irregularities included internal or third-party financial transfers that were made to the parent company Avantha Holdings, sources to the daily added. In a probe mandated by the company and carried by Vaish Associates, the law firm has found at least nine transactions which are unapproved by the board or were carried out despite lapses in due procedure.
For instance, CG Power's land in Nashik was bought by a Blue Garden Estate Private in 2016. The inflow of Rs 200 crore from the purchase was transferred to Avantha Holdings (AHL) and a company called ACTON, with the former getting Rs 145 crore. The investigation cited in the report pointed out that Blue Garden and ACTON were shell companies with both being incorporated in March 2016 and registered on the same address.
CG also sold land in Mumbai to Blue Garden in 2017 for Rs 190 crore without receiving approval from the Board of Directors or its risk and audit committee (RAC). The proceeds again went to ACTON with two CG employees receiving Rs 5.85 crore and Rs 1 crore respectively.
These irregularities started coming to light after an ‘operations committee’ (OC) initiated a probe soon after a cheque issued by CG in favour of its stakeholder Yes Bank bounced. Avantha Holdings (AHL) had drawn a Rs 500 crore-loan from Yes Bank with post-dated cheques issued as part of the repayment schedule. Since the issue of the cheque was not approved by the board or RAC, the board refused to provide a fresh one citing lack of knowledge of the transaction.
Also read: CG Power board sacks Gautam Thapar as its chairman with immediate effect
Yes Bank issued notices under the ‘Negotiable Instruments Act’ against the company, the signatories, financial officers and the board. Sources to the daily confirmed that other such transactions were carried without due processes and were not appropriately recorded in the company's financial statements.
The RAC has mandated Vaish Associates to assist in the legal investigation while Deloitte is looking at the accounting irregularities.
In response to detailed enquiries sent out to CG Power, Gautam Thapar, and B Hariharan, group director (finance) at Avantha Group, only Hariharan responded by calling the report issued by the law firm as inconclusive. He also said that all transactions were, to the best of his knowledge, proper and with prerequisite approvals.
The report explained how the company even used its overseas arms to divert money. One such example is how the CG's Singapore arm took a loan facility of $44 million in 2017 and diverted it as an interest-free loan to Avantha International, which was a private investment arm of group’s promoter Gautam Thapar.
The report stated that this transaction was unapproved by the board and not permitted under the facility document. Moreover, many payments to these international arms were not supported by documentary evidence.
The report also noted of CG Middle East having made advances to vendors for jobs they were not qualified to take up.
Soon after the revelation of financial irregularities within the company, the Securities and Exchange Board of India had stepped in and ordered a probe into the company's books, while The Ministry of Corporate Affairs summoned the key executives in the company. Promoter Gautam Thapar had to step down as the chairman with the chief financial officer and the chief executive officer was sent on leave.
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