CG Power financial fraud: A tale of 4 entities, 2 deals & high-value loans

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The forensic team that CG Power and Industrial Solutions (CG Power) plans to appoint will have to wade through a maze of dubious transactions. 

At the centre of these transactions are a handful of companies, two real estate deals and multiple high-value loans and advances.

CG Power had on Tuesday informed the exchanges of a Risk and Audit Committee (RAC) report which detailed multiple dubious transactions at the company. The report indicated it to be an employee-led fraud.

The report refers several times to four companies, of which two are related to the Gautam Thapar’s Avantha group — Avantha Holdings (AHL) and Solaris Industrial Chemicals (SICL). 

The other two are Acton Global (AGPL) and Blue Garden Estates (BGEPL). The report said shares of both BGEPL and AGPL were held by certain employees, who had not declared ownership.

In October 2015, an agreement was entered into on behalf of the company for sale of freehold land to Evie Real Estates at Kanjurmarg. 

“The consideration for sale of such plot for Rs 498 crore was payable in two tranches with an initial consideration of Rs 11 crore payable immediately,” said the RAC report. “Apart from the initial consideration of Rs 11 crore, no further consideration was received by CG Power,” it said. This indicates that full payment was not received and the deal could not be completed.

However, according to the report, certain employees on behalf of CG Power entered into a second sale memorandum of understanding (MoU) for the same plot with BGEPL in February 2017, in the event of the first deal failing. 

The MoU made Rs 190 crore payable as part of the sale proceeds before registration of the deed, and attracted a 15 per cent interest payable on the amount until completion or termination of the deal. The company did not disclose the agreement in its financial results. The Rs 190 crore received from BGEPL was given as advance to AGPL without any loan agreement. Moreover, CG Power continued to pay BGEPL the 15 per cent interest disguised as professional fees, exchange losses and supplier advances.

It is not clear if any of the earlier mentioned agreements for the Kanjurmarg plot were completed.  In June, CG Power, however, said, “The board approved entering into a conveyance agreement for sale of the remaining portion of company’s land situated in Kanjurmarg, Mumbai, currently housing the transformer manufacturing unit and measuring approximately 13 acres, to Evie Real Estate.” The value for this deal is Rs 498.96 crore.

The entity named BGEPL shows up once again in the RAC report in relation to another land transaction in Nashik. In May 2016, leasehold land along with a factory building was assigned to BGEPL for Rs 264 crore. The deal was not disclosed in the company’s financial results. Certain identified employees, according to the report, also made CG Power a co-borrower for a loan availed by BGEPL in February 2017.

CG Power, in its Tuesday’s statement, said it will initiate the process of recovering dues from AGPL. BGEPL is a subsidiary for AGPL. The report also highlights irregularities involving royalty payments from CG Power to AHL. According to the report, certain identified employees, on behalf of the company, entered into an assignment-cum-put agreement between AHL, Solaris Industrial Chemicals and a bank in September 2018. 

“Under this, the royalty payable by the company to AHL was assigned to the bank,” the report said. However, at this point in time, an amount of Rs 78.25 crore was already paid as advance to AHL by the company against royalty. CG Power paid royalty to AHL for use of the Avantha brand name.

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