The Securities and Exchange Board of India (Sebi) passed an interim order on Tuesday barring Gautam Thapar, the former chairman of CG Power and Industrial Solutions, as well as the company's Chief Financial Officer V.R. Venkatesh and two former directors from the securities market. This development comes on the heels of the multi-crore financial fraud unearthed in CG Power during a board-instituted investigation.
"Gautam Thapar, V. R. Venkatesh, Madhav Acharya and B. Hariharan are restrained 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," read the order signed by SEBI whole-time member G. Mahalingam. The noticees are also "restrained from being associated with any intermediary registered with SEBI or any listed entity or its material unlisted subsidiary".
The regulator further directed CG Power to take all necessary steps to recover the amounts due to the company and take necessary action to safeguard shareholders' interest. "BSE [Bombay Stock Exchange] shall appoint an independent Auditor/Audit Firm for conducting a detailed forensic audit of the books of accounts of CG Power from the Financial Year 2015-16 onwards till date," the order added. This audit report has to be handed over to SEBI within six months, that is before March 17.
In an exchange filing last month, CG Power had stated that an investigation instituted by its board had found major governance and financial lapses, including that some liabilities and advances to related and unrelated parties had been understated. CG Power's board then ousted Thapar on August 29, and subsequently sacked Venkatesh over alleged "misconduct" and breach of trust. In the wake of the scam, CG Power's financial damage is estimated to exceed Rs 3,000 crore.
The regulator noted that, prima facie, Thapar along with the other noticees had perpetrated several irregularities, ranging from using CG Power's assets as collateral to help third parties bag loans without due authorisation from the board of directors to "inappropriate netting-off the liabilities with the receivables from different entities". Futhermore, they allegedly used different accounting heads to conceal payments made by CG Power and entered into dubious transactions aimed at reducing the liability of the promoter-affiliated companies towards CG Power.
Based on the preliminary investigation report prepared by Vaish Associates, SEBI also put the spotlight on the alleged role played by Avantha Holdings Limited, the holding company of CG Power, as well as a few entities related or connected with the company - Avantha International, Acton Global Private Limited, Ballarpur International, Mirabelle Trading Pte. Limited, and Solaris Industrial Chemicals Limited in the suspected irregularities.
The order noted that the funds diverted from CG Power were "fraudulently transferred to its Promoter Company i.e. Avantha Holdings and entities related/connected with the Company", without its knowledge and without any approval from its Board. The fraudulent transfer of funds amount to over Rs 1,223 crore and are "prima facie liable for the manipulation" in respect of the financials of CG Power.
Hence, SEBI has directed Avantha Holdings Limited, Acton and Solaris to retain funds/other assets to the extent of receivables shown as outstanding to CG Power. To the extent of their liability, these noticees are restrained from disposing, selling or alienating their assets or diverting funds till further orders.
According to Mahalingam, 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," he added. The noticees have been asked to file their replies to SEBI within 21 days.