SFIO to probe fund diversion at CG Power

Mumbai: The government has ordered a probe by the Serious Fraud Investigation Office (SFIO) into the affairs of CG Power and Industrial Solutions and its associate entities after the regional director (RD) (western region) submitted a report to the MCA concluding to have allegedly found certain instances of alleged ‘related party’ transactions and 'suspected funds diversion' which requires a thorough probe by the SFIO, people in the know told ET.
Sources said that the RD’s probe has also mentioned that the statements given by ousted chairman Gautam Thapar and chief financial officer VR Venkatesh were ‘not satisfactory’.

“The probe had found certain instances of funds being transferred to the promoter's company. When Thapar was confronted with the same, he refused to give satisfactory replies,” added one of the officials cited above. There was no response from Thapar or the company to a query on this matter from ET.

According to source the MCA probe has indicated a suspicious diversion of over Rs 2,000 crore by certain erstwhile directors and key managerial executives. “Funds have been transferred to related and connected entities like Ballarpur International, Mirabelle, Solaris and few others without the board’s approval.

Even the company was kept in the dark when these transactions were carried out under the knoweldge of a few selected executives,” added the official.

Sources close to the development told ET that the company's board has already mandated a more in-depth forensic investigation of these transactions.

The company’s board has taken control of the management and removed Thapar and Venkatesh from their respective positions for their alleged role in financial fraud; chief executive officer KN Neelkant has resigned. CG has appointed Ashish Kumar Guha as chairman of the board of directors, and set up a Special Situation Committee (SSC) to resolve the issues faced by the company.

As on March-end, CG had a total domestic debt of Rs 2,349 crore, international debt of Rs 1,215 crore, and another Rs 463 crore contingent debt due to review process. While CG is in talks with banks to restructure the term debt, the company is in dire need of working capital. In the current environment, as Indian lenders deal with huge stressed assets, they are unlikely to restructure the debt of a company where the promoter has come under the scanner. The investors too have asked for a change of promoter and management; while the management changes are underway, the company plans to approach Sebi for a change in promoter. The troubled MNC now plans to raise about Rs 800 crore through an equity issue to tackle the liquidity crisis that it is facing.

Institutional investors, including Yes Bank and KKR, now own more than 51% in the company.