MCA moves NCLT against former management of CG Power

The Ministry of Corporate Affairs (MCA) has approached the Mumbai bench of the National Company Law Tribunal (NCLT) against the erstwhile management Avantha Group-owned CG Power & Industrial Solutions seeking its intervention to recover the money that “the erstwhile management had allegedly collected and seeking to distribute it to the victim of fraud”. Power equipment major CG Power did not comment. Gautam Thapar former CG chairman too did not respond to a mail from ET.

In 2019, the board of CG Power & Industrial Solutions had to restate its earnings after finding suspected fraudulent transactions by its chairman and few confidantes had removed its chairman Gautam Thapar alleging misappropriation of funds. Thapar refuted the allegations and claimed he had repaid Rs 4,000 crore to many lenders since 2015.

MCA has also sought the tribunal’s intervention to direct all the respondents, including ousted chairman Gautam Thapar to disclose their movable and immovable assets and also restraining the respondents from selling, alienating or creating any third-party rights into their assets until final order. The MCA has also sought the appointment of its two nominee directors on the board of the company.

The ministry has named former management and key managerial persons, including Gautam Thapar, VR Venkatesh, Madhav Acharya, B Hariharan, Atul Gulatee, Nagendra Sayyaparaju, Abhishek Kabra, Sudhir Mathur and Shikha Kapadia in its petition as respondents and has sought tribunal’s intervention to declare them ‘not fit and proper’ persons to hold the office of director or any other office connected with the conduct and management of any firm.

Earlier, a forensic report did also stated that the board of CG Power and banks were aware of the fund diversion. To save its own credit limits from being frozen, the RAC (research and advisory committee) and the board of CG Power not only regularised the already given loan of Rs 530 crore to Avantha Group entities, but also gave approval for additional lending of up to Rs 1,000 crore.”

“Under the reign of respondent No 2 (Thapar) as the chairman of the board of directors of CG Powers and as director of its various group companies, respondent No 3 to 8 and 24 (collectively erstwhile officers), among others, were appointed as directors and/or key managerial personnel and/or officers in the various companies in Avantha Group and CG Group,” said the 169-page petition. “These appointments were designed with a view to exercise close control over and manipulating the machinery of CG Group so as to enable respondent No 2 to systematically and surreptitiously orchestrate siphoning of funds from CG Group.”

Apart from erstwhile directors and key managerial persons, the ministry has also made certain firms as respondents in the case, including Avantha Holdings, Action Global, Blue Garden Estate, BILT Graphics Paper Products and Solaris Industrial Chemicals among others.

Lenders to CG Power had agreed to a one-time loan restructuring which paved the way for Murugappa Group to take over the capital goods maker. CG Power had total debt of Rs 2,161 crore, out of which a consortium of 14 banks has taken a haircut of Rs 1,100 crore and restructured the remaining. The petition is filed by MP Shah, regional director for the western region at the Ministry of Corporate Affairs.

According to Priyanka Sinha, co-founder of law firm A&P Partners, the present petition filed by the MCA is surrounding facts that show a classic case of the ‘Doctrine of Lifting of the Corporate Veil’, wherein the tribunal will need to pierce the corporate veil to determine the true form and character of the company.

“The tribunal will have to determine the actual beneficiaries of the so-called fraud, to hold them accountable under the provisions of the Companies Act and penalise such officers, if found guilty,” said Sinha.