Shares of CG Power and Industrial Solutions fell nearly 5% intraday on Wednesday after SEBI barred former chairman, including 3 other former officials from capital markets for 'serious' misstatement of accounts as well as the diversion of funds, and ordered a forensic audit of the company.
Earlier, CG Power opened in the green, up 4.2% at Rs 16.35, against the previous closing price of Rs 15.69. The heavy electrical equipment sector stock of face value of Rs 2, however, fell 4.97% to the day's low of Rs 14.91 on BSE.
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.
Securities and Exchange Board of India (Sebi), 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.
As per the filing, they allegedly routed transactions through subsidiaries, promoter-affiliated companies and other connected parties for the 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.
The order by the market regulator read, "Gautam Thapar, V.R.Venkatesh, Madhav Acharya and B. Hariharanare 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".
"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," quoted G Mahalingam, whole-time member, Sebi.
SEBI stated that a more detailed forensic audit could bring out the "complete picture and the extent of the misappropriation". "At this stage, it is necessary to adopt some urgent measures to safeguard the interests of shareholders of CG Power and protect the integrity of the securities market, by securing any further erosion of the fundamentals of the listed company."
Additionally, SEBI has directed the BSE to appoint an independent auditor for conducting a detailed forensic audit of the books of accounts of CG Power from the 2015-16 onwards, in order 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 Sebi within six months.
As of 13:05 IST, the shares of CG Power was trading at Rs 15.59, down 0.89% on BSE.
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